<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1996.
REGISTRATION NO. 333-4608
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OAKLEY, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
WASHINGTON 3851 95-3194947
(State or Other Jurisdiction (Primary Standard (IRS Employer
of Industrial Identification
Incorporation or Classifications Code Number)
Organization) Number)
</TABLE>
10 HOLLAND
IRVINE, CALIFORNIA 92718
(714) 951-0991
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
R. LINK NEWCOMB
OAKLEY, INC.
10 HOLLAND
IRVINE, CALIFORNIA 92718
(714) 951-0991
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
JEROME L. COBEN, ESQ. REBECCA L. PRENTICE, ESQ.
JEFFREY H. COHEN, ESQ. SHEARMAN & STERLING
SKADDEN, ARPS, SLATE, MEAGHER & FLOM 777 SOUTH FIGUEROA STREET
300 SOUTH GRAND AVENUE 34TH FLOOR
SUITE 3400 LOS ANGELES, CALIFORNIA 90017
LOS ANGELES, CALIFORNIA 90071
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
OAKLEY, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- --------- -------------------------------------------------- ----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Facing Page; Cross-Reference Sheet; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page of Prospectus; Table of
Contents; Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors; Selected Financial
Data
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds; Corporate
History and Reorganization
5. Determination of Offering Price................... Underwriting
6. Dilution.......................................... Not Applicable
7. Selling Security Holders.......................... Principal and Selling Shareholders; Management;
Certain Transactions
8. Plan of Distribution.............................. Outside Front Cover Page of Prospectus; Underwriting
9. Description of Securities to Be Registered........ Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel............ Not Applicable
11. Information with Respect to Registrant............ Prospectus Summary; The Company; Risk Factors;
Corporate History and Reorganization; Price Range
of Common Stock and Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Principal and
Selling Shareholders; Shares Eligible for Future
Sale; Description of Capital Stock; Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities...................................... Not Applicable
</TABLE>
------------------------
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus"). The U.S. Prospectus and the
International Prospectus will be identical in all respects except for the front
and back cover pages and the "Underwriting" section. The U.S. Prospectus is
included herein and is followed by those pages to be used in the International
Prospectus which differ from those in the U.S. Prospectus. Each of the pages for
the International Prospectus included herein has been labeled "Alternate Page
for International Prospectus."
If required pursuant to Rule 424(b) of the General Rules and Regulations
under the Securities Act of 1933, ten copies of each of the prospectuses in the
forms in which they are used after the Registration Statement becomes effective
will be filed with the Securities and Exchange Commission.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 5, 1996
PROSPECTUS
5,000,000 SHARES
[LOGO]
COMMON STOCK
------------------------
Of the 5,000,000 shares of Common Stock of Oakley, Inc., a Washington
corporation (the "Company" or "Oakley"), being offered hereby, 4,000,000 shares
are being offered in the United States and Canada by the U.S. Underwriters (the
"U.S. Offering") and 1,000,000 shares are being offered in a concurrent
international offering outside the United States and Canada by the International
Managers (the "International Offering," and together with the U.S. Offering, the
"Offerings"). The public offering price, the aggregate underwriting discount per
share and the respective percentages of the Common Stock to be sold are
identical for each of the Offerings. See "Underwriting."
All of the shares of Common Stock offered hereby are being sold by certain
shareholders of the Company (the "Selling Shareholders"). The Company will not
receive any of the proceeds from the sale of the shares by the Selling
Shareholders. See "Principal and Selling Shareholders."
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "OO." On June 4, 1996, the last reported sale price of the Common Stock
on the NYSE was $49 1/4 per share.
SEE "RISK FACTORS" (BEGINNING ON PAGE 6) FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
<S> <C> <C> <C>
Per Share.................... $ $ $
Total (3).................... $ $ $
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offerings payable by the Selling
Shareholders estimated to be $600,000.
(3) The Selling Shareholders have granted to the U.S. Underwriters and the
International Managers options, exercisable within 30 days after the date of
this Prospectus, to purchase up to an additional 600,000 and 150,000 shares
of Common Stock, respectively, on the same terms as set forth above, to
cover over-allotments, if any. If all such additional shares are purchased,
the total Price to Public, Underwriting Discount, and Proceeds to Selling
Shareholders will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made in New York, New York
on or about June , 1996.
------------------------
<TABLE>
<S> <C>
MERRILL LYNCH & CO. ALEX. BROWN & SONS
INCORPORATED
</TABLE>
------------------------
The date of this Prospectus is , 1996.
<PAGE>
NARRATIVE DESCRIPTION OF GRAPHICS
INSIDE FRONT AND INSIDE BACK COVER
Black and white, close-up photographs of the Company's H(2)O goggles (top
left), M FRAMES (top right), STRAIGHT JACKETS (bottom left), and ZEROES (bottom
right).
PROSPECTUS FRONT AND BACK COVER
Black and white, scientific photograph depicting magnified partial view of
the sun.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Oakley is an innovation-driven designer, manufacturer and distributor of
high-performance sunglasses and goggles. The Company's principal strength is its
ability to develop eyewear which combines unique styling with patented
technology to provide superior optical performance and comfort. As a result of
its focus on innovations for sports applications, Oakley believes it has become
the established leader in the sports segment of the sunglass market, and its
products are worn by a variety of athletes, such as skiers, cyclists, runners,
surfers, golfers, tennis and baseball players and motocross riders. In addition,
Oakley products have gained a loyal and growing following among consumers in the
larger nonsports, or recreational, segment of the sunglass market. The Company
believes it can expand its sales in the nonsports segment of the sunglass market
by continuing to introduce products that emphasize superior performance. The
Company's products currently include five lines of sunglasses (including M
FRAMES, ZEROS, WIRES and JACKETS) and three lines of goggles. As derived from
industry sources, the Company estimates that in 1994 it held an approximate 13%
market share of the $1.2 billion premium segment (over $30 retail) of the U.S.
retail sunglass market. For the year ended December 31, 1995, the Company
generated net income, on a pro forma basis as described herein, of $39.6 million
on net sales of $172.8 million. From 1992 through 1995, the Company's net sales
and net income, on a pro forma basis as described herein, have increased at
compound annual growth rates of approximately 31.3% and 33.2%, respectively.
The Company's goal is to become the premier manufacturer of high-performance
eyewear in the world. Each element of the Company's operating strategy, from
design and manufacturing to marketing and distribution, is designed to control,
protect and enhance the Oakley brand image. The Company intends to capitalize on
its brand recognition by (i) increasing its presence in the nonsports segment of
the sunglass market, (ii) expanding penetration in international markets and
(iii) introducing new products and identifying new applications for existing
products and technology within the sports segment of the sunglass market.
The key components of the Company's operating strategy are to distinguish
its products through technological and design innovation and to reinforce the
Oakley brand image through creative marketing and selective distribution. The
Company believes it has one of the most technologically advanced product
development capabilities in the sunglass industry. Using state-of-the-art
technology, including a three-dimensional CAD-CAM system and liquid laser
prototyping, Oakley has dramatically shortened its product development cycle
and, as a result, is capable of introducing a new product line within four
months of its initial concept. In addition to controlling all aspects of product
development, the Company also produces components and performs processes
in-house that contribute significantly to gross profit margin, provide
protection against piracy of the Company's proprietary information and
processes, and enable the Company to manufacture products in accordance with its
strict quality control standards. When subjected to industrial standard tests
for optical quality, as established by the American National Standards Institute
("ANSI"), Oakley's sports-application sunglasses featuring its patented polaric
ellipsoid lens geometry (including M FRAMES and ZEROS) have demonstrated
superior optical clarity as compared to similar products of its principal
competitors.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
To promote consumer awareness of its technological and design innovation,
the Company has developed an effective marketing approach that features
influential athletes and eclectic, informative advertising which combine to
enhance the Oakley image of high-performance, technologically advanced eyewear.
The Company distributes its products in the United States through approximately
7,100 carefully selected accounts comprised primarily of optical stores,
sunglass retailers and specialty sports stores. In an effort to preserve and
enhance Oakley's brand image, the Company stopped soliciting new customer
accounts in the United States, with limited exceptions, in November 1989. The
Company's current level of distribution, with the addition of key niche
retailers, is expected to be capable of accommodating expanding sales, while
maintaining the discoverability of Oakley products by consumers. This
distribution philosophy provides retailers with a degree of exclusivity for
Oakley products which has increased brand loyalty, improved retailer margins on
Oakley products and encouraged retailers to display Oakley products in prominent
shelf space and make timely payments. In addition, the Company sells its
products in over 65 countries outside the United States. In 1995, international
sales accounted for approximately 33.3% of the Company's total net sales.
Oakley, Inc. is a Washington corporation formed in March 1994 to succeed to
the assets and liabilities of Oakley, Inc., a California corporation, which
commenced operations in 1977 and began to sell sunglasses in 1984. The Company's
Interplanetary Headquarters are located at 10 Holland, Irvine, California 92718;
its telephone number is (714) 951-0991.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered hereby
(1)............................ 5,000,000 shares
Common Stock to be outstanding
before and after the
Offerings...................... 35,700,000 shares (2)
Use of proceeds................. The Company will not receive any proceeds from the
Offerings.
Listing......................... The Common Stock is listed on the NYSE under the symbol
"OO."
</TABLE>
- ------------------------
(1) Of the 5,000,000 shares of Common Stock to be sold in the Offerings,
4,000,000 shares are being offered in the United States and Canada by the
U.S. Underwriters and 1,000,000 shares are being offered in a concurrent
offering outside the United States and Canada by the International Managers.
(2) Excludes approximately 630,000 shares of Common Stock issuable upon exercise
of stock options granted under the Company's 1995 stock incentive plan (the
"1995 Stock Incentive Plan"). Substantially all of such options have an
exercise price per share of $23.00, the price per share in the Company's
initial public offering. Options for less than 4,000 of such shares are
exercisable prior to August 1996. See "Management -- Incentive and Bonus
Plans."
--------------------------
Unless otherwise noted, all Common Stock share amounts, per share data and
other information set forth in this Prospectus (i) have been adjusted to reflect
a 3,240 for 1 stock split, which was effected on August 1, 1995 and (ii) assume
that the Underwriters' over-allotment option has not been exercised. Unless the
context requires otherwise, the "Company" or "Oakley," as used in this
Prospectus, means Oakley, Inc. and its subsidiaries, including Oakley Europe,
Sarl ("Oakley Europe"). See "Corporate History and Reorganization."
M FRAME-REGISTERED TRADEMARK-, MUMBO-REGISTERED TRADEMARK-,
BLADES-REGISTERED TRADEMARK-, ZEROS-TM-, SUB ZEROS-TM-,
FROGSKINS-REGISTERED TRADEMARK-, EYE JACKETS-TM-, T WIRE-TM-,
EYESHADES-REGISTERED TRADEMARK-, PLUTONITE-REGISTERED TRADEMARK- ,
IRIDIUM-REGISTERED TRADEMARK-, RAZOR BLADES-REGISTERED TRADEMARK-,
HAMMERS-REGISTERED TRADEMARK-, UNOBTANIUM-REGISTERED TRADEMARK-,
HEATER-REGISTERED TRADEMARK-, SWEEP-REGISTERED TRADEMARK-,
STRIKE-REGISTERED TRADEMARK-, HYBRID-REGISTERED TRADEMARK-, FACTORY
PILOT-REGISTERED TRADEMARK-, VIRGIN SERILIUM-REGISTERED TRADEMARK-,
OAKLEY-REGISTERED TRADEMARK-, THERMONUCLEAR PROTECTION-REGISTERED TRADEMARK-,
FULL METAL JACKETS-TM-, O-MATTER-TM-, O-FRAME-TM-, PRO-FRAME-TM-, E-FRAME-TM-,
L-FRAME-TM- and H2O-TM- are included among the Company's trademarks.
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $ 66,319 $ 76,390 $ 92,714 $ 123,952 $ 172,752 $ 36,615 $ 48,706
Gross profit............................. 46,563 56,806 65,047 88,238 122,457 25,259 34,064
Operating income......................... 12,310 15,010 13,707 14,026 53,270 6,436 17,653
Income before provision for income
taxes................................... 12,501 15,184 13,638 13,794 52,997 6,406 17,842
Net income............................... 12,175 14,730 13,330 13,535 45,167 6,136 10,973
SUPPLEMENTAL INCOME STATEMENT DATA (1):
Income before provision for income
taxes................................... 12,501 15,184 13,638 13,794 52,997 6,406
Provision for income taxes............... 5,012 6,065 5,476 5,539 20,854 2,575
--------- --------- --------- --------- --------- ---------
Net income............................... $ 7,489 $ 9,119 $ 8,162 $ 8,255 $ 32,143 $ 3,831
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income per common and common
equivalent share........................ $ .95(2)
---------
---------
Weighted average common and common
equivalent shares....................... 33,770(2)
---------
---------
PRO FORMA AND ACTUAL INCOME STATEMENT DATA
(3):
Income before provision for income
taxes................................... $ 65,298 $ 13,773 $ 17,842
Provision for income taxes............... 25,694 5,507 6,869
--------- --------- ---------
Net income............................... $ 39,604 $ 8,266 $ 10,973
--------- --------- ---------
--------- --------- ---------
Net income per common and common
equivalent share........................ $ 1.17(2) $ .31
--------- ---------
--------- ---------
Weighted average common and common
equivalent shares....................... 33,770(2) 35,916
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital............................................................................. $ 47,141
Total assets................................................................................ 116,870
Total debt.................................................................................. --
Shareholders' equity........................................................................ 92,742
</TABLE>
- ------------------------------
(1) The Company was an S corporation for Federal and state income tax purposes
prior to the Company's initial public offering in August 1995. Amounts
reflect adjustments for Federal and state income taxes as if the Company
had been taxed as a C corporation for all periods prior to its initial
public offering.
(2) References to shares are to shares of Oakley, Inc. Amounts reflect the
effects of the assumed issuance of 11,435 shares of Common Stock at $23.00
per share (the price per share in the Company's initial public offering) to
generate sufficient cash to pay the balance at December 31, 1995 of the
notes representing the amounts payable to shareholders for previously
earned and undistributed taxable S corporation earnings prior to the
Company's conversion to C corporation status (the "S Distribution Notes").
See "Corporate History and Reorganization." See Note 1 to the Consolidated
Financial Statements for additional information concerning the calculation
of net income per common and common equivalent share.
(3) For additional pro forma income statement data for 1993, 1994, 1995 and the
three months ended March 31, 1995, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations." For periods
prior to the Company's initial public offering in August 1995, amounts
reflect pro forma adjustments for (i) the elimination of bonuses paid to
the two principal executive officers in excess of $2.0 million per year,
the bonuses estimated in August 1995 to be payable to the two principal
executive officers, (ii) the elimination of depreciation expense of $1.7
million for the year ended December 31, 1995 associated with aircraft owned
by the Company which were distributed to the principal shareholders in
August 1995, (iii) the elimination of the gain on the disposition of the
aircraft distributed to the two principal shareholders as part of the S
Corporation Distribution (as defined herein) and (iv) Federal and state
income taxes as if the Company had been taxed as a C corporation for all
periods prior to the Company's initial public offering. Income statement
data for the three months ended March 31, 1996 reflects historical
operating results. See "Management -- Incentive and Bonus Plans," "Certain
Transactions," "Corporate History and Reorganization" and "Selected
Financial Data."
5
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS OTHER INFORMATION SET FORTH IN
THIS PROSPECTUS, IN EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS SECTION
INCLUDES FORWARD-LOOKING INFORMATION, INCLUDING THAT RELATING TO PRODUCT
DEVELOPMENT AND INTRODUCTIONS. OTHER FACTORS AND ASSUMPTIONS NOT IDENTIFIED WERE
ALSO INVOLVED IN PREPARING SUCH FORWARD-LOOKING INFORMATION.
DEPENDENCE UPON NEW PRODUCT INTRODUCTIONS
The Company's historical success is attributable, in part, to its
introduction of products which are perceived to represent an improvement in
performance over products available in the market. The Company's future success
will depend, in part, upon its continued ability to develop and introduce such
innovative products, and there can be no assurance of the Company's ability to
do so. In 1996, the Company intends to introduce several sunglass line
extensions and at least one new line of sunglasses, the X METALS. Although the
Company anticipates that it will introduce this new line in late 1996, delays
have been experienced in the past, and may be anticipated in the future, due to
the complexity of developing both the design and the manufacturing process. The
success of any product line, including the X METAL line, is dependent upon
various factors, including product demand, production capacity and the
availability of raw materials and critical manufacturing equipment. The
uncertainty associated with all the above factors, and any change in such
factors from the Company's expectations, could result in cost increases, delays
or cancellation of such new products and may also cause actual results to differ
materially from those projected.
Innovative designs are often not successful, and successful product designs
can be displaced by other product designs introduced by competitors which shift
market preferences in their favor. The Company continues to introduce products
which, while technologically advanced and innovative in design, are targeted
more toward the nonsports, or recreational, segment of the market. These
products, which are more fashion-oriented, may have shorter life cycles than the
Company's sports-related sunglasses, which would require the Company to
introduce new products more frequently. In addition, competitors often follow
the Company's introduction of successful products with similar product
offerings. Although the Company seeks to protect its products through patents
and other proprietary rights, there can be no assurance that such protection
will prevent competitors from offering similar products. As a result of these
and other factors, there can be no assurance that the Company will successfully
maintain or increase its market share.
SUSCEPTIBILITY TO CHANGING CONSUMER PREFERENCES
The eyewear industry is subject to changing consumer preferences. The
Company's recreational sunglasses are likely to be more susceptible to fashion
trends than Oakley's products targeted to the sports segment. Shifts in consumer
preferences may adversely affect companies that misjudge such preferences. If
the Company misjudges the market for a particular product, the Company's sales
may be adversely affected and it may be faced with excess inventory and
underutilized manufacturing capacity. While the Company has a limited ability to
modify slow-moving models to satisfy consumer preferences and otherwise utilize
excess inventory and manufacturing capacity, the Company cannot ensure that any
such actions will be sufficient to redress a market misjudgment. Accordingly, a
market misjudgment could adversely affect the Company's results of operations
and financial condition.
COMPETITION
Within various niches of the sports segment of the nonprescription eyewear
market, the Company competes with mostly smaller sunglass and goggle companies
and a limited number of larger competitors. In order to retain its market share,
the Company must continue to be competitive in the areas of quality, technology,
method of distribution, style, brand image, intellectual property protection and
customer service. The purchasing decisions of athletes, sports enthusiasts and
recreational wearers with respect to high performance eyewear often reflect
highly subjective preferences which can be influenced by many factors, including
advertising, media, product endorsements, product improvements and changing
styles. The Company could therefore face competition from existing or new
competitors that introduce and promote
6
<PAGE>
eyewear which is perceived by consumers to offer performance advantages over, or
greater aesthetic appeal than, Oakley products. These competitors could include
established branded consumer products companies that have greater financial and
other resources than the Company.
Oakley also competes in the broader, recreational segment of the
nonprescription eyewear market. This segment is fragmented and highly
competitive and is generally more fashion-oriented. A number of established
companies compete in this wider market, several of which have greater financial
and other resources than Oakley. In certain geographic markets, certain of
Oakley's competitors have achieved greater brand awareness among consumers than
Oakley. See "Business -- Competition."
DEPENDENCE UPON KEY PERSONNEL
The operations of the Company depend to a great extent on the efforts of its
senior management, particularly Mr. Jim Jannard, Chairman of the Board and
President, and Mr. Mike Parnell, Chief Executive Officer. Although Messrs.
Jannard and Parnell have entered into employment agreements with the Company,
the extended loss of the services of one or both of these individuals could have
a material adverse effect on the Company's operations. See "Management --
Employment Agreements."
RISKS ASSOCIATED WITH SIGNIFICANT GROWTH
The Company has experienced significant growth which has placed, and could
continue to place, a significant strain on its employees and operations. To
manage growth effectively, the Company will be required to continue to implement
changes in aspects of its business, expand its information systems and
operations to respond to growth in demand and develop, train and manage an
increasing number of management-level and other employees. If management is
unable to anticipate or manage growth effectively, the Company's operating
results could be materially adversely affected.
RELIANCE ON SINGLE SOURCES OF SUPPLIES
The Company relies on a single source for the supply of several components,
including the uncoated lens blanks from which substantially all of its sunglass
lenses are cut. The effect of the loss of any of such sources or of a disruption
in their business will depend primarily upon the length of time necessary to
find a suitable alternative source, which the Company believes, in most
instances, will be relatively short. The loss of the source for lens blanks,
however, or any disruption in such source's business or failure by it to meet
the Company's product needs on a timely basis could cause, at a minimum,
temporary shortages in needed materials and could have a material adverse effect
on the Company's results of operations. There can be no assurance that
precautions taken by the Company will be adequate or that an alternative source
of supply can be located or developed in a timely manner. See "Business --
Manufacturing."
PROTECTION OF PROPRIETARY RIGHTS
Oakley relies in part on patent, trade secret, unfair competition, trade
dress, trademark and copyright law to protect its rights to certain aspects of
its products, including product designs, proprietary manufacturing processes and
technologies, product research and concepts and recognized trademarks, all of
which the Company believes are important to the success of its products and its
competitive position. There can be no assurance that any pending trademark or
patent application will result in the issuance of a registered trademark or
patent, or that any trademark or patent granted will be effective in thwarting
competition or be held valid if subsequently challenged. In addition, there can
be no assurance that the actions taken by the Company to protect its proprietary
rights will be adequate to prevent imitation of its products, that the Company's
proprietary information will not become known to competitors, that the Company
can meaningfully protect its rights to unpatented proprietary information or
that others will not independently develop substantially equivalent or better
products that do not infringe on the Company's intellectual property rights. No
assurance can be given that others will not assert rights in, and ownership of,
the patents and other proprietary rights of the Company. In addition, the laws
of certain foreign countries do not protect proprietary rights to the same
extent as the laws of the United States. In mid-1995, the Company received a
letter from an individual owner of a United States patent, issued in late 1991,
which he claims covers a production process utilized by the Company for a
portion of its products. On the basis of the Company's investigation completed
to date and discussions with the owner of such patent, the Company believes that
it
7
<PAGE>
could, if necessary, acquire or license the patent, or take other steps to
resolve the matter, without a material adverse effect on the Company. Many of
the Company's products on which the claim is based have been discontinued. See
"Business -- Intellectual Property."
Consistent with the Company's strategy of vigorously defending its
intellectual property rights, Oakley devotes substantial resources (including
time and attention by its executive officers) to the enforcement of patents
issued and trademarks granted to the Company, to the protection of trade
secrets, trade dress or other intellectual property rights owned by the Company
and to the determination of the scope or validity of the proprietary rights of
others that might be asserted against the Company. A substantial increase in the
level of potentially infringing activities by others could require the Company
to increase significantly the resources devoted to such efforts. In addition, an
adverse determination in litigation could subject the Company to the loss of its
rights to a particular patent, trademark, copyright or trade secret, could
require the Company to grant licenses to third parties, could prevent the
Company from manufacturing, selling or using certain aspects of its products or
could subject the Company to substantial liability, any of which could have a
material adverse effect on the Company's results of operations.
DEPENDENCE ON CERTAIN CUSTOMERS
During 1994 and 1995, sales before discounts to the Company's ten largest
customers (which included seven international distributors during 1995)
accounted for approximately 48.6% and 46.3%, respectively of the Company's sales
before discounts. Sales before discounts to Sunglass Hut International, Inc.
("Sunglass Hut"), a sunglass specialty retail chain (including sales to
Sunsations, another sunglass retailer which was acquired by Sunglass Hut in July
1995), accounted for approximately 30.0% and 32.1% of the Company's sales before
discounts for 1994 and 1995, respectively. Such sales to Sunglass Hut do not
include sales to Sunglass Hut locations outside the United States that are made
by the Company's independent international distributors. At December 31, 1995,
approximately 240 of the 1,700 Sunglass Hut locations were serviced by Oakley's
independent distributors. The Company does not have any minimum purchase
agreements with Sunglass Hut. A substantial decline in purchases of the
Company's products by Sunglass Hut could have a material adverse effect on the
Company's results of operations.
DEPENDENCE UPON ENDORSEMENT CONTRACTS
A key element of Oakley's marketing strategy has been to establish contacts
with, and obtain endorsements from, prominent athletes and public personalities.
These endorsement contracts generally have two-to four-year terms. The Company
also furnishes its products at a reduced cost or without charge to selected
athletes and personalities who wear Oakley glasses without any formal
arrangement. There can be no assurance that any of these relationships with
athletes and personalities will continue, that such contracts will be renewed or
that the Company will be able to attract new athletes to wear or endorse its
products. If Oakley were unable in the future to arrange endorsements of its
products by athletes and/or public personalities on terms it deems reasonable,
it would be required to modify its marketing plans and could be forced to rely
more heavily on other forms of advertising and promotion, which might not prove
to be as effective as endorsements. See "Business -- Sales and Marketing" and
"Certain Transactions."
RISKS RELATING TO INTERNATIONAL SALES
Sales outside the United States accounted for approximately 26.9%, 33.3% and
37.4% of the Company's net sales for the years ended December 31, 1994 and 1995
and the three months ended March 31, 1996, respectively. While the Company
expects international sales to continue to account for a significant portion of
its sales, there can be no assurance that the Company will be able to maintain
or increase its international sales. The Company's international business may be
adversely affected by changing economic conditions in foreign countries and
fluctuations in currency exchange rates. The Company's international sales are
also subject to risks associated with tariff regulations, "local content" laws,
political instability and trade restrictions. In addition, there can be no
assurance that the Company's brands and products will be as popular in the
various countries in which the Company's products are or will be offered as they
are in the United States, or that the Company will be successful in preventing
competitors from producing products using the same or substantially similar
technology for sale outside the United States.
8
<PAGE>
MANUFACTURING CAPACITY CONSTRAINTS
The Company's capacity to manufacture its products may be constrained by the
availability of raw materials, the ability of its suppliers to meet its needs in
a timely manner and the Company's internal production capacity. Since mid-1994,
the Company has from time to time experienced increased backorders (merchandise
remaining unshipped beyond its scheduled shipping date) as a result of the above
factors. Significant backorders over a prolonged period could have a damaging
effect on customer relations, which in turn could adversely affect the Company's
results of operations. In addition, the Company expects to relocate to a new
headquarters/manufacturing facility by the end of 1996 or in early 1997.
However, there can be no assurance that the Company will be able to meet this
schedule or that it will not encounter significant disruptions in its business
during the relocation. There can be no assurance that the new facility will
operate as effectively as expected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Backlog" and "Business --
Manufacturing."
QUARTERLY FLUCTUATIONS; SEASONALITY
The Company's business is affected by economic factors and seasonal consumer
buying patterns. The Company's quarterly results of operations have fluctuated
and may continue to fluctuate as a result of a number of factors, including the
timing of the introduction of new products, the mix of product sales and weather
patterns. Historically, the Company's sales, in the aggregate, generally have
been higher in the period from March to September. In 1994 and 1995,
approximately 53.7% and 53.9%, respectively, of the Company's net sales for each
year occurred during the second and third quarters. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Seasonality."
UNPREDICTABILITY OF DISCRETIONARY CONSUMER SPENDING
The success of the Company's business depends to a significant extent upon a
number of factors relating to discretionary consumer spending, including general
economic conditions affecting disposable consumer income, such as employment,
business conditions, interest rates and taxation. Any significant decline in
such general economic conditions or uncertainties regarding future economic
prospects that adversely affect discretionary consumer spending generally, or
purchasers of discretionary optical products specifically, could have a material
adverse effect on the Company's results of operations.
FUTURE SALES BY PRINCIPAL SHAREHOLDERS; SHARES ELIGIBLE FOR FUTURE SALE
After the Offerings, Mr. Jannard and a trust (the "Parnell Trust") for the
benefit of Mr. Parnell and his immediate family (collectively, the "Principal
Shareholders") will beneficially own approximately 48.4% and 5.4%, respectively,
of the outstanding Common Stock. Subject to the restrictions set forth below,
Mr. Jannard and the Parnell Trust are free to sell such shares and may determine
to sell them from time to time to take advantage of favorable market conditions
or for any other reason. Future sales of shares of Common Stock by the Company
and its shareholders could adversely affect the prevailing market price of the
Common Stock. The Company and the Selling Shareholders have entered into lock-up
agreements with Merrill Lynch & Co. and Alex. Brown & Sons Incorporated, as
representatives of the U.S. Underwriters (the "U.S. Representatives"), and with
Merrill Lynch International and Alex. Brown & Sons Incorporated, as
representatives of the International Managers (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"), pursuant to which the Company and the Selling Shareholders
have agreed, subject to certain exceptions, not to sell or otherwise dispose of
any Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock for 180 days following the date of this Prospectus without the
consent of the Representatives. Following the Offerings, approximately
19,200,000 shares of Common Stock held by the Principal Shareholders will be
eligible for sale pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act"). In addition, the Principal Shareholders
have rights to demand or participate in future registrations of shares of Common
Stock under the Securities Act. Sales of substantial amounts of Common Stock in
the public market, or the perception that such sales may occur, could have a
material adverse effect on the market price of the Common Stock. See "Shares
Eligible for Future Sale" and "Underwriting."
CONTROL BY PRINCIPAL SHAREHOLDER
Following the consummation of the Offerings, Mr. Jannard will beneficially
own approximately 48.4% of the outstanding Common Stock. Consequently, Mr.
Jannard will effectively be able to control the
9
<PAGE>
Company and the election of directors and the results of other matters submitted
to a vote of shareholders. Such concentration of ownership may have the effect
of delaying or preventing a change in control of the Company. See "Principal and
Selling Shareholders."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock may continue to be volatile.
Factors such as business performance, news announcements or changes in general
market conditions, could have a significant impact on the future price of the
Common Stock. See "Price Range of Common Stock and Dividend Policy."
CORPORATE HISTORY AND REORGANIZATION
Oakley, Inc. is a Washington corporation founded in March 1994 to succeed to
the assets and liabilities of Oakley, Inc., which was organized as a California
corporation in 1977 ("Oakley California"). In November 1994, Oakley California
was merged with and into the Company. In connection with its initial public
offering, the Company completed a reorganization (the "Reorganization") pursuant
to which (i) the Company terminated its S corporation status for Federal and
state income tax purposes, (ii) the Company distributed to the Principal
Shareholders all of its and its predecessor's previously earned and
undistributed taxable S corporation earnings through the date of the
consummation of the Company's initial public offering (the "S Corporation
Distribution"), (iii) the Company effected the merger of Buffalo Works, Inc.
("Buffalo") (a company that was engaged in purchasing and reselling to Oakley
certain materials for use in the manufacture of Oakley products) with and into
the Company, (iv) the Principal Shareholders contributed all of the capital
stock of Oakley Europe to the Company without any consideration, (v) the Company
effected a 3,240 for 1 stock split of the Common Stock (which was effected on
August 1, 1995) and (vi) the Company distributed certain aircraft to the
Principal Shareholders as part of the S Corporation Distribution. Buffalo and
Oakley Europe were each wholly owned by the Principal Shareholders prior to the
Reorganization. In addition, concurrently with the consummation of the initial
public offering, the Principal Shareholders contributed to the Company, without
any consideration, certain additional assets, which were not material to the
Company, for use in connection with the Company's non-Oakley brand business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions."
10
<PAGE>
USE OF PROCEEDS
All shares of Common Stock offered hereby are being sold by the Selling
Shareholders. The Company will not receive any proceeds from the Offerings. See
"Principal and Selling Shareholders."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock began trading August 10, 1995 on the NYSE upon completion
of the Company's initial public offering. The following table sets forth the
high and low sales prices for the Common Stock for each quarterly period since
such stock began trading, as reported on the New York Stock Exchange Composite
Tape:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
Third Quarter (from August 10, 1995).................................................. $ 33 7/8 $ 26 1/8
Fourth Quarter........................................................................ $ 39 1/4 $ 27 1/4
1996
First Quarter......................................................................... $ 38 3/4 $ 31
Second Quarter (through June 4, 1996)................................................. $ 54 3/8 $ 34 7/8
</TABLE>
The number of shareholders of record of the Common Stock on March 15, 1996
was 184. On June 4, 1996, the closing sales price for the Common Stock on the
NYSE was $49 1/4.
Since its initial public offering, the Company has not paid a dividend on
its Common Stock. The Company has no present intention of declaring or paying
any dividends in the foreseeable future and anticipates that any earnings will
be retained for use in the operations of the business. Any future determination
as to the payment of dividends will be at the discretion of the Company's Board
of Directors and will depend upon the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant by the
Board of Directors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
For certain information regarding distributions made by the Company in 1993,
1994 and 1995, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996. The sale of the shares of Common Stock offered hereby will not affect
the Company's capitalization. The information below should be read in
conjunction with the Company's consolidated financial statements and the related
notes thereto which are included elsewhere in this Prospectus. See also
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Capital Stock."
<TABLE>
<CAPTION>
MARCH 31, 1996
(UNAUDITED)
-----------------
(IN THOUSANDS,
EXCEPT SHARE
DATA)
<S> <C>
Shareholders' equity:
Preferred Stock, par value $.01 per share: 10,000,000 shares authorized; no
shares issued................................................................... --
Common Stock, par value $.01 per share: 100,000,000 shares authorized, 35,700,000
shares issued and outstanding (1)............................................... $ 357
Additional paid-in capital....................................................... 64,429
Retained earnings................................................................ 27,971
Foreign currency translation adjustment.......................................... (15)
-------
Total shareholders' equity................................................... 92,742
-------
Total capitalization..................................................... $ 92,742
-------
-------
</TABLE>
- ------------------------
(1) Represents shares authorized and issued by Oakley, Inc., but does not
include approximately 630,000 shares of Common Stock issuable upon exercise
of options granted under the 1995 Stock Incentive Plan. See "Management --
Incentive and Bonus Plans."
12
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below have been derived from the
financial statements of the Company and the related notes thereto. Each of the
periods shown below includes the operations of Oakley, Inc. and Oakley Europe,
and all periods subsequent to 1992 include the operations of Buffalo (which was
organized in September 1993). The income statement data for the years ended
December 31, 1993, 1994 and 1995 and the balance sheet data at December 31, 1994
and 1995 are derived from the financial statements of the Company, which have
been audited by Deloitte & Touche LLP, independent auditors and which are
contained elsewhere in this Prospectus. The income statement data for each of
the years in the two-year period ended December 31, 1992, and the balance sheet
data at December 31, 1991, 1992 and 1993, are derived from audited combined
financial statements of the Company that are not contained herein. See
"Experts." Financial data for the three-month periods ended March 31, 1995 and
1996 and at March 31, 1996 is unaudited but, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such data. The results of operations for
the three months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the entire year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality." The
selected pro forma income statement data for the year ended December 31, 1995
and the three months ended March 31, 1995 as set forth below is for
informational purposes only and may not necessarily be indicative of the results
of operations of the Company as they may be in the future. The following
selected financial data should be read in conjunction with the Company's
combined financial statements and the related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," which
are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................................... $ 66,319 $ 76,390 $ 92,714 $ 123,952 $ 172,752 $ 36,615 $ 48,706
Cost of goods sold................................. 19,756 19,584 27,667 35,714 50,295 11,356 14,642
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................................... 46,563 56,806 65,047 88,238 122,457 25,259 34,064
Operating expenses:
Research and development......................... 12,144 12,904 15,455 25,529 16,774 6,660 949
Selling.......................................... 14,513 19,812 21,750 30,815 36,776 7,470 10,091
Shipping and warehousing......................... 1,504 2,339 2,334 3,187 4,678 1,001 1,423
General and administrative....................... 6,092 6,741 11,801 14,681 15,753 3,692 3,948
Gain on disposition of property and equipment.... -- -- -- -- (4,794) -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses....................... 34,253 41,796 51,340 74,212 69,187 18,823 16,411
--------- --------- --------- --------- --------- --------- ---------
Operating income................................... 12,310 15,010 13,707 14,026 53,270 6,436 17,653
Interest expense (income), net..................... (191) (174) 69 232 273 30 (189)
--------- --------- --------- --------- --------- --------- ---------
Income before provision for income taxes........... 12,501 15,184 13,638 13,794 52,997 6,406 17,842
Provision for income taxes (1)..................... 326 454 308 259 7,830 270 6,869
--------- --------- --------- --------- --------- --------- ---------
Net income......................................... $ 12,175 $ 14,730 $ 13,330 $ 13,535 $ 45,167 $ 6,136 $ 10,973
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per common and common equivalent share.. $ .31
---------
---------
Weighted average common and common equivalent
shares............................................ 35,916
---------
---------
SUPPLEMENTAL INCOME STATEMENT DATA (2):
Income before provision for income taxes........... $ 12,501 $ 15,184 $ 13,638 $ 13,794 $ 52,997 $ 6,406
Provision for income taxes......................... 5,012 6,065 5,476 5,539 20,854 2,575
--------- --------- --------- --------- --------- ---------
Net income......................................... $ 7,489 $ 9,119 $ 8,162 $ 8,255 $ 32,143 $ 3,831
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income per common and common equivalent share.. $ .95(3)
---------
---------
Weighted average common and common equivalent
shares............................................ 33,770(3)
---------
---------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED -----------------------
DECEMBER 31, 1995(4) 1995(4) 1996
(PRO FORMA) (PRO FORMA) (ACTUAL)
-------------------- ----------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA AND ACTUAL INCOME STATEMENT DATA:
Net sales........................................................ $ 172,752 $ 36,615 $ 48,706
Cost of goods sold............................................... 50,295 11,356 14,642
-------- ----------- ----------
Gross profit..................................................... 122,457 25,259 34,064
Operating expenses:
Research and development....................................... 3,285 730 949
Selling........................................................ 35,802 7,116 10,091
Shipping and warehousing....................................... 4,678 1,001 1,423
General and administrative..................................... 13,121 2,609 3,948
-------- ----------- ----------
Total operating expenses..................................... 56,886 11,456 16,411
-------- ----------- ----------
Operating income................................................. 65,571 13,803 17,653
Interest expense (income), net................................... 273 30 (189)
-------- ----------- ----------
Income before provision for income taxes......................... 65,298 13,773 17,842
Provision for income taxes....................................... 25,694 5,507 6,869
-------- ----------- ----------
Net income....................................................... $ 39,604 $ 8,266 $ 10,973
-------- ----------- ----------
-------- ----------- ----------
Net income per common and common equivalent share................ $ 1.17(3) $ .31
-------- ----------
-------- ----------
Weighted average common and common equivalent shares............. 33,770(3) 35,916
-------- ----------
-------- ----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
----------------------------------------------------- -------------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 14,946 $ 16,858 $ 16,872 $ 9,932 $ 39,161 $ 47,141
Total assets................................ 28,395 49,257 43,592 49,694 97,725 116,870
Total debt.................................. 3,409 7,600 6,339 3,300 263 --
Shareholders' equity........................ 21,117 28,650 32,775 33,133 81,709 92,742
</TABLE>
- ------------------------
(1) For periods prior to the Company's conversion to C corporation status,
represents California state franchise taxes and foreign taxes accrued by
Oakley Europe.
(2) Amounts reflect adjustment for Federal and state income taxes as if the
Company had been taxed as a C corporation rather than an S corporation.
(3) References to shares are to shares of Oakley, Inc. Amounts reflect the
effects of the assumed issuance of 11,435 shares of common stock at $23.00
per share (the price per share in the Company's initial public offering) to
generate sufficient cash to pay the balance of the S Distribution Notes at
December 31, 1995. See "Corporate History and Reorganization." See Note 1 to
the Consolidated Financial Statements for additional information concerning
the calculation of net income per common and common equivalent share.
14
<PAGE>
(4) For additional pro forma income statement data for 1993, 1994, 1995 and the
three months ended March 31, 1995, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations."
For periods prior to the Company's initial public offering in August 1995,
amounts reflect pro forma adjustments for (i) the elimination of bonuses
paid to the two principal executive officers in excess of $2.0 million per
year, the bonuses estimated in August 1995 to be payable to the two
principal executive officers, (ii) the elimination of depreciation expense
of $1.7 million for the year ended December 31, 1995 associated with
aircraft owned by the Company which were distributed to the principal
shareholders in August 1995, (iii) the elimination of the gain on the
disposition of the aircraft distributed to the two Principal Shareholders
and (iv) Federal and state income taxes as if the Company had been taxed as
a C corporation for all periods prior to the Company's initial public
offering. See "Management -- Incentive and Bonus Plans," "Certain
Transactions" and "Corporate History and Reorganization."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes the operations of Oakley, Inc. and its
subsidiaries for each of the periods discussed. This discussion and analysis
should be read in conjunction with "Selected Financial Data" and the Company's
consolidated financial statements and the related notes thereto which are
included elsewhere in this Prospectus.
GENERAL
The Company sold its first sunglass in 1984 and has experienced significant
growth in net sales and operating income with consistently high operating
margins. The Company's net sales have grown from $66.3 million in 1991 to $172.8
million in 1995. The Company attributes its growth primarily to increased brand
recognition and the timely introduction of new products and has achieved these
increases primarily through increased orders from existing accounts. The
Company's annual sales per active U.S. retail location (or "door"), based upon
the monthly average number of active doors, increased at a compound annual
growth rate of 20.9% from $8,261 during 1993 to $12,084 during 1995. (The
monthly average number of doors is based upon the number of active customer
accounts at the end of the applicable year plus, in the case of customers with
multiple locations, the average number of locations of such customer at the end
of each month of such year. Active accounts are those which placed at least one
order within the applicable year.) The Company's sales have also benefitted from
an expansion of its focus from the sports segment of the sunglass market to
include the nonsports segment. Due to Oakley's general practice of not changing
the wholesale price of any product in the United States after its introduction,
unit price increases have made no material contribution to the Company's sales
growth, although changes in product mix have resulted in an increase in the
Company's average selling price per unit.
The life cycle of each of the Company's products is determined, in part, by
the level of sales, competitive factors and, particularly in the case of the
Company's recreational sunglasses, changes in fashion trends. The Company has,
from time to time, intentionally shortened a product's life by introducing a
competing new product in the later stages of an older product's life cycle, with
the expectation that the new product would cannibalize the sales of the older
product until the older product can be strategically withdrawn from the market.
In keeping with this strategy, the Company phased out EYESHADES in early 1994
and BLADES and RAZOR BLADES in early 1996. The Company retires products in this
manner to preserve its reputation for offering innovative, technologically
advanced sunglasses and to maintain a relatively small product line, which the
Company believes is strategically desirable. See "Business -- Operating
Strategy" and "-- Product Design and Development."
All of the Company's sunglass lines utilize one of two lens geometries:
toroidal (polaric ellipsoid) and spherical. The toroidal lenses, which are used
in the Company's M FRAMES and ZEROS, provide superior optical clarity and
enhanced coverage and, therefore, represent the Company's most advanced
technology for demanding sports applications. Spherical lenses are used in the
Company's dual-lens sunglasses, the JACKETS, WIRES and FROGSKINS. See "Business
- -- Products."
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth operating results for the periods indicated.
Pro forma operating results for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 reflect adjustments to the historical
operating results for (i) the elimination of bonuses paid to the two principal
executive officers prior to the Company's initial public offering in excess of
$2.0 million per year, the bonuses estimated in August 1995 to be payable to the
two principal executive officers, (ii) the elimination of all depreciation
expense associated with aircraft owned by the Company which were distributed to
the Principal Shareholders in August 1995, (iii) the elimination of the gain on
the disposition of the aircraft distributed to the two Principal Shareholders
and (iv) Federal and state income taxes as if the Company had been taxed as a C
corporation for all periods prior to the Company's initial public offering. The
amounts for the three months ended March 31, 1996 reflect historical operating
results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
(PRO FORMA) (PRO FORMA) (PRO FORMA) (PRO FORMA) (ACTUAL)
----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales........................................ $ 92,714 $ 123,952 $ 172,752 $ 36,615 $ 48,706
Cost of goods sold............................... 27,667 35,714 50,295 11,356 14,642
----------- ----------- ----------- ----------- ----------
Gross profit..................................... 65,047 88,238 122,457 25,259 34,064
Operating expenses:
Research and development....................... 2,430 2,881 3,285 730 949
Selling........................................ 20,164 27,707 35,802 7,116 10,091
Shipping and warehousing....................... 2,334 3,187 4,678 1,001 1,423
General and administrative..................... 7,975 9,728 13,121 2,609 3,948
----------- ----------- ----------- ----------- ----------
Total operating expenses..................... 32,903 43,503 56,886 11,456 16,411
----------- ----------- ----------- ----------- ----------
Operating income................................. 32,144 44,735 65,571 13,803 17,653
Interest expense (income), net................... 69 232 273 30 (189)
----------- ----------- ----------- ----------- ----------
Income before provision for income taxes......... 32,075 44,503 65,298 13,773 17,842
Provision for income taxes....................... 12,830 17,870 25,694 5,507 6,869
----------- ----------- ----------- ----------- ----------
Net income....................................... $ 19,245 $ 26,633 $ 39,604 $ 8,266 $ 10,973
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
</TABLE>
17
<PAGE>
The following table sets forth operating results (as a percentage of net
sales) for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
------------------------------------------- ------------------------
1993 1994 1995 1995 1996
(PRO FORMA) (PRO FORMA) (PRO FORMA) (PRO FORMA) (ACTUAL)
------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................... 29.8 28.8 29.1 31.0 30.1
----- ----- ----- ----------- -----
Gross profit................................. 70.2 71.2 70.9 69.0 69.9
Operating expenses:..........................
Research and development................... 2.6 2.3 1.9 2.0 2.0
Selling.................................... 21.8 22.4 20.7 19.5 20.7
Shipping and warehousing................... 2.5 2.6 2.7 2.7 2.9
General and administrative................. 8.6 7.8 7.6 7.1 8.1
----- ----- ----- ----------- -----
Total operating expenses................. 35.5 35.1 32.9 31.3 33.7
----- ----- ----- ----------- -----
Operating income............................. 34.7 36.1 38.0 37.7 36.2
Interest expense (income), net............... 0.1 0.2 0.2 0.1 (0.4)
----- ----- ----- ----------- -----
Income before provision for income taxes..... 34.6 35.9 37.8 37.6 36.6
Provision for income taxes................... 13.8 14.4 14.9 15.0 14.1
----- ----- ----- ----------- -----
Net income................................... 20.8% 21.5% 22.9% 22.6% 22.5%
----- ----- ----- ----------- -----
----- ----- ----- ----------- -----
</TABLE>
The Company's sales before discounts for sunglasses were $82.7 million,
$110.6 million and $158.2 million for the years ended December 31, 1993, 1994
and 1995, respectively, and $32.9 million and $47.6 million for the three months
ended March 31, 1995 and 1996, respectively. Sunglass unit sales were 2,167,966,
2,685,972 and 3,465,817 for the years ended December 31, 1993, 1994 and 1995,
respectively, and 718,740 and 990,353 for the three months ended March 31, 1995
and 1996, respectively.
The Company's products are currently sold in over 65 countries outside the
United States. In most of Europe, marketing and distribution is handled directly
by the Company's Oakley Europe subsidiary, located near Paris, France, which is
staffed by approximately 65 employees who perform sports marketing, advertising,
telemarketing, shipping and accounting functions. Oakley Europe has an
independent sales force in all major European markets except the United Kingdom,
Switzerland and Austria. In 1995, the Company established a subsidiary in Mexico
City ("Oakley Mexico") which acquired the Company's exclusive distributor in
Mexico and began selling to that market on a direct basis near the end of 1995.
In those parts of the world not serviced by Oakley Europe or Oakley Mexico,
Oakley's products are sold through distributors with local expertise which sell
Oakley products either exclusively or with complementary, noncompeting products.
Because the Company sells its products at lower prices in countries in which
sales are made through distributors, on a unit basis, international sales
represent a higher percentage of total sales than on a dollar volume basis.
Approximately 33.3% and 37.4% of the Company's net sales were in international
markets in 1995 and the three months ended March 31, 1996, respectively. Sales
by Oakley Europe accounted for approximately 11.9% and 15.9% of the Company's
net sales in 1995 and the three months ended March 31, 1996, respectively.
18
<PAGE>
Since mid-1994, the Company's international sales have increased at a
significant rate as a result of the Company's increased focus on opportunities
in international markets. The following table compares the Company's
international and domestic sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Domestic....................................... $ 72,783 $ 90,565 $ 115,202 $ 26,044 $ 30,470
International.................................. 19,931 33,387 57,550 10,571 18,236
--------- ---------- ---------- ---------- ----------
$ 92,714 $ 123,952 $ 172,752 $ 36,615 $ 48,706
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
NET SALES. Net sales increased to $48.7 million for the three months ended
March 31, 1996 from $36.6 million for the three months ended March 31, 1995, an
increase of $12.1 million, or 33.1%. This increase was principally the result of
substantially higher sales in the 1996 period for the EYE JACKET sunglasses,
sales from TRENCHCOAT sunglasses (introduced in late 1995) and significant sales
increases of WIRES. These increases were partially offset by moderate sales
decreases in M FRAMES and ZEROS sunglasses and significant sales decreases in
FROGSKINS, the Company's most mature product offering. The decline in FROGSKINS
sales was attributable in part to a 50% reduction in the number of models
offered. The Company's international sales grew 71.7% to $18.2 million, or 37.4%
of net sales, in the 1996 period from $10.6 million, or 29.0% of net sales, in
the comparable 1995 period. This increase was principally a result of
substantially increased sales in the continental European markets in which the
Company sells on a direct basis and higher sales to distributors in most of the
Company's other foreign markets.
GROSS PROFIT. Gross profit increased to $34.1 million for the three months
ended March 31, 1996 from $25.3 million for the three months ended March 31,
1995, an increase of $8.8 million, or 34.8%. As a percentage of net sales, gross
profit increased to 69.9% in the 1996 period from 69.0% in the 1995 period as a
result of a lower lens reject rate, a higher average selling price (resulting
from a shift in product mix and higher international prices), a reduction in
inventory shrinkage, better margins in the Company's direct European operation
and greater manufacturing throughput, partially offset by slightly higher prices
on raw materials, increases in sales to international distributors at lower
margins and higher sales returns and discounts as a percentage of sales.
OPERATING EXPENSES. Operating expenses decreased to $16.4 million for the
three months ended March 31, 1996 from $18.8 million for the three months ended
March 31, 1995, a decrease of $2.4 million. This decrease resulted primarily
from the reduction in the level of bonuses payable since the Company's initial
public offering in August 1995. On a pro forma basis as discussed above,
operating expenses increased to $16.4 million in the 1996 period from $11.5
million in the 1995 period, an increase of $4.9 million, or 42.6%. Selling
expenses increased $3.0 million in the 1996 period principally as a result of
additional personnel in sports marketing, advertising and sales, higher warranty
costs and higher depreciation on the Company's store displays, partially offset
by, as a percentage of sales, lower sports marketing and advertising expenses,
lower trade show expenses and lower professional fees. Warranty expense in 1996
benefited from the initiation in mid-year 1995 of a $9.39 warranty processing
charge per unit, which contributed offsetting income of $0.2 million in the 1996
period. Shipping expenses increased $0.4 million in the 1996 period to $1.4
million from $1.0 million in the 1995 period. As a percentage of net sales,
shipping expenses increased to 2.9% in the 1996 period from 2.7% in the 1995
period as a result of significantly higher average shipping costs in the
Company's direct European operations, partially offset by lower average shipping
costs in domestic markets. General and administrative expenses increased $1.3
million in the 1996 period from the 1995 period as the Company added the
personnel and infrastructure necessary to respond to its growth, including
increased salaries, insurance and other expenses associated with being a public
company, partially offset by lower professional fees. In addition, general and
administrative expenses increased as a result of a
19
<PAGE>
significant investment in management information systems, both in personnel and
hardware/software. As a percentage of net sales, general and administrative
expenses increased to 8.1% of net sales in the 1996 period from 7.1% in the 1995
period.
OPERATING INCOME. The Company's operating income grew to $17.7 million for
the three months ended March 31, 1996 from $6.4 million for the three months
ended March 31, 1995, an increase of $11.3 million. On a pro forma basis as
discussed above, operating income increased to $17.7 million for the 1996 period
from $13.8 million for the comparable 1995 period, an increase of $3.9 million,
or 28.3%. This increase was a result of the Company's net sales growth and an
improvement in its gross margin, partially offset by higher operating expenses
as a percentage of net sales.
INTEREST EXPENSE, NET. The Company had interest expense of $3,000 and
interest income of $192,000 for the three months ended March 31, 1996, as
compared with interest expense of $36,000 and interest income of $6,000 for the
comparable 1995 period.
INCOME TAXES. Prior to August 14, 1995, Oakley, Inc. elected to be treated
as an S corporation under the provisions of the Internal Revenue Code.
Accordingly, the provisions for income taxes for the periods through August 14,
1995 are computed by applying the California franchise tax rate for S
corporations of 1.5% to Oakley, Inc.'s pretax earnings plus the foreign taxes
related to Oakley Europe. Effective August 14, 1995, the Company converted to a
C corporation and became subject to regular Federal and state income taxes on an
ongoing basis. As a result, the Company recorded $1.6 million of deferred income
tax assets on August 14, 1995. The Company recorded a provision for income taxes
of $6.9 million for the three months ended March 31, 1996, as compared to $0.3
million for the comparable 1995 period. On a pro forma basis as discussed above,
the Company's provision for income taxes was $5.5 million for the 1995 period.
NET INCOME. The Company's net income increased to $11.0 million for the
three months ended March 31, 1996 from $6.1 million for the three months ended
March 31, 1995, an increase of $4.9 million. On a pro forma basis as discussed
above, net income increased to $11.0 million for the 1996 period from $8.3
million for the 1995 period, an increase of $2.7 million, or 32.5%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales increased to $172.8 million for the year ended
December 31, 1995 from $124.0 million for the year ended December 31, 1994, an
increase of $48.8 million, or 39.4%. This increase was principally the result of
substantial sales in 1995 for the EYE JACKET sunglasses, which were introduced
by the Company in December 1994, significant sales increases in 1995 of WIRES
and ZEROS and moderate sales increases of M FRAME sunglasses. These increases
were partially offset by significant sales decreases in the Company's most
mature product offerings, BLADES and RAZOR BLADE sunglasses, which were
discontinued by the Company in 1996, as well as significant decreases in the
lower-priced FROGSKINS, and the withdrawal of the Company's SUB ZERO product
line in January 1995. The decline in sales of BLADE and RAZOR BLADE sunglasses
was attributable principally to a 50% reduction for 1995 in the number of models
offered and increased sales of M FRAME sunglasses, which represent an
advancement of the Company's single-lens sports sunglasses. This change in the
Company's product mix contributed to an increase of 10.8% in the total average
selling price of sunglasses in 1995 on unit growth of 29.0%. The Company's
international sales grew 72.5% to $57.6 million, or 33.3% of net sales, in 1995
from $33.4 million, or 26.9% of net sales, in 1994, principally as a result of
increased sales in the continental European markets in which the Company sells
on a direct basis and higher sales to distributors in the Company's other
foreign markets.
GROSS PROFIT. Gross profit increased to $122.5 million for the year ended
December 31, 1995 from $88.2 million for the year ended December 31, 1994, an
increase of $34.3 million, or 38.9%. As a percentage of net sales, gross profit
decreased slightly to 70.9% in 1995 from 71.2% in 1994, principally as a result
of higher production costs resulting from multiple-shift seven-day continuous
production through most of 1995, increased prices for uncoated lens blanks,
increased inventory shrinkage and increased net sales to foreign distributors
which yield lower margins to the Company, partially offset by higher margins on
sales by Oakley Europe as a result of higher selling prices (translated into
dollars) due to favorable currency fluctuations, an improvement in the Company's
lens reject rate and a shift in product mix to higher margin
20
<PAGE>
items. In addition, as part of the Company's continuing efforts to protect its
brand image, the Company purchased its products from two discount retail chains
in the United States to which such products were diverted. As a result, the
Company recorded returns of $2.1 million for the year ended December 31, 1995
for the costs incurred in connection with such purchases.
OPERATING EXPENSES. Operating expenses decreased to $69.2 million for the
year ended December 31, 1995 from $74.2 million for the year ended December 31,
1994, a decrease of $5.0 million. On a pro forma basis as discussed above,
operating expenses would have increased to $56.9 million in 1995 from $43.5
million in 1994, an increase of $13.4 million, or 30.8%. Selling expenses
increased $8.1 million in 1995 principally as a result of salaries and
commissions directly associated with higher sales levels, increases in sports
marketing and advertising expenditures and higher depreciation from new store
displays. As a percentage of net sales, selling expenses decreased from 22.4% in
1994 to 20.7% in 1995 because sports marketing and advertising expenses,
warranty expense, trade show expenses and commissions grew more slowly than net
sales. Warranty expense in 1995 benefited from the initiation in mid-year of a
$9.39 warranty processing charge per unit, which contributed offsetting income
of $0.6 million. General and administrative expenses increased $3.4 million in
1995 as the Company added the personnel and infrastructure necessary in response
to its growth, including increased insurance and other expenses associated with
being a public company. As a percentage of net sales, general and administrative
expenses decreased to 7.6% for 1995 from 7.8% for 1994.
OPERATING INCOME. The Company's operating income grew to $53.3 million for
the year ended December 31, 1995 from $14.0 million for the year ended December
31, 1994, an increase of $39.3 million. On a pro forma basis as discussed above,
operating income would have increased to $65.6 million for 1995 from $44.7
million for 1994, an increase of $20.9 million, or 46.8%. This increase was the
result of the Company's net sales growth and a reduction of operating expenses
as a percentage of net sales, partially offset by a slight decline in the gross
profit margin.
INTEREST EXPENSE, NET. The Company had interest expense of $0.6 million and
interest income of $0.3 million for 1995, as compared with interest expense of
$0.4 million and interest income of $0.2 million for 1994.
INCOME TAXES. Prior to August 14, 1995, Oakley elected to be treated as an
S corporation under the provisions of the Internal Revenue Code. Accordingly,
the provisions for income taxes for the periods through August 14, 1995 are
computed by applying the California franchise tax rate for S corporations of
1.5% to Oakley's pretax earnings, plus the foreign taxes related to Oakley
Europe. Effective August 14, 1995, the Company converted to a C corporation and
became subject to regular Federal and state income taxes on an ongoing basis. As
a result, the Company recorded $1.6 million of deferred income tax assets on
August 14, 1995. The Company has recorded a provision for income taxes of $7.8
million for the year ended December 31, 1995 and $0.3 million for 1994. On a pro
forma basis as discussed above, the Company's provision for income taxes would
have been $25.7 million for 1995 and $17.9 million for 1994. The Company's
consolidated effective tax rate as a C corporation for the period from August
14, 1995 to December 31, 1995 was 38.6%.
NET INCOME. The Company's net income increased to $45.2 million for the
year ended December 31, 1995 from $13.5 million for the year ended December 31,
1994, an increase of $31.7 million. On a pro forma basis, net income would have
increased to $39.6 million for 1995 from $26.6 million for 1994, an increase of
$13.0 million, or 48.9%.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
NET SALES. Net sales increased to $124.0 million in 1994 from $92.7 million
in 1993, an increase of $31.3 million, or 33.8%. This increase was principally
the result of sales of $28.6 million in 1994 for the ZERO and WIRE sunglasses,
which were introduced by the Company in the fourth quarter of 1993, together
with significant sales increases of M FRAME sunglasses, modest increases in
goggle sales, partially offset by a significant sales decrease in the 1994
period of SUB ZERO sunglasses and moderate sales declines for the BLADE and
RAZOR BLADE sunglasses, which represent two of the Company's most mature
products. The Company
21
<PAGE>
attributes the decrease in SUB ZERO sales to the success of its newer products,
particularly the ZEROS line. As a result, in January 1995, the Company withdrew
its SUB ZERO product line and introduced several new ZEROS, some of which
represent updated versions of the SUB ZEROS. Net sales of goggles increased to
$8.8 million in 1994 from $5.9 million in 1993. Net sales to sunglass specialty
retailers and optical stores in the United States represented approximately
49.6% of domestic net sales in 1994, compared with 35.3% of domestic net sales
in 1993. The Company's international sales grew 67.8% to $33.4 million, or 26.9%
of net sales, in 1994 from $19.9 million, or 21.5% of net sales, in 1993,
principally as a result of an increase in sales by Oakley Europe and increased
sales to distributors in most of Oakley's other foreign markets, especially
Australia and Canada.
GROSS PROFIT. Gross profit increased to $88.2 million in 1994 from $65.0
million in 1993, an increase of $23.2 million. As a percentage of net sales,
gross profit rose to 71.2% in 1994 from 70.2% in 1993, principally as a result
of a $2.4 million write-off in the 1993 period for certain inventory, including
clothing, accessories and discontinued colors and older models of eyewear
products. To preserve its brand image, the Company elected to destroy its
inventory of these eyewear products rather than sell them at a discount. The
Company chose in 1993 to dispose of certain excess clothing inventory. While the
Company does sell limited clothing and accessories that complement its eyewear
products (sales of these products have historically constituted less than 3.0%
of total net sales), management's philosophy is to maintain such sales at
minimal levels. Excluding the effect of the 1993 write-off, gross profit as a
percentage of net sales would have been 72.7% in 1993. The decline in gross
profit as a percentage of net sales in 1994 was attributable, in part, to
increased sales to Sunglass Hut, which receives a volume discount, and increased
international sales through distributors. Gross profit as a percentage of net
sales also decreased slightly in 1994 as a result of the higher overtime and
other labor costs discussed above, as the Company increased production hours in
mid-1994 in an attempt to reduce the level of backorders.
OPERATING EXPENSES. Operating expenses increased to $74.2 million in 1994
from $51.3 million in 1993, an increase of $22.9 million. This increase was
primarily due to an increase in 1994 of $12.6 million in officer bonuses paid to
the two principal executive officers (which include amounts to pay taxes on the
Company's income) and increases in other operating expenses commensurate with
the Company's growth as further discussed below. On a pro forma basis as
discussed above, operating expenses would have increased to $43.5 million in
1994 from $32.9 million in 1993, an increase of $10.6 million, or 32.2%. Selling
expenses increased $7.5 million in 1994 from 1993, principally as a result of
increased sales and a $1.7 million increase in the Company's warranty expense
due to an increase in its warranty reserve. General and administrative expenses
increased $1.8 million in 1994 from 1993 resulting primarily from an increase in
professional and consulting fees incurred during 1994 for proposed financing
transactions that the Company chose not to pursue.
OPERATING INCOME. The Company's operating income grew to $14.0 million for
the year ended December 31, 1994 from $13.7 million for the year ended December
31, 1993, an increase of $0.3 million. On a pro forma basis as discussed above,
operating income would have increased to $44.7 million for 1994 from $32.1
million for 1993, an increase of $12.6 million, or 39.3%. This increase was the
result of the Company's sales growth, improvement in its gross profit margin and
a slight reduction in its operating expenses as a percentage of net sales in
1994.
INTEREST EXPENSE, NET. The Company had interest expense of $0.4 million and
interest income of $0.2 million for the year ended December 31, 1994, as
compared with interest expense of $0.4 million and interest income of $0.4
million for the year ended December 31, 1993.
INCOME TAXES. The Company's income taxes, which represent California state
franchise taxes and foreign taxes accrued by Oakley Europe, were $0.3 million
and $0.3 million in 1994 and 1993, respectively. On a pro forma basis, income
taxes would have been $17.9 million in 1994 and $12.8 million in 1993.
NET INCOME. The Company's net income increased to $13.5 million in 1994
from $13.3 million in 1993, an increase of $0.2 million. On a pro forma basis,
net income would have increased to $26.6 million in 1994 from $19.2 million in
1993, an increase of $7.4 million, or 38.5%.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations almost entirely with
cash flow generated from operations. Cash provided by operating activities
totaled $15.7 million, $24.8 million, $28.6 million and $12.2 million for 1993,
1994, 1995 and the three months ended March 31, 1996, respectively. On a pro
forma basis as described above, cash provided by operating activities would have
been $26.3 million and $35.1 million for the years ended December 31, 1995 and
1994, respectively. At March 31, 1996, working capital was $47.1 million.
Working capital may vary from time to time as a result of seasonality, new
product introductions, capital expenditures, including purchases of equipment,
and changes in inventory levels. To supplement cash flow from operations, if
necessary, the Company maintains an $18.0 million revolving credit facility to
be used for general working capital purposes. The credit agreement relating to
such facility contains typical covenants with respect to the conduct of the
Company's business and requires the maintenance of various financial levels and
ratios. At March 31, 1996, there was no balance outstanding on the line of
credit. The Company believes that available cash, cash flow from operations and
available borrowings will be sufficient to meet operating needs and capital
expenditures, including the cost of constructing the Company's new
headquarters/manufacturing facility, for the foreseeable future.
Capital expenditures (other than for the construction of the Company's new
facility) for the year ended December 31, 1995 totaled $19.9 million as the
Company accelerated some capital spending in order to increase production
capacity. The Company anticipates that capital expenditures (other than for
construction of the Company's new facility) will total approximately $17.5
million for 1996, including approximately $4.5 million relating to the
development and production of the X METAL line. Capital expenditures (other than
for the construction of the Company's new facility) for the three months ended
March 31, 1996 totaled $4.8 million. In April 1995, the Company purchased land
for $8.2 million on which it is constructing a larger headquarters/manufacturing
facility. The Company currently estimates that the cost to construct such
facility will be approximately $33.0 million, of which $5.1 million was spent in
1995 and $1.9 million was spent in the first quarter of 1996. The remainder is
expected to be spent by late 1996 or early 1997 when the Company expects to
relocate to such facility. The Company also anticipates spending approximately
$7.0 million to design and engineer the new facility and for furniture and other
related costs.
The Company completed its initial public offering of 3,300,000 shares of
common stock in August 1995. Net proceeds to the Company from the sale of its
common stock were $69.1 million, after deducting underwriting discounts and
commissions and offering expenses. Proceeds from the offering were used to
prepay debt totaling $35.0 million and make payments on the S Distribution Notes
totaling $19.3 million; the remaining proceeds were used for general corporate
purposes, including capital expenditures for the construction of the new
headquarters/manufacturing facility.
Prior to the Company's initial public offering, as a result of the Company's
treatment as an S Corporation for Federal and state income tax purposes, the
Company historically provided its shareholders with funds for the payment of
income taxes on the earnings of the Company which were included in the taxable
income of the shareholders. In addition, the Company historically paid dividends
to shareholders to provide them with a return on their investment. The Company
paid dividends of $55.0 million, $13.4 million and $8.8 million during the years
1995, 1994 and 1993, respectively. Upon the consummation of such offering, the
Company's S corporation status was terminated. In August 1995, the Company
declared a distribution of its previously undistributed S corporation earnings,
which was paid through the distribution of aircraft and notes. The actual amount
of the S Distribution Notes was $19.3 million, all of which had been repaid by
March 31, 1996. See "Corporate History and Reorganization" and "Price Range of
Common Stock and Dividend Policy."
As part of the Company's management of its working capital, the Company
performs most customer credit functions internally, including extension of
credit and collections. The Company's bad debt write-offs were less than 0.25%
of net sales for each of the year ended December 31, 1995 and the three months
ended March 31, 1996.
23
<PAGE>
SEASONALITY
The following table sets forth certain unaudited quarterly data for the
periods shown:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------------------ ------------------------------------------ ---------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 26,175 $ 33,973 $ 32,591 $ 31,213 $ 36,615 $ 45,686 $ 47,499 $ 42,952 $ 48,706
Gross profit.................. 19,039 25,429 22,461 21,309 25,259 34,091 33,359 29,748 34,064
</TABLE>
Historically, the Company's sales, in the aggregate, generally have been
higher in the period from March to September, the period during which sunglass
use is typically highest. As a result, operating income is typically lower in
the first and fourth quarters as fixed operating costs are spread over generally
lower sales volume. In anticipation of seasonal increases in demand, the Company
typically builds inventories in the fourth quarter, when net sales have
historically been lower. In addition, the Company's shipments of goggles, which
generate gross margins at significantly lower levels than sunglasses, are lowest
in the second quarter. This seasonal trend contributes to the Company's gross
margin in the second quarter, which historically has been the highest of the
year. Although the Company's business generally follows this seasonal trend, the
success of the Company's products introduced since late 1993 and the Company's
international expansion have mitigated the impact of seasonality.
BACKLOG
Historically, the Company has generally shipped domestic orders (other than
preseason orders for ski goggles and orders from certain sunglass specialty
chains) within one day of receipt and international orders within two weeks of
receipt. The Company's backlog has increased since mid-1994, primarily due to an
increase in market demand. At March 31, 1996, the Company had a backlog of $18.7
million, including backorders (merchandise remaining unshipped beyond its
scheduled shipping date) of $1.8 million. See "Risk Factors -- Manufacturing
Capacity Constraints," "Business -- Properties" and "-- Liquidity and Capital
Resources."
24
<PAGE>
BUSINESS
INTRODUCTION
Oakley is an innovation-driven designer, manufacturer and distributor of
high-performance sunglasses and goggles. The Company's principal strength is its
ability to develop eyewear which combines unique styling with patented
technology to provide superior optical performance and comfort. As a result of
its focus on innovations for sports applications, Oakley believes it has become
the established leader in the sports segment of the sunglass market, and its
products are worn by a variety of athletes, such as skiers, cyclists, runners,
surfers, golfers, tennis and baseball players and motocross riders. In addition,
Oakley products have gained a loyal and growing following among consumers in the
larger nonsports, or recreational, segment of the sunglass market. The Company
believes it can expand its sales in the nonsports segment of the sunglass market
by continuing to introduce products that emphasize superior performance. The
Company's products currently include five lines of sunglasses (including M
FRAMES, ZEROS, WIRES and JACKETS) and three lines of goggles. As derived from
industry sources, the Company estimates that in 1994 it held an approximate 13%
market share of the $1.2 billion premium segment (over $30 retail) of the U.S.
retail sunglass market. For the year ended December 31, 1995, the Company
generated net income, on a pro forma basis as described herein, of $39.6 million
on net sales of $172.8 million. From 1992 through 1995, the Company's net sales
and net income, on a pro forma basis as described herein, have increased at
compound annual growth rates of approximately 31.3% and 33.2%, respectively.
The key components of the Company's operating strategy are to distinguish
its products through technological and design innovation and to reinforce the
Oakley brand image through creative marketing and selective distribution. The
Company believes it has one of the most technologically advanced product
development capabilities in the sunglass industry. Using state-of-the-art
technology, including a three-dimensional CAD-CAM system and liquid laser
prototyping, Oakley has dramatically shortened its product development cycle
and, as a result, is capable of introducing a new product line within four
months of its initial concept. In addition to controlling all aspects of product
development, the Company also produces components and performs processes
in-house that contribute significantly to gross profit margin, provide
protection against piracy of the Company's proprietary information and
processes, and enable the Company to manufacture products in accordance with its
strict quality control standards. When subjected to industrial standard tests
for optical quality, as established by ANSI, Oakley's sports-application
sunglasses featuring its patented polaric ellipsoid lens geometry (including M
FRAMES and ZEROS) have demonstrated superior optical clarity as compared to
similar products of its principal competitors.
To promote consumer awareness of its technological and design innovation,
the Company has developed an effective marketing approach that features
influential athletes and eclectic, informative advertising which combine to
enhance the Oakley image of high-performance, technologically advanced eyewear.
The Company distributes its products in the United States through approximately
7,100 carefully selected accounts with approximately 10,100 locations comprised
primarily of optical stores, sunglass retailers and specialty sports stores. In
an effort to preserve and enhance Oakley's brand image, the Company stopped
soliciting new customer accounts in the United States, with limited exceptions,
in November 1989. The Company's current level of distribution, with the addition
of key niche retailers, is expected to be capable of accommodating expanding
sales while maintaining the discoverability of Oakley products by consumers.
This distribution philosophy provides retailers with a degree of exclusivity for
Oakley products which has increased brand loyalty, improved retailer margins on
Oakley products and encouraged retailers to display Oakley products in prominent
shelf space and make timely payments. In addition, the Company sells its
products in over 65 countries outside the United States. In 1995, international
sales accounted for approximately 33.3% of the Company's total net sales.
Oakley was started in 1975 by Mr. Jannard. The success of its first product
line, handgrips for motocross motorcycles, led the Company to expand into the
design and manufacture of motocross goggles. The first goggle was released in
1980. The prominently displayed OAKLEY name on the goggles quickly gained
recognition and helped establish Oakley's reputation for functional quality and
unique form. By 1984, using the
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knowledge gained in designing, manufacturing and marketing goggles, the Company
produced its first high-performance sunglass, the EYESHADES. Since then, the
Company has introduced nine new sunglass lines, including M FRAMES, ZEROS, WIRES
and JACKETS.
OPERATING STRATEGY
The Company's goal is to become the premier manufacturer of high-performance
eyewear in the world. Each element of the Company's operating strategy, from
design and manufacturing to marketing and distribution, is designed to control,
protect and enhance the Oakley brand image. Key elements of the Company's
operating strategy include the following:
- - DEVELOP HIGH QUALITY, INNOVATIVE PRODUCTS. Oakley intends to continue
developing products that incorporate superior optical performance and unique
styling, factors which differentiate Oakley's products from those of its
competitors and increase brand recognition among consumers.
- - FOCUS ON SELECTIVE DISTRIBUTION. Oakley maintains strict control over the
distribution of its products to avoid overexposure of the brand and maintain
discoverability. The Company sells its products through carefully selected
retailers that are routinely assessed to ensure they conform with Oakley's
standards. The Company believes its selective distribution policy has
promoted a high degree of loyalty from retailers and a stable retail price
environment, while increasing Oakley's control over diversion and
counterfeiting of its products.
- - UTILIZE A DISTINCTIVE MARKETING APPROACH. The Company believes that the
superior technology and performance of Oakley products are quickly recognized
by serious athletes. For this reason, the Company's marketing efforts rely
primarily on the "editorial" endorsement of influential athletes, some of
whom have formal arrangements with the Company. The Company believes that the
use of Oakley products by this core group of athletes increases consumer
awareness of the performance features of the Company's products and overall
brand recognition. The Company supports its sports marketing with eclectic
print advertising which features this group of athletes and often serves to
educate consumers on the health and performance benefits of its products. The
Company also intends to continue its selective use of television advertising.
- - CONTINUE STRATEGIC MANUFACTURING. With its state-of-the-art manufacturing
equipment, Oakley produces components and performs processes in-house that
contribute significantly to its gross profit margin, provide protection
against piracy of the Company's proprietary information and processes, and
enable the Company to manufacture products in accordance with its strict
quality control standards.
- - AGGRESSIVELY PROTECT ITS INTELLECTUAL PROPERTY RIGHTS. Oakley will continue
to rely on patent, trademark, trade secret, unfair competition and copyright
law to protect its rights to certain aspects of its products, including
product designs, proprietary manufacturing processes and technologies,
product research and concepts and recognized trademarks and trade dress. The
Company believes that it has developed a strong reputation in the sunglass
industry as a vigorous defender of its intellectual property rights; this
reputation acts as a deterrent against the introduction of potentially
infringing products by its competitors and others.
GROWTH STRATEGY
While protecting and enhancing its brand image, the Company has developed a
growth strategy which will allow it to best capitalize on its long-term growth
opportunities. The principal elements of the Company's growth strategy are as
follows:
- - INCREASE PRESENCE IN THE NONSPORTS SEGMENT OF THE SUNGLASS MARKET. The
Company believes the future of sunglass fashion will be influenced by
technology and an increased awareness of optical quality. As a result, the
Company intends to increase its focus on the nonsports, or recreational,
segment of the market. In late 1993, Oakley targeted this segment with the
introduction of the E WIRE sunglass. The success of the E WIRE has increased
the acceptance and visibility of the Oakley brand name among consumers in the
broader recreational segment, which is traditionally more fashion-oriented.
In late 1994, the Company launched the JACKETS line of sunglasses, which
appeals to both the recreational and sports segments of the market. In late
1995, the Company launched an extension of the JACKETS line, the
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TRENCHCOATS. In 1996, the Company intends to introduce several sunglass line
extensions, including the SQUARE WIRE, and at least one new line of
sunglasses, the X METALS, which is expected to attract consumers from the
nonsports segment of the sunglass market.
- - FOCUS ON INTERNATIONAL EXPANSION. The Company believes that wider
international distribution also represents a significant opportunity for
expansion of Oakley's sales. The Company currently sells its products in over
65 countries outside the United States, but believes it can increase
penetration of its eyewear in most of its international markets, including
the Pacific Rim, Europe and Latin America. The Company's 1995 international
net sales increased 72.5% from 1994 and represented 33.3% of the Company's
net sales. To improve the consistency of its image and operating strategy
worldwide, Oakley is establishing closer working relationships with its
international distributors and plans to increase its use of direct sales
representatives in those locations where such an approach is advantageous. In
1995, the Company established a subsidiary in Mexico City which acquired the
Company's exclusive distributor in Mexico and began selling to that market on
a direct basis at the end of 1995. The Company also expects to continue
benefiting from the global expansion of its largest customer, Sunglass Hut.
- - EXPAND PRODUCT LINES AND APPLICATIONS IN THE SPORTS SEGMENT. The Company
will continue to research, develop and market new products as well as new
applications for its existing products and technology within the sports
segment of the sunglass market. In 1996, the Company has expanded its M FRAME
and ZEROS lines to include models designed for specific sports. These models
incorporate features that have proven superior for specific sports
applications and utilize sport-specific packaging and point of purchase
materials which feature Oakley athletes. Through effective use of marketing,
the Company will continue to educate consumers about the benefits of using
its products in additional sports and activities.
INDUSTRY OVERVIEW
According to industry sources, total retail sunglass sales in the domestic
sunglass market grew a total of 29.4% from $1.7 billion in 1989 to $2.2 billion
in 1994. The industry is generally divided into two principal segments -- the
under $30 market and the over $30 premium market. The premium sunglass market,
the category in which the Company competes, showed an increase in retail sales
of a total of 45.3% from $825.6 million in 1989 to $1.2 billion in 1994. The
average retail price per unit for premium eyewear has increased during such
period, contributing significantly to the overall growth of the segment.
Management believes that consumer willingness to pay more for premium
eyewear results from increased awareness of health concerns supporting the need
for quality eye protection, increased demand for specialized sunglasses to be
used as equipment in different sports and activities and growing brand
awareness. The Company has sought to capitalize on these trends by focusing on
certain sports, including skiing, golf and cycling, in which participants tend
to spend a significant amount of disposable income on equipment and accessories,
and by educating consumers of all types on the superior optical performance of
Oakley eyewear.
PRODUCT DESIGN AND DEVELOPMENT
BACKGROUND
The emergence of Oakley's products and their increasing sales are partially
a result of changing technologies in eyewear. In the late 1970s, glass was the
preferred lens substrate, as it offered the best optical properties and was
scratch-resistant. At that time, polycarbonate material was lighter and stronger
than glass, but was less desirable in terms of optical clarity and
scratch-resistance. Over the last 20 years, higher quality material and new
designs and molding processes, combined with hard-coating technologies, have
made polycarbonate lenses competitive or superior to glass lenses in optical
clarity and impact-resistance and have improved the scratch-resistance of such
lenses. Oakley was the first manufacturer to focus on single-arc lens sunglasses
and has identified, researched and patented what the Company believes are the
three most desirable lens geometries used in the manufacture of single-arc
lenses. See "-- Products." In addition, because polycarbonate lenses can be
molded, they can be contoured to provide better coverage and protection from the
sun, making polycarbonate lenses the preferred choice for use in sports or
extended
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wear. All Oakley PLUTONITE lenses are composed of a specially formulated
polycarbonate and screen out 100% of all ultraviolet and harmful blue light
rays. The lenses are also both substantially lighter and more impact-resistant
than glass lenses.
INDUSTRIAL STANDARDS
The Company subjects its eyewear to a series of industrial standard tests,
known as "Z87.1," established by ANSI and conducted by an independent
laboratory. The Company also conducts such ANSI tests in its own facilities on a
regular basis. When subjected to ANSI's test for optical quality, Oakley's
sports-application sunglasses featuring its patented polaric ellipsoid lens
geometry (including M FRAMES and ZEROS) have demonstrated superior optical
clarity as compared to similar products of its principal competitors.
Industrial Standard ANSI Z87.1 includes tests of sunglasses for optical
quality, high velocity impact and high mass impact. The components of the ANSI
test for optical quality performed on the Company's sunglasses include: (i)
prismatic power, (ii) refractive power and astigmatism, (iii) definition and
(iv) prism imbalance. The test for prismatic power measures the angular
deflection of light rays passing through a sample lens. Refractive power is
measured by comparing the difference between the focal length of an image as
viewed through a sample lens and the focal length of the image without the
sample lens; in effect, the test gauges the level of magnification induced by
the lens. The test for astigmatism measures the difference in refractive power
in one meridian from that in another meridian. The definition test measures how
well a given image is resolved through the sample lens. The test for prism
imbalance measures the difference in prismatic power between the right and left
sides of the sample lens.
High velocity impact is measured by shooting 1/4" steel balls, at a speed of
150 feet per second, at a sunglass placed on a head form. Under the high mass
impact test, eyewear must be capable of resisting impact from a one pound
pointed projectile dropped from a height of approximately four feet.
Oakley believes it was the first sunglass company to utilize ANSI
standardized test results in its marketing efforts to educate consumers on the
objective performance standards of its products. The Company has developed its
own on-site lab which is equipped to perform the components of the ANSI Z87.1
test. The Company believes that having ready access to such a facility provides
the Company with a competitive advantage with respect to the testing of new
product prototypes that satisfy the Company's standards for optical clarity and
durability.
PRODUCT DESIGN AND DEVELOPMENT
The Company believes it has earned a reputation in the industry as an
innovator in the development of new product styles and in the use of advanced
lens geometry and other performance-related enhancements. The Company's products
are designed through the cooperative efforts of the Company's 13-person in-house
design staff. In formulating design concepts and product ideas, the staff
focuses on developing products with demonstrable improvements in performance,
creating breakaway designs, some of which can be patent-protected, and finding
creative solutions to the functional problems of active sunglass wearers.
Designers utilize state-of-the-art technology, including a three-dimensional
CAD-CAM system and liquid laser prototyping, to create a fully detailed,
wearable prototype within 20 hours. As a result, Oakley has dramatically
shortened its product development cycle by facilitating rapid iterations of
working prototypes and components leading to a perfected model which can then be
used directly in the preparation of a mold. This process allows for the
extensive testing and perfecting of a product, before introducing it to the
public. Through the use of such technology, the Company is capable of
introducing a new product line within four months of initial concept. The
Company believes its design equipment is among the most technologically advanced
in the sunglass industry.
The Company historically has limited the number of new product lines that it
introduces in a year in order to increase the exposure for each new product line
and reduce cannibalization of other Oakley products. The Company also
deliberately withdraws slower-moving products from the market as new products
with technological advancements are introduced. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General." A smaller
product line also improves the depth of knowledge of each of the Company's
products by the Company's specialty account base. Prior to any
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formal product introduction, the Company selectively releases information about
the new product to the market. This strategy creates a sense of excitement,
exclusivity and anticipation among athletes, retailers and others awaiting the
arrival of the Company's new products.
One of Oakley's most significant developments has been the IRIDIUM coating
on the PLUTONITE lens. IRIDIUM is a metallic oxide coating that increases
contrast and color saturation, which enables the wearer to perceive details in
shadows or low or bright light conditions. This coating has proven very popular
in demanding sports, such as skiing and cycling, and in high altitude use. More
recently, the distinctive look of the IRIDIUM-coated lens has become popular
with recreational sunglass wearers. Another hallmark of Oakley's initial
sunglass products was their detachable and interchangeable components, including
lenses, frames, temples and nosepieces in different colors and shapes.
Interchangeable components contribute to the overall Oakley appeal by allowing
consumers to customize their sunglasses to their personal tastes and to modify
them for specific conditions such as low and bright light.
Oakley has obtained patents covering a number of its proprietary
manufacturing methods and product features, which the Company believes have
provided it with significant competitive advantages. Among the Company's most
important patents and proprietary information are toroidal single-lens
geometries and associated manufacturing processes and certain of the Company's
frame components and materials. The proprietary technology the Company employs
in its lens-cutting, etching and coating processes and the Company's significant
investment in specialized equipment, together with certain exclusive materials
used in production, contribute to the superior optical quality and
impact-resistance of Oakley products. See "-- Intellectual Property."
Oakley has developed sports-application sunglasses for the
prescription/corrective lens segment of the market in its M FRAME and ZEROS
lines. The Company's approach has been to develop products that integrate
prescription lenses into Oakley's current lens geometry system. The polaric
ellipsoid lens substrate is used as a "chassis" to hold corrective lens implants
in place. Because of the curvature of the Oakley lens, Oakley adjusts the
corrective implants by a computer model to modify the athlete's prescription to
an "as worn" position. This feature and the specialized equipment needed to cut
and edge the lenses, together with Oakley's PLUTONITE lens material, allow the
Company to be the exclusive provider of these corrective lenses. The Company
uses an outside ophthalmic laboratory to grind the corrective lenses. These
products have enabled Oakley to attract several high profile athletes that would
not otherwise have been available to promote the Company's brand. The Company
intends in mid-1996 to introduce a new model of WIRES which will be more
accommodating for ophthalmic use and intends, in connection with this new model,
to develop and introduce Oakley-branded ophthalmic lenses.
The Company's historical success is attributable, in part, to its
introduction of products which are perceived to represent an improvement in
performance over products available in the market. The Company's future success
will depend, in part, upon its continued ability to develop and introduce such
innovative products. In 1996, the Company intends to introduce several sunglass
line extensions and at least one new line of sunglasses, the X METALS. The
product line extensions include two new JACKETS -- the STRAIGHT JACKET (which
was introduced in May) and a sports-application JACKET, additional
sports-specific M FRAMES and ZEROS and a new model of WIRES.
The Company believes that these new products will continue to attract
additional consumers from the nonsports segment of the sunglass market. The
Company has invested in metal prototyping equipment for use in developing X
METALS and intends, in mid-1996, to acquire a production facility specifically
for X METALS. Production of X METALS will involve proprietary manufacturing
processes and other technology for which multiple patents are currently pending.
The Company anticipates that it will introduce this new line in late 1996,
although delays have been experienced in the past, and may be anticipated in the
future, due to the complexity of the development, both in design and processes.
The success of any new product line, including the X METAL line, is dependent
upon various factors, including product demand, production capacity and the
availability of raw materials and critical manufacturing equipment. Other
factors and assumptions not identified above were also involved in preparing
forward-looking information relating to product development and introductions,
including that contained above. The uncertainty associated with all the above
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factors, and any change in such factors from the Company's expectations, could
result in cost increases, delays or cancellation of such new products and may
also cause actual results to differ materially from those projected.
To take advantage of unique opportunities, the Company may manufacture
private label or other sunglasses for other companies and intends to market and
sell sunglasses under brand names other than "Oakley." In addition, the Company
has licensed, and may in the future determine to further license, its
intellectual property rights to others in the optical or other industries. The
Company does not anticipate that any of such activities would be material to its
overall business for the foreseeable future.
For information with respect to research and development expenditures during
the 1993, 1994, 1995 and the three months ended March 31, 1996, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PRODUCTS
The Company's first optical products, introduced in 1980, were goggles
developed for the ski and motorcycle industries. From the perspective of
"function first," the Company next introduced a hybrid goggle/sunglass design
for cycling and skiing, which led to other models for sport-specific uses. The
Company recognized that athletes in different sports needed different types of
protection to ensure clear vision, adequate impact-resistance and deflection of
wind, snow and other elements. The Company successfully expanded its product
line by educating the market about the individual eyewear needs of a sport and
marketing glasses perceived to be useful athletic equipment. All of the
Company's sunglass lines utilize one of two lens geometries: toroidal (polaric
ellipsoid) and spherical. The toroidal lenses, which have a different radius
from the top to bottom than from side to side and are used in the Company's M
FRAMES and ZEROS, provide superior optical clarity and enhanced coverage and,
therefore, represent the Company's most advanced technology for demanding sports
applications. Spherical lenses, which have a uniform radius in all directions,
are used in the Company's dual-lens sunglasses, the JACKETS, WIRES and
FROGSKINS. The Company's spherical lenses are corrected and oriented so as to
minimize distortion in the "as-worn" position, a feature which differentiates
the Company's dual-lens sunglasses from those of its competitors. The Company's
eyewear is popular with athletes in baseball, golf, tennis, cycling,
motorcycling, skiing, volleyball, marine sports, triathlons, running, surfing,
snowboarding and other sports.
The Company's current products are set forth below:
<TABLE>
<CAPTION>
DATE LENS WHOLESALE SUGGESTED RETAIL
INTRODUCED GEOMETRY PRICE PRICE
----------- ------------ ------------------ ------------------
<S> <C> <C> <C> <C>
SUNGLASSES
FROGSKINS...................... 1985 Spherical $ 20.00 - 27.50 $ 40.00 - 55.00
M FRAMES....................... Late 1989 Toroidal 45.00 - 72.50 90.00 - 145.00
ZEROS.......................... Late 1993 Toroidal 40.00 - 52.50 80.00 - 105.00
WIRES.......................... Late 1993 Spherical 65.00 - 112.50 130.00 - 225.00
JACKETS........................ Late 1994 Spherical 45.00 - 65.00 90.00 - 130.00
GOGGLES
MOTOCROSS...................... 1980 -- 15.00 - 33.50 26.00 - 56.50
SKI............................ 1983 -- 12.50 - 51.00 25.00 - 102.00
H2O............................ 1990 -- 15.00 - 35.75 25.75 - 61.00
</TABLE>
FROGSKINS. Introduced in 1985, the FROGSKINS sunglass was designed as a
more traditional "look good, feel good" sunglass. The PLUTONITE lens material
provides 100% ultraviolet and blue light protection in a traditional twin lens
frame. The earpieces are secured with a special snap-fit design that replaces
the hinges found in conventional eyewear designs and reduces breakage at a
traditionally weak point. The FROGSKINS sunglass was priced as Oakley's
introductory product. Although the lens and frames are not interchangeable,
Oakley markets six different lens/frame combinations of the FROGSKINS
sunglasses.
M FRAMES. Introduced in late 1989, the M FRAME line of sunglasses
significantly advanced optical technology through the use of Oakley's patented
polaric ellipsoid lens geometry. Polaric ellipsoid lens
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geometry minimizes distortion at all angles of vision through the M FRAME
sunglass lens. It also allows for greater protection by positioning the lens
closer to the face. The M FRAME uses a PLUTONITE lens and an exclusive
lightweight material for the frame. Its unique design, coupled with Oakley's
HAMMER earstems, creates a comfortable three-point fit, regardless of head shape
or size. The earstems are equipped with Oakley's patented earsocks, which slide
over the stems, and are made of Oakley's UNOBTANIUM, a slip-resistant elastomer.
Because UNOBTANIUM is hydrophilic, it absorbs moisture and actually gets
stickier as an athlete sweats, thereby helping the M FRAMES to stay secure on
the face. The M FRAME sunglass is available in 10 lens tints and six frame
colors and in the HEATER, SWEEP, STRIKE and HYBRID lens shapes. The Company also
offers the SLASH, a sports glass for basketball, jetskiing, and other outdoor
sports which has an enlarged vented HEATER lens, a strap to secure the glasses
and a foam brow pad. The SLASH is offered in a clear and two IRIDIUM lens tints.
In early 1996, the Company began to offer sport-specific versions of its M FRAME
and ZEROS sunglasses for the golf and baseball markets. These models incorporate
features that have proven superior for these sports applications.
ZEROS. Introduced in late 1993, the ZEROS sunglass combines Oakley's most
advanced technology with bold, new styles. The ZEROS sunglass merges the dual
lens concept with toroidal (polaric ellipsoid) lens geometry to create an
innovative design that is available in nine distinctive variations. In January
1995, the Company introduced two new lens shapes, one of which represents an
updated version of the SUB ZEROS product line. These lenses come in several
tints.
WIRES. The WIRES, also introduced in late 1993, firmly established Oakley
in the nonsports category of the eyewear market. WIRES are Oakley's most
fashion-oriented sunglasses, employing a sleek, classic design that remains true
to the innovation underlying every Oakley product. The WIRES are a twin lens,
wire frame sunglass with spherical PLUTONITE lenses specially tapered to provide
superior optics in a unique wrap-around look. The HAMMER earstems have Oakley's
patented UNOBTANIUM earsocks to enhance comfort and fit. The WIRE sunglasses are
equipped with the standard Oakley features of strong but lightweight frames and
protective IRIDIUM-coated lenses. It is Oakley's only wire-frame sunglass to
date. The frames can also be fitted with prescription lenses. The E WIRES come
in six varieties: light, dark, gold, burnt, black chrome and polished. The T
WIRE features a titanium frame which is extremely lightweight, yet durable, and
lenses with a unique IRIDIUM coating containing titanium.
JACKETS. In December 1994, the Company launched the JACKETS. Designed for
both the sport and recreational segments of the market, the JACKETS have twin
spherical lenses molded into a wrap-around frame. A unique hinge gives the frame
a fluid, sculptured appearance. The frames are constructed of a stress-resistant
material called O-MATTER. The JACKETS also benefit from the superior comfort and
fit afforded by the Company's UNOBTANIUM earsocks. The JACKETS line consists of
three products: the EYE JACKETS, TRENCHCOATS and STRAIGHT JACKETS. The EYE
JACKETS are offered in 12 variations, including two FULL METAL JACKETS, which
have a unique metallic coating. In late 1995, the TRENCHCOAT was introduced as
an extension to the JACKET line and includes seven styles, including two
camouflage patterns. The TRENCHCOAT features a larger frame and lenses than the
EYE JACKET, increasing peripheral vision and coverage, while offering the same
sculptured appearance and optics as the EYE JACKET. Oakley's most recent
extension to the JACKET line is the STRAIGHT JACKET, which was introduced in
May, 1996, features a squared frame and is offered in five colors.
GOGGLES. Oakley first entered the sports eyewear market in 1980 with its
motocross goggles. Since then, Oakley has expanded its range of goggle products
to include goggles for use by athletes involved in BMX cycling, skiing and
watersports.
Oakley ski goggles (with the exception of the E-FRAME) are comprised of a
layering of two single-arc lenses. The outer lens is made of impact- and
scratch-resistant Lexan. The inner lens is designed to prevent fogging or
freezing. The wrap-around lenses improve peripheral and up-and-down vision. Lens
vents prevent moist air from being trapped between and behind the lenses. A
special gasket between the lenses keeps both lenses perfectly parallel, further
minimizing distortion. The coordination of a persimmon outer lens and a gray
inner lens reduces glare and provides higher contrast than single-lens systems
in low-light conditions. The frame is made with a rugged urethane compound and
is available in six different colors which can be color-coordinated with
available woven elastic straps. Oakley's ski goggles are sold in four
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models: the O-FRAME, PRO-FRAME, E-FRAME and L-FRAME. The L-FRAME goggle is
designed to fit over glasses. In 1997, the Company intends to introduce a new
goggle frame that will incorporate advanced design features and improved
styling.
Oakley motocross goggles also feature the exclusive "MX Factory Pilot
Tearoffs." These clear plastic covers are secured to the goggle with a single
detachable tab. When the goggles become covered with mud or rain, the rider can
pull the tearoff tab to clear the lens. Up to ten layers of plastic covers can
be attached, continuously providing the rider with clear vision. Oakley's
motorcycle goggles are sold in the O-FRAME, the PRO-FRAME IRIDIUM and the
L-FRAME models. The O-FRAME goggle has a single foam layer, whereas the Pro-and
L-FRAME models have dual foam layers. Their design is otherwise similar to that
of the Oakley ski goggles.
Oakley's watersports goggle, the H2O, is a recent introduction to the Oakley
goggle family. The H2O goggle was designed for jetskiing, windsurfing and other
similar watersports. In addition to the standard Oakley goggle features, the H2O
is treated with anti-fogging and water-repellant coatings. A closed-cell foam
seals the goggle to the face while special exhaust ports quickly drain away
moisture. The closed-cell foam also provides buoyancy.
REPLACEMENT LENSES AND ACCESSORIES. By offering interchangeable lenses and
other components of certain Oakley sunglasses in various colors and shapes,
Oakley has created a market for replacement parts. Depending on the sunglass, an
Oakley customer may have several lenses for different light conditions and
several nosepieces and earpieces in a range of colors for variety. This added
feature allows consumers not only to replace worn parts, but also to coordinate
their glasses with their clothing. Earstems and nosepieces come in a variety of
styles and sizes, enabling consumers to further customize their glasses. Sales
of replacements and accessories secure more shelf space for Oakley products,
reducing the space available to competitors.
As the Oakley brand name has become increasingly popular, demand has also
grown for Oakley accessories. While the Company does not actively market
accessories, it does selectively put its logo on t-shirts, gear bags and hats.
Sales of these products have historically constituted less than 4.0% of total
sales, and management's philosophy is to maintain such sales at minimal levels.
Although brand recognition continues to grow, management has repeatedly declined
licensing opportunities in order to preserve the Oakley image, which the Company
believes will bring greater respect and demand for Oakley's products over the
long term.
MANUFACTURING
Oakley manufactures and assembles most of its products in its facilities
located adjacent to its headquarters in Irvine, California. The Company owns,
operates and maintains most of the equipment used in the manufacture of its
products. The Company produces components and performs processes in-house that
contribute significantly to gross profit margins, provide protection against
piracy of the Company's proprietary information and processes, and enable the
Company to manufacture products in accordance with its strict quality control
standards. Components and processes that are unlikely to add significant value
will continue to be contracted out to vendors. Much of the equipment used in the
manufacture of the Company's products has been specially designed and adapted
for the processes used by the Company. The Company's proprietary manufacturing
methods and equipment are protected by special security measures employed at the
Company's manufacturing facility. In addition, the Company believes that by
manufacturing its own products it has the opportunity to experiment with new
materials and technologies which can lead to important discoveries, such as its
iridium coating process (which the Company believes is one of the most
sophisticated coating processes in the industry). The Company generally seeks to
maintain a month and a half supply of finished goods and historically has
generally shipped domestic customer orders (other than preseason orders for ski
goggles and orders from certain sunglass specialty chains) received within one
day of receipt. See "Risk Factors -- Manufacturing Capacity Constraints" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Backlog."
The Company believes that a combination of strict quality control and
advanced manufacturing processes is essential to producing a superior product.
On average, the Company's lenses are inspected five
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times by hand throughout the manufacturing process. After the lens blanks are
shipped to Oakley, they are thoroughly cleaned and moisture is removed, thereby
reducing the occurrence of flaws during the coating process. Each lens blank is
then placed in a computer-controlled, precision cutting device that ensures
consistency in lens size. The lens then passes through the coating process in
which layers as thin as two microns are applied. To avoid the distortion
typically found around the edges of a lens blank, Oakley purchases lens blanks
in significantly larger sizes than are required for the finished lens. The
optically inferior portion is removed in the cutting process. The lenses are
then assembled with the frames and other components which have previously been
run through the Company's graphic transfer process or other finishing processes
to add variety and style.
The Company has forged strong relationships with its major suppliers and
maintains agreements with most of them that prohibit such suppliers from
revealing any of the Company's proprietary information and technology to third
parties. Although the Company relies on outside suppliers for the polycarbonate
components of its glasses and goggles, the Company owns substantially all the
molds used in the production of the components. The Company relies on a single
source for the supply of several components, including the uncoated lens blanks
from which substantially all of the Company's lenses are cut. The Company
believes most of these components can be obtained from one or more alternative
sources within a relatively short period of time. The loss of the source for
lens blanks, however, or any disruption in such source's business or failure by
it to meet the Company's product needs on a timely basis could cause, at a
minimum, temporary shortages in needed materials and could have a material
adverse effect on the Company's business. At the Company's request, this
supplier has agreed to use the Company's molds in multiple locations to minimize
the risk of damage to all molds at one time. There can be no assurance that, if
necessary, an additional source of supply of lens blanks can be located or
developed in a timely manner. See "Risk Factors -- Reliance on Single Sources of
Supplies." The Company's business interruption insurance policy reimburses the
Company for certain losses incurred by the Company, up to a maximum of $30
million, as a result of an interruption in the supply of raw materials,
including uncoated lens blanks, resulting from direct physical loss or damage to
a supplier's premises, subject to certain exceptions. However, there can be no
assurance that such policy will be sufficient to compensate the Company for all
losses resulting from an interruption in the supply of raw materials.
In April 1995, the Company purchased land located in Foothill Ranch, Orange
County, California, on which the Company is constructing a larger
headquarters/manufacturing facility to accommodate expansion for the foreseeable
future and provide a significant increase in production capacity. The Company
expects to relocate to such facility by the end of 1996 or in early 1997. See
"-- Properties."
DISTRIBUTION
The Company sells Oakley eyewear in the United States through a carefully
selected base of approximately 7,100 accounts with approximately 10,100
locations comprised of optical stores, sunglass retailers and specialty sports
stores, including bike, surf, ski and golf shops and motorcycle, running and
sporting goods stores. Most of the Company's accounts, other than sunglass
retail chains, have a single store. Unlike most of its competitors, the Company
has elected not to sell its products through department stores (other than
Nordstrom), discount stores, drug stores or traditional mail-order companies.
The Company began to sell its products to Nordstrom in 1986 and has established
a good working relationship with the chain. In 1995, net sales to department
stores represented less than 1% of net sales. The Company believes that its
current level of distribution to sunglass specialty retailers and optical stores
leaves it well positioned to capitalize on opportunities in the nonsports
market. The Company believes sunglass retailers represent the largest and
fastest growing channel for sales of sunglasses and also expects significant
growth in sunglass sales by sports specialty stores.
In an effort to preserve and enhance the Company's brand image, Oakley
stopped soliciting new retail accounts in the United States, with limited
exceptions, in November 1989. In 1995, the Company accomplished its goal of
slightly reducing its number of domestic retail accounts by eliminating accounts
that failed to meet the Company's standards. The Company's current level of
distribution, with the addition of key niche retailers, is expected to be
capable of accommodating expanding sales, while maintaining the discoverability
of Oakley products by consumers. This distribution philosophy provides retailers
with a degree of
33
<PAGE>
exclusivity for Oakley products which has increased brand loyalty and encouraged
retailers to display Oakley products in prominent shelf space and make timely
payments. Retailers are also afforded an opportunity to make a favorable profit
on Oakley eyewear because there is limited competition from other retailers
offering Oakley products. The noticeable absence of the Company's products from
department stores, discount stores, drug stores and traditional mail-order
catalogs has contributed to the Company's exclusive, high-quality image. The
Company generally does not change its domestic wholesale prices during the life
of a product, which the Company believes creates a more stable retail
environment.
In early 1994, the Company entered into an exclusive licensing agreement
with Sunglass Hut to sell Oakley products through mail order catalogs. Under the
agreement, Oakley maintains creative control over marketing, advertising and the
copy production for each catalog and receives a royalty on gross sales, provided
that certain conditions are met. For 1996, the Company will bear a portion of
the cost of such catalog program. The Company does not otherwise allow its
products to be sold through mail order because of the general difficulty in
assessing performance and in controlling the content and the quality of
presentation and service.
The Company's products are currently sold in over 65 countries outside the
United States. Sales in the Company's top five markets outside the United States
(Australia, France, Canada, Japan and the United Kingdom) accounted for
approximately 50% of international sales during 1995. See Note 8 of Notes to
Consolidated Financial Statements.
In most of Europe, marketing and distribution is handled directly by Oakley
Europe, located near Paris, France, which is staffed by approximately 65
employees who perform sports marketing, advertising, telemarketing, shipping and
accounting functions. Oakley Europe has an independent sales force in all major
European markets except the United Kingdom, Switzerland and Austria. In 1995,
the Company established Oakley Mexico, which acquired the Company's exclusive
distributor in Mexico and began selling to that market on a direct basis near
the end of 1995. In those parts of the world not serviced by Oakley Europe or
Oakley Mexico, Oakley's products are sold through distributors with local
expertise which sell Oakley products either exclusively or with complementary,
noncompeting products. Such distributors agree to respect the marketing
philosophy and practices of the Company.
The Company requires its retailers and distributors to agree not to resell
or divert Oakley products through unauthorized channels of distribution. Each
product shipped from Oakley's headquarters is marked with a tracking code that
allows the Company to determine the source of diverted products sold by
unauthorized retailers, so it can better maintain the integrity of its products
at desired locations. When Oakley products are found at undesirable locations or
unauthorized retailers, the Company purchases samples and, using the tracking
device, determines the source of the diversion. The Company then estimates the
potential damage to the Company's retail franchise and image and may require
that the offending account repurchase the diverted product or post a
nonrefundable bond against future diversion. In certain instances the Company
may terminate the account. When an existing account has been terminated, the
Company may repurchase its own products from the retailer at the undesirable
location to protect the Oakley image and the exclusivity enjoyed by the
Company's retail account base. The Company employs similar anti-diversion
techniques in overseas markets.
SALES AND MARKETING
The Company maintains a national sales force of approximately 75 independent
representatives. The primary functions of Oakley's sales force are to sell to
each retailer the appropriate mix and quantity of Oakley products, ensure that
products are displayed effectively and educate retailers about the quality and
features of Oakley products and Oakley's sales and marketing philosophies. The
Company believes that its relationships with its customers, effective marketing
and superior customer service are critical elements of the Company's success.
Through its sales representatives, the Company tries to satisfy every customer's
request for information or product support. Sales representatives regularly
visit each customer to educate the customer about recent innovations in product
designs, new product applications and merchandising ideas. Each field sales
representative reports to, and is supported by, one of the Company's in-house
territory managers. Each territory manager works with four to eight field
representatives in setting sales
34
<PAGE>
goals, providing sales analyses, soliciting sales to complete customers'
inventories and taking incoming orders. The territory managers frequently travel
to the territory they oversee and to trade shows with the field representatives,
which enables the Company to maintain the consistency of customer service and
information. The Company's sales force is paid solely by commissions on net
sales.
While Oakley uses traditional marketing methods in some instances, the
Company attributes much of its success largely to the use of less conventional
methods, including sports marketing, targeted product allocation, advertorials
and in-store display aids. The Company has used sports marketing extensively to
promote its products and their image, and athletes have always been a key factor
in the Company's successful marketing strategy. A substantial amount of the
Company's marketing budget is used to attract high profile athletes to wear,
evaluate and promote the Company's eyewear. These arrangements tend to be
performance contracts with terms of two to four years and small retainers. The
Company also furnishes its products at a reduced cost or without charge to
selected athletes and public personalities who wear Oakley sunglasses without
any formal arrangement. The Company incurred total expenses under its
endorsement arrangements of approximately $4.9 million and $1.2 million in 1995
and the three months ended March 31, 1996, respectively. The Company prefers
that its association with these public figures be kept confidential. Oakley uses
the exposure generated by all of its athletes and public personalities as an
"editorial" endorsement of Oakley's eyewear rather than as a commercial
endorsement. The Company prefers to use opinion leaders in each sport in order
to reinforce a purer editorial endorsement of the brand, instead of being the
official sponsor of sports competitions. In 1995, the Company executed
agreements with the athletic departments of over 15 leading U.S. universities,
selecting Oakley products as the exclusive eye protection for college athletes.
Oakley uses an in-house staff of sports marketing experts who specialize in each
market segment and niche to negotiate contracts with athletes, identify and
develop relationships with undiscovered talent, coordinate exposure with the
media, educate and train these Oakley "ambassadors" about Oakley products and
support them at events and public forums where they wear Oakley products. In
international markets, the Company utilizes the services of its domestic sports
marketing staff, together with a sports marketing manager at Oakley Europe, to
coordinate its sports marketing. In addition, certain of the international
distributors of the Company's products maintain their own sports marketing
programs which are coordinated with efforts by the Company.
Targeted product allocation is also an important part of the Company's
strategy. New products are frequently released through smaller specialty sports
retailers which in the Company's experience have often tended to be better brand
builders. The Company believes that the sports environment and the retailers'
greater knowledge about product needs and capabilities can enhance the
introduction and positioning Oakley desires for a given product. This approach
affords the Company a mechanism to create demand and strengthens its
relationship with its specialty account base.
PRODUCT SERVICES
Oakley strives to support its products with the best customer service in the
industry. The Company's approximately 68-person product services group promptly
and courteously responds to customer inquiries, concerns and warranty claims.
The Company provides a one-year warranty against manufacturer's defects or
breakage of its polycarbonate frames.
ADVERTISING AND PROMOTION
Oakley's primary method of obtaining brand recognition is through the use of
sports marketing, which places the Oakley brand before consumers through the
editorial endorsements of influential athletes and other personalities, some of
whom have formal arrangements with the Company. Oakley supports its sports
marketing with print advertising. The Company's print advertisements often serve
to educate consumers on the health and performance benefits of Oakley products
as well as to impart technical information in layman's terms. The Company
advertises and promotes its products nationwide through print media, outdoor
media, in-store visual displays and other point-of-sale materials. The Company
focuses its print media campaign in sport publications such as BICYCLING, VELO
NEWS, TRANSWORLD SNOWBOARDING, SURFING, SURFER, TRIATHLETE, VOLLEYBALL, PERSONAL
WATERCRAFT ILLUSTRATED, POWDER, RUNNER'S WORLD, MOUNTAIN BIKE ACTION, MOTOCROSS
ACTION, CLIMBING and WATERSKI MAGAZINE. The Company also focuses part of its
print media campaign in lifestyle/music publications such as DETAILS and ROLLING
STONE MAGAZINE, which target younger consumers.
35
<PAGE>
The Company also occasionally uses electronic media, primarily television,
to promote its image and to introduce its brand name to a larger universe of
potential customers. The Company has selected specific sports programming such
as the Olympics and the Tour de France and contemporary channels, such as MTV
and ESPN, on which to air these spots. In Europe and the United States, movie
theaters have been used successfully to showcase the Company's commercials prior
to the featured film presentation. Advertising in markets outside the United
States is coordinated by both Oakley Europe and independent distributors,
primarily utilizing materials developed by the Company. The Company's
advertising expenditures were $3.1 million in 1995 and $1.0 million for the
three months ended March 31, 1996.
PRINCIPAL CUSTOMERS
Sales before discounts to the Company's ten largest customers, which
included seven international distributors in 1995, accounted for approximately
46.3% of sales before discounts for 1995. Sales before discounts to one
customer, Sunglass Hut, the largest sunglass specialty retailer in the world,
accounted for approximately 32.1% of the Company's net sales before discounts
(including sales to Sunsations, another sunglass retailer which was acquired by
Sunglass Hut in July 1995) for 1995. Such sales do not include sales to the
Sunglass Hut locations outside the United States that are made by the Company's
independent international distributors. At December 31, 1995, approximately 240
of the 1,700 Sunglass Hut locations worldwide were serviced by Oakley's
independent distributors. While the Company does not have any minimum purchase
agreements with Sunglass Hut, the Company believes that it maintains a good
relationship with Sunglass Hut. The Company believes it was one of Sunglass
Hut's two largest vendors during 1995 and became its best-selling brand during
1996. See "Risk Factors -- Dependence on Certain Customers."
INTELLECTUAL PROPERTY
The Company aggressively asserts its rights under patent, trade secret,
unfair competition, trademark and copyright laws to protect its intellectual
property, including product designs, proprietary manufacturing processes and
technologies, product research and concepts and recognized trademarks. These
rights are protected through the acquisition of patents and trademark
registrations, the maintenance of trade secrets, the development of trade dress,
and, where appropriate, litigation against those who are, in the Company's
opinion, infringing these rights.
The following table reflects data as of March 31, 1996 concerning the
Company's intellectual property:
<TABLE>
<CAPTION>
NUMBER OF
UTILITY/DESIGN PATENTS NUMBER OF
-------------------------- REGISTERED
ISSUED PENDING TRADEMARKS
------------- ----------- ---------------
<S> <C> <C> <C>
United States.............................................. 51 19 66
International.............................................. 181 139 281
</TABLE>
PATENTS, TRADEMARKS AND LICENSES
As of March 31, 1996, the Company had been issued 13 United States utility
patents and 38 United States design patents relating to eyewear, including
patents directed to a cylindrical single lens, a conic single lens, a toroidal
single lens, a concavely indented single lens, an eyewear traction device and a
detachable lens sunglass. As of such date, the Company had also been issued over
181 patents in 12 foreign countries.
As of March 31, 1996, the Company had 19 patent applications pending in the
United States, including those for a new eyeglass frame, a new eyeglass earstem
and a process for modifying the surface of a lens. Oakley has also filed
approximately 139 patent applications with foreign patent offices. These
applications generally correspond to United States patents and patent
applications. The Company intends to file additional patent applications, when
appropriate, relating to improvements in its technology and other specific
products and processes developed by it, including patents relating to X METAL.
As of March 31, 1996, the Company had 66 trademark registrations in the
United States and 281 trademark registrations in foreign countries, including
those for OAKLEY, THERMONUCLEAR PROTECTION, PLUTONITE, SUB ZEROS, BLADES, RAZOR
BLADES, EYESHADES, IRIDIUM, UNOBTANIUM, M FRAME, HEATER, + RED, POSITIVE RED,
SWEEP, ZEROS, FACTORY PILOT and FROGSKINS. No trademarks are licensed by the
Company for use on eyewear products due to the Company's strict quality control
standards and the desire to protect its proprietary technology and prevent
overexposure of the Company's trademarks.
36
<PAGE>
The Company has been successful to date in its efforts to protect its
patents and trademarks from infringement. The Company has filed suit against a
number of its competitors to enforce certain of the Company's patents and
trademarks. None of the Company's patents or trademarks has ever been
invalidated or limited. While there can be no assurance that the Company's
patents or trademarks protect the Company's proprietary information and
technologies, the Company intends to continue asserting its intellectual
property rights against any infringer. The Company believes that it has
developed a reputation in the sunglass industry as a vigorous defender of its
intellectual property rights; this reputation acts as a deterrent against the
introduction of potentially infringing products by its competitors and others.
In addition, although the Company's assertion of its rights can result in a
substantial cost to, and diversion of effort by, the Company, management
believes that protection of Oakley's intellectual property rights is a key
component of the Company's operating strategy. See "-- Operating Strategy" and
"Risk Factors -- Protection of Proprietary Rights."
In mid-1995, the Company received a letter from an individual owner of a
United States patent, issued in late 1991, which he claims covers a production
process utilized by the Company for a portion of its products. On the basis of
the Company's investigation completed to date and discussions with the owner of
such patent, the Company believes that it could, if necessary, acquire or
license the patent, or take other steps to resolve the matter, without a
material adverse effect on the Company. Many of the Company's products on which
the claim is based have been discontinued.
In early 1994, the Company entered into an exclusive licensing agreement
with Sunglass Hut to sell Oakley products through mail order catalogues and five
Oakley catalogues have been produced under such arrangement. See "--
Distribution." In connection with the settlement of a patent dispute in early
1994, the Company granted to another sunglass manufacturer irrevocable licenses
to use certain of its patents.
TRADE SECRETS
The Company also relies upon unpatented trade secrets for the protection of
certain intellectual property rights. The Company protects its trade secrets by
requiring its employees, consultants, and other agents and advisors to execute
confidentiality agreements upon the commencement of employment or other
relationships with the Company. These agreements provide that all confidential
information developed by or made known to the individual or entity during the
course of the relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances. There can be no
assurance, however, that these agreements will provide meaningful protection for
the Company's proprietary information or adequate remedies in the event of
unauthorized use or disclosure of such information. In addition, no assurance
can be given that others will not independently develop substantially equivalent
proprietary information and technologies, or otherwise gain access to the
Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its rights to unpatented trade secrets.
MONITORING
The Company dissuades counterfeiting through the active monitoring of the
marketplace by its anti-counterfeiting personnel and other employees and through
the services provided by outside firms that specialize in anti-counterfeiting
measures. The Company's sales representatives, distributors and retailers have
also proved effective watchdogs against infringing products, frequently
notifying the Company of any suspect products, confiscating counterfeit products
and assisting law enforcement agencies. The Company's sales representatives are
also educated on Oakley's patents and trade dress and assist in preventing
infringers from obtaining retail shelf space. In mid-1994, the Company also
began to etch its logo onto the lenses of its sunglasses to assist its customers
and consumers in detecting counterfeit products. See "-- Distribution."
COMPETITION
The Company is a leading designer, manufacturer and distributor of eyewear
in the sports segment of the nonprescription eyewear market. Within this
segment, the Company competes with mostly smaller sunglass and goggle companies
in various niches of the sports market and a limited number of larger
competitors. Some of these niche markets are susceptible to rapid changes in
consumer preferences which could affect acceptance of the Company's products.
Oakley believes the vigorous protection of its intellectual property rights has
limited the ability of others to compete in this segment. Accordingly, the
Company believes that it is the established leader in this segment of the
market, although several companies, including Bausch & Lomb (which markets
Killer Loop), Bolle and various niche brands, compete for the Company's
37
<PAGE>
shelf space. The Company could also face competition from new competitors,
including established branded consumer products companies that have greater
financial and other resources than the Company. In order to retain its market
share, the Company must continue to be competitive in the areas of quality and
performance, technology, method of distribution, style, brand image,
intellectual property protection and customer service.
The Company also competes in the broader nonsports, or recreational, segment
of the sunglass market, which is fragmented and highly competitive. The major
competitive factors include fashion trends, brand recognition, distribution
channels and the number and range of products offered. A number of established
companies, including Bausch & Lomb (Ray Ban and Revo), Luxottica, Corning
(Serengeti) and Bolle, compete in this wider market. Several of such companies
have greater financial and other resources than Oakley. The Company differs from
many of its competitors in that they generally only import or repackage eyewear
products. Few sunglass companies design, manufacture and assemble their own
creations. Many companies tend to imitate successful sunglass models (such as
the Ray Ban Wayfarer), while the actual manufacturing is performed by foreign
contractors.
EMPLOYEES
The Company believes that its employees are among its most valuable
resources and have been a key factor in the marketing and selling of Oakley's
products. At March 31, 1996, there were a total of approximately 800 full-time
employees. In addition, the Company utilizes as many as 150 occasional
personnel, particularly during the summer months.
The Company is not a party to any labor agreements and none of its employees
is covered by a collective bargaining agreement. The Company considers its
relationship with its employees to be excellent and has never experienced a work
stoppage. The Company has employment agreements with certain key personnel whose
talents or technical knowledge are important to the Company. See "Management --
Employment Agreements."
PROPERTIES
The Company's current corporate headquarters and its production, warehousing
and distribution facilities are located in Irvine, California and consist of
five leased buildings totaling approximately 170,000 square feet of space. One
facility is leased from a partnership in which the sole partners are Mr. Jannard
and Mr. Parnell. See "Certain Transactions." In addition, the Company leases
office and warehouse space as necessary to support its operations worldwide,
including offices in Europe and Mexico.
The Company believes that its existing facilities are well maintained and in
good operating condition. Management believes, however, that additional space is
needed in the United States for the Company's expansion plans. To accommodate
expansion for the foreseeable future and provide a significant increase in
production capacity, the Company purchased land, in April 1995, located in
Foothill Ranch, Orange County, California on which the Company is constructing a
larger headquarters/manufacturing facility. The new site will initially include
a building of 400,000 square feet, with potential to expand on 40 acres of land.
The Company expects to relocate to the new facility by the end of 1996 or in
early 1997.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local environmental laws,
regulations and ordinances that (i) govern activities or operations that may
have adverse environmental effects (such as emissions to air, discharges to
water, and the generation, handling, storage and disposal of solid and hazardous
wastes) or (ii) impose liability for the costs of cleanup or other remediation
of contaminated property, including damages from spills, disposals or other
releases of hazardous substances or wastes, in certain circumstances without
regard to fault. The Company's manufacturing operations routinely involve the
handling of chemicals and wastes, some of which are or may become regulated as
hazardous substances. The Company has not incurred, and does not expect to
incur, any significant expenditures or liabilities for environmental matters. As
a result, the Company believes that its environmental obligations will not have
a material adverse effect on its operations or financial position.
LITIGATION
The Company is a party to various claims, complaints and other legal actions
that have arisen in the normal course of business from time to time. The Company
believes the outcome of all pending legal proceedings, in the aggregate, will
not have a material adverse effect on the operations or financial position of
the Company.
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information (as of March 31, 1996)
concerning the director and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ----------------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Jim Jannard 46 Chairman of the Board, President and Director
Mike Parnell 43 Chief Executive Officer and Director
Link Newcomb 34 Executive Vice President and Chief Financial Officer
Al Krueger 53 Vice President of Operations
Donna Gordon 36 Vice President of Finance and Secretary
Kent Lane 42 Vice President of Manufacturing
Carlos Reyes 29 Vice President of Development
Irene Miller 43 Director
Orin Smith 53 Director
Michael Jordan 33 Director
</TABLE>
EXECUTIVE OFFICERS
Mr. Jim Jannard, the founder of the Company, has been Chairman of the Board
and President of Oakley since its inception in 1975.
Mr. Mike Parnell joined Oakley in 1985 and has been Chief Executive Officer
and Director since 1986. From 1974 to 1985, Mr. Parnell was employed in various
positions with OP Sunwear, including Vice President of Marketing from 1981 to
1985.
Mr. Link Newcomb joined Oakley in June of 1994 as its Vice President of
International Sales. Mr. Newcomb became Executive Vice President in April 1995
and Chief Financial Officer in July 1995. Prior to joining Oakley, Mr. Newcomb
was an attorney for five years at Skadden, Arps, Slate, Meagher & Flom, Los
Angeles, California. Mr. Newcomb has also been a certified public accountant
since 1984.
Mr. Al Krueger joined Oakley in September 1991 as its Vice President of
Operations. Prior to that, he spent 17 years in the banking and finance field.
His last position was as a branch manager for Wells Fargo Bank.
Ms. Donna Gordon joined Oakley in February 1986. Ms. Gordon has held a
number of positions with Oakley, assuming her current position as Vice President
of Finance in October 1995. Ms. Gordon has also been Corporate Secretary since
September 1993 and Controller since 1990.
Mr. Kent Lane joined Oakley in October 1994 and became Vice President of
Manufacturing in October 1995. Mr. Lane served as Director of Manufacturing from
January 1995 until October 1995. Mr. Lane has 21 years experience in the
manufacturing industry at various companies, including Kaiser Steel for six
years and Water Factory Systems, a manufacturer of water purification equipment,
for eight years.
Mr. Carlos Reyes joined Oakley in July 1989 and became Vice President of
Development in December 1995. Mr. Reyes has held various positions with Oakley,
beginning as a lens coating assistant in the manufacturing department. Mr. Reyes
was promoted to Lens Coating Manager in 1991 and to a leadership position in
Oakley's design department in 1993.
DIRECTORS
On September 25, 1995, the then existing Board of Directors appointed three
outside directors to the Board of Directors, Irene Miller, Vice Chairman and
Chief Financial Officer of Barnes & Noble, Inc., Orin Smith, President and Chief
Operating Officer of Starbucks Corporation, and sports-figure Michael Jordan.
These directors joined Jim Jannard, Chairman of the Board and President, and
Mike Parnell, Chief Executive Officer, on the Company's Board of Directors.
39
<PAGE>
Ms. Irene Miller joined Barnes & Noble in January 1991 as Senior Vice
President, Corporate Finance, became Executive Vice President and Chief
Financial Officer in September 1993 prior to Barnes & Noble's initial public
offering, was appointed to Barnes & Noble's Board of Directors in May 1995 and
became Vice Chairman of the Board in September 1995. Prior to joining Barnes &
Noble, Ms. Miller worked for a decade in the securities industry at Morgan
Stanley & Co. and Rothschild, Inc.
Mr. Orin Smith joined Starbucks in 1990 as Chief Financial Officer and Vice
President, became Executive Vice President and Chief Financial Officer in 1993
and was named President and Chief Operating Officer in 1994. Prior to joining
Starbucks, Mr. Smith was Executive Vice President and Chief Financial and
Administrative Officer of Danzas Corporation, a subsidiary of Europe's largest
transportation company. Mr. Smith is also a director of Starbucks.
Mr. Michael Jordan has achieved one of the most extraordinary records in
professional sports during his career with the Chicago Bulls and is completing
his eleventh season with the Bulls this year. Among other achievements, Mr.
Jordan was voted Most Valuable Player of the National Basketball Association in
1988, 1991 and 1992. He also captured the NBA's scoring title in seven
consecutive seasons, from 1987 through 1993 and again in 1996. Prior to joining
the Chicago Bulls, Mr. Jordan was an All-American player at the University of
North Carolina, from which he graduated in 1986.
The Board of Directors has established an Audit Committee, a Compensation
Committee, a Stock Option Committee and a Nominating Committee. The Audit
Committee makes recommendations to the Board of Directors concerning the
engagement of the independent auditors, reviews with the independent auditors
the plans and results of the audit engagement, approves professional services
provided by the independent auditors, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls. The
Compensation Committee determines and reports to the Board of Directors
regarding compensation for the Company's executive officers. The Stock Option
Committee reports to the Board of Directors regarding, and administers, the
Company's 1995 Stock Incentive Plan. The Nominating Committee is responsible for
selecting a slate of potential Directors to be nominated by the Board of
Directors at each annual meeting of shareholders.
The Washington Business Corporation Act (the "Washington Business Act")
provides that a company may indemnify its directors and officers as to certain
liabilities. The Company's Articles of Incorporation and Bylaws provide for the
indemnification of its directors and officers to the fullest extent permitted by
law, and the Company intends to enter into separate indemnification agreements
with each of its directors and officers to effectuate these provisions and to
purchase directors and officers liability insurance. The effect of such
provisions is to indemnify the directors and officers of the Company against all
costs, expenses and liabilities incurred by them in connection with any action,
suit or proceeding in which they are involved by reason of their affiliation
with the Company, to the fullest extent permitted by law.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no compensation for
serving on the Board. Directors who are not employees of the Company receive a
retainer fee of $25,000 per year for their services. All Directors are
reimbursed for expenses incurred in connection with attendance at Board or
committee meetings. Under the 1995 Stock Incentive Plan, each non-employee
Director may irrevocably elect annually to waive the receipt of all or any part
of his or her annual retainer and/or meeting fees (if any) for the year
commencing immediately following each annual shareholders meeting and in lieu
thereof receive a fixed number of non-qualified stock options for such year. See
"-- Incentive and Bonus Plans -- 1995 Stock Incentive Plan."
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its
Chief Executive Officer and the four other most highly compensated executive
officers serving as of December 31, 1995 (the "Named Executive Officers") for
the fiscal years ended December 31, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
AWARDS
ANNUAL COMPENSATION -----------------
-------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS(#) COMPENSATION($)
- ---------------------------------- --------- --------- --------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Jim Jannard ...................... 1995 380,697 9,312,252(1) -- -- --
Chairman of the Board 1994 380,670 20,916,223(1) -- -- --
and President
Mike Parnell ..................... 1995 132,500 1,567,228(1) -- 43,479 --
Chief Executive Officer 1994 65,000 4,708,619(1) -- -- --
Link Newcomb ..................... 1995 91,346 236,607 201,860(2) 86,957 --
Executive Vice President 1994 -- 25,000 157,762(2) -- --
and Chief Financial
Officer
Donna Gordon ..................... 1995 79,898 67,923 -- 13,044 300(3)
Vice President of Finance and 1994 69,760 19,357 -- -- --
Secretary
Al Krueger ....................... 1995 126,560 4,933 -- 10,870 --
Vice President of 1994 120,071 22,434 -- -- --
Operations
</TABLE>
- ------------------------
(1) Includes bonus payments for 1995 under the Company's Executive Officer
Performance Bonus Plan of $1,096,524 and $657,914, respectively, for Messrs.
Jannard and Parnell. Also includes for 1995 and 1994 bonuses paid with
respect to periods prior to the Company's initial public offering of Common
Stock. Amounts shown are net of approximately $5,979,823 and $3,924,000 for
Mr. Jannard, and $664,425 and $436,000 for Mr. Parnell, which represent in
each case amounts paid by the Company in respect of Federal and state income
taxes on the Company's income during 1995 and 1994, respectively. The
Company was an S corporation for Federal and state income tax purposes
during 1994 and until August 14, 1995.
(2) Represents commissions on sales and $75,505 and $10,000 as reimbursement for
relocation and related expenses in 1995 and 1994, respectively.
(3) Represents the Company's matching 401(k) plan contribution.
41
<PAGE>
The following table sets forth information concerning grants of stock
options to the Named Executive Officers during the fiscal year ended December
31, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE
SECURITIES VALUE AT ASSUMED
UNDERLYING % OF TOTAL ANNUAL RATES OF STOCK
OPTIONS/ OPTIONS/ SARS PRICE APPRECIATION FOR
SARS GRANTED TO EXERCISE OR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME (#)(1) FISCAL YEAR(2) ($/SH) DATE 5% ($)(3) 10% ($)(3)
- ------------------------------------ ----------- --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jim Jannard......................... -- -- -- -- -- --
Mike Parnell........................ 43,479 6.9 $ 23.00 8/8/05 628,906 1,593,770
Link Newcomb........................ 86,957 13.8 $ 23.00 8/8/05 1,257,798 3,187,504
Donna Gordon........................ 13,044 2.0 $ 23.00 8/8/05 188,676 478,142
Al Krueger.......................... 10,870 1.7 $ 23.00 8/8/05 157,230 398,451
</TABLE>
- ------------------------
(1) The options identified in this table were granted under the Company's 1995
Stock Incentive Plan and are exercisable in equal 25% installments on each
of the first four anniversaries of the date of grant. In the event of the
termination of a Named Executive Officer's employment within 12 months
following a change in control (as defined in the stock option agreements
evidencing such grants), the options will become immediately vested and
exercisable in full upon such termination of employment. To the extent
permitted under applicable law, the options granted are "incentive stock
options" for purposes of Section 422 of the Internal Revenue Code of 1986,
as amended, and otherwise are nonqualified stock options.
(2) The denominator used to calculate the percentages in this column include
262,177 options granted under the 1995 Stock Incentive Plan to non-employee
consultants.
(3) The potential gains shown are net of the option exercise price and do not
include the effect of any taxes associated with exercise. The amounts shown
are for the assumed rates of appreciation only, do not constitute
projections of future stock price performance and may not necessarily be
realized. Actual gains, if any, on stock option exercises depend on the
future performance of the Common Stock, continued employment of the optionee
through the term of the option and other factors.
The following table sets forth information concerning the fiscal year-end
value of unexercised stock options held by the Named Executive Officers as of
December 31, 1995. No options were exercised by the Named Executive Officers in
fiscal 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT AT FY-END
FY-END (#) ($)(1)
--------------------- -------------
SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------- ------------------- ----------------- --------------------- -------------
<S> <C> <C> <C> <C>
Jim Jannard................................. -- -- -- --
Mike Parnell................................ -- -- 0/43,479 0/478,269
Link Newcomb................................ -- -- 0/86,957 0/956,527
Donna Gordon................................ -- -- 0/13,044 0/143,484
Al Krueger.................................. -- -- 0/10,870 0/119,570
</TABLE>
- ------------------------
(1) Based upon the reported closing price of $34.00 per share of Common Stock on
the New York Stock Exchange on December 29, 1995.
42
<PAGE>
EMPLOYMENT AGREEMENTS
Messrs. Jannard and Parnell entered into employment agreements with the
Company in August 1995, prior to the Company's initial public offering of Common
Stock. The agreements each have a term of two years and contain a
non-competition provision effective through the term of employment and for an
additional two years from the end of such term. Pursuant to the agreement with
Mr. Jannard, the Company pays to Mr. Jannard a base salary of $400,000 per year
and an annual performance bonus, with the amount of the bonus being determined
pursuant to the Performance Bonus Plan described below. The minimum target bonus
for Mr. Jannard under the Performance Bonus Plan will be an amount not less than
$1,000,000 per year. Pursuant to the agreement with Mr. Parnell, the Company
pays Mr. Parnell a base salary of $200,000 per year and a performance bonus,
with the amount of the bonus being determined pursuant to the Performance Bonus
Plan. The minimum target bonus for Mr. Parnell under the Performance Bonus Plan
will be an amount not less than $600,000 per year. Commencing on the expiration
of the term of the employment agreement, or earlier should the employment
agreement be terminated other than for cause (as defined in the agreements), the
Company and Mr. Jannard or Mr. Parnell, as the case may be, will enter into a
two-year consulting agreement under which such executive will render certain
consulting services for which the Company will pay an annual consulting fee the
amount of which will be determined at the time the consulting agreements are
entered into. In addition, each executive is also entitled to certain fringe
benefits, including access to vehicles and aircraft leased or owned by the
Company and full Company-paid medical insurance for himself and his immediate
family during his lifetime. Pursuant to the employment agreements, Mr. Jannard
has agreed to contribute to the Company, in certain circumstances, certain
amounts in respect of matters that occurred prior to the consummation of the
Company's initial public offering of Common Stock, and the Company has agreed to
pay such amounts to Mr. Parnell as compensation. This arrangement has not had a
material effect on the Company.
Mr. Newcomb entered into an employment agreement with the Company, dated
April 1, 1995. Mr. Newcomb's agreement has a term of three years and will be
automatically extended for successive terms of one year unless either party
provides written notice that it does not wish to extend the term of the
agreement. The agreement contains a non-competition provision effective through
the term of employment and for an additional two years thereafter. The Company
will pay Mr. Newcomb a base salary of $125,000 per year and a performance bonus,
with the amount of the bonus being determined pursuant to the Performance Bonus
Plan. The minimum target bonus for Mr. Newcomb under the Performance Bonus Plan
is required to be an amount not less than $275,000 per year; PROVIDED, that for
1995 only, the bonus was payable only for the period from July 1, 1995 through
December 31, 1995. Mr. Newcomb is also entitled to certain fringe benefits,
including medical, dental and insurance plans adopted by the Company.
INCENTIVE AND BONUS PLANS
1995 STOCK INCENTIVE PLAN. In August 1995, the Company's Board of Directors
adopted, and the shareholders approved, the Oakley, Inc. 1995 Stock Incentive
Plan (the "1995 Stock Incentive Plan"). The 1995 Stock Incentive Plan is
administered by the Stock Option Committee of the Board of Directors (the
"Committee"), which is comprised of Mr. Jannard and Ms. Miller. All officers
(including officers who are also directors), employees, consultants (including
individuals who endorse the Company's products) and advisors of the Company are
eligible for discretionary awards under the 1995 Stock Incentive Plan. The 1995
Stock Incentive Plan provides for stock-based incentive awards, including
incentive stock options, non-qualified stock options, restricted stock,
performance shares, stock appreciation rights and deferred stock. The 1995 Stock
Incentive Plan permits the Committee to select eligible persons to receive
awards and to determine certain terms and conditions of such awards, including
the vesting schedule and exercise price of each award, and whether such award
will accelerate upon the occurrence of a change in control of the Company. Under
the 1995 Stock Incentive Plan, options to purchase Common Stock may be granted
with an option exercise price that is less than the then current market value of
such stock. Under the 1995 Stock Incentive Plan, options, restricted stock,
performance shares or stock appreciation rights covering no more than 80% of the
shares reserved for issuance under the 1995 Stock Incentive Plan may be granted
to any participant in any one year. A total of 2,856,000 shares have been
reserved for issuance under the 1995 Stock
43
<PAGE>
Incentive Plan. The Company has previously granted to certain officers,
employees, advisors and consultants, options to purchase an aggregate of
approximately 630,000 shares of Common Stock under the 1995 Stock Incentive
Plan, substantially all with an exercise price of $23.00 per share (the price
per share in the Company's initial public offering).
In addition, under the 1995 Stock Incentive Plan, each non-employee director
may irrevocably elect annually to waive the receipt of any or all of his or her
annual retainer and/or meeting fees (if any) for the year commencing immediately
following each annual shareholder meeting and in lieu thereof receive a fixed
number of non-qualified stock options for such year, with the number of such
options fixed by the Board of Directors, based on the amount of fees so waived
and an independent appraisal of the intrinsic value of such options. Such
options are exercisable in full on the date of grant. The option price per share
of Common Stock purchasable under such options will be 100% of the fair market
value of such stock on the date of grant.
The 1995 Stock Incentive Plan may be amended, suspended or terminated at any
time. However, the maximum number of shares that may be sold or issued under the
1995 Stock Incentive Plan may not be increased, nor may the class of persons
eligible to participate in the 1995 Stock Incentive Plan be altered, without the
approval of the Company's shareholders; PROVIDED, HOWEVER, that adjustments to
the number of shares subject to the 1995 Stock Incentive Plan and to individual
awards thereunder and/or to the exercise price of awards previously granted are
permitted without shareholder approval upon the occurrence of certain events
affecting the capital structure of the Company. With respect to any other
amendments to the 1995 Stock Incentive Plan, the Board of Directors may, in its
discretion, determine that such amendment will become effective only upon
approval by the shareholders of the Company if the Board of Directors determines
that such shareholder approval may be advisable, such as for the purpose of
obtaining or retaining any statutory or regulatory benefits under federal or
state securities law, federal or state tax laws or any other laws or for the
purpose of satisfying applicable stock exchange listing requirements.
PERFORMANCE BONUS PLAN. In August 1995, the Board of Directors adopted the
Oakley, Inc. Executive Officer Performance Bonus Plan (the "Performance Bonus
Plan") covering its executive officers. The Performance Bonus Plan is
administered by the Compensation Committee, which is comprised of Ms. Miller and
Mr. Smith. The Compensation Committee will select each year the executive
officers of the Company who will be eligible to receive awards under the
Performance Bonus Plan. Upon achievement by the Company of certain targeted
operating results or other performance goals, such as operating income, pre-tax
income or net income, the Company will pay performance bonuses, the aggregate
amounts of which will be determined annually based upon an objective formula.
The actual amount of such bonuses may be proportionately greater or less than
the target bonus established for each participant, to the same extent to which
the Company's actual performance exceeds or falls short of the targeted goals.
The Board of Directors has established target bonuses and performance goals
with respect to 1996 for certain of the executive officers eligible to
participate in the Performance Bonus Plan, including Messrs. Jannard, Parnell,
Newcomb, Lane and Krueger and Ms. Gordon. Such bonus targets aggregate
approximately $2.0 million for 1996. The actual amount of bonuses payable will
be dependent upon the Company's achievement of specified performance criteria.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Company's initial public offering of Common Stock, the Board of
Directors, which was then comprised solely of Messrs. Jannard and Parnell, did
not maintain a formal Compensation Committee. During 1995, all material
compensation decisions with respect to the Named Executive Officers were made by
Messrs. Jannard and Parnell. See "Certain Transactions" immediately below.
Effective for fiscal 1996, Ms. Miller and Mr. Smith comprise the
Compensation Committee.
44
<PAGE>
CERTAIN TRANSACTIONS
The Company currently leases its headquarters facility from a partnership of
which Mr. Jannard and Mr. Parnell are the sole partners. Aggregate lease
payments under such lease for 1995 and the three months ended March 31, 1996
were $384,000 and $96,000, respectively. During 1995, the lease was amended to
provide for the Company's ability to terminate the lease without any material
payment obligation on the part of the Company.
As a part of the S Corporation Distribution, the Company distributed certain
aircraft to the Principal Shareholders in August 1995 and leased back certain of
such aircraft from companies controlled by them (each, a "Lessor"). Such leases
have terms of five years, with aggregate annual lease payments of $100,000, and
are renewable at the option of the Company and the applicable Lessor. The
Company bears all costs and expenses of operating and maintaining the aircraft
while under lease. During 1995 and the three months ended March 31, 1996, the
Company made aggregate payments under such leases of $37,500 and $25,000,
respectively.
Prior to the consummation of its initial public offering, the Company
effected the Reorganization pursuant to which (i) the Company terminated its S
corporation status for Federal and state income tax purposes, (ii) the Company
distributed to the Principal Shareholders all of its and its predecessor's
previously earned and undistributed taxable S corporation earnings through the
date of the consummation of the Company's initial public offering, (iii) the
Company effected the merger of Buffalo (a company that was engaged in purchasing
and reselling to Oakley certain materials for use in the manufacture of Oakley
products) with and into the Company, (iv) the Principal Shareholders contributed
all of the capital stock of Oakley Europe to the Company without any
consideration, (v) the Company effected a 3,240 for 1 stock split of the Common
Stock (which was effected on August 1, 1995) and (vi) the Company distributed
certain aircraft to the Principal Shareholders as part of the S Corporation
Distribution. Buffalo and Oakley Europe were each wholly owned by the Principal
Shareholders prior to the Reorganization. In addition, concurrently with the
consummation of its initial public offering, Mr. Jannard and the Parnell Trust
contributed to the Company without any consideration certain additional assets,
which were not material to the Company, for use in connection with the Company's
non-Oakley brand business. See "Corporate History and Reorganization."
In July 1995, the Company entered into a ten-year agreement with Michael
Jordan for the endorsement of Oakley eyewear. Pursuant to such agreement, Mr.
Jordan will be paid an annual retainer of $500,000 and received options to
purchase 108,696 shares of Common Stock at an exercise price of $23.00 (the fair
market value on the date of grant). The Company paid Mr. Jordan $500,000 during
1995 pursuant to this agreement.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table and the notes thereto set forth information, as of the
date of this Prospectus, relating to beneficial ownership (as defined in Rule
13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of the Company's equity securities and each Selling Shareholder:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF NUMBER OF SHARES BENEFICIAL OWNERSHIP OF
COMMON STOCK PRIOR TO THE OF COMMON STOCK COMMON STOCK AFTER THE
OFFERINGS (1) TO BE SOLD OFFERINGS (1)
------------------------- ----------------- -------------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT NUMBER NUMBER PERCENT
- ---------------------------------------------- ------------ ----------- ----------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Jim Jannard................................... 21,780,000 61.0% 4,500,000 17,280,000 48.4%
Mike Parnell (2).............................. 2,420,000 6.8 500,000 1,920,000 5.4
M. and M. Parnell Revocable Trust............. 2,420,000 6.8 500,000 1,920,000 5.4
All directors and executive officers as a
group (10 persons)........................... 24,284,641 68.0% 5,000,000 19,284,641 54.0 %
</TABLE>
- ------------------------
(1) The mailing address of each of Mr. Jannard, Mr. Parnell and the Parnell
Trust, is c/o Oakley, Inc., 10 Holland, Irvine, California 92718. Subject to
applicable community property laws and similar laws, each person listed
above has sole voting and investment power with respect to such shares.
(2) All of the shares beneficially owned by Mr. Parnell are held through the
Parnell Trust.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of March 31, 1996, the Company had 35,700,000 shares of Common Stock
outstanding (excluding approximately 630,000 shares of Common Stock issuable
upon exercise of stock options granted under the 1995 Stock Incentive Plan). Of
these shares, the 11,500,000 shares sold by the Company and the Principal
Shareholders in the Company's initial public offering and the 5,000,000 shares
sold by the Selling Shareholders in the Offerings will be freely tradeable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless held by an "affiliate" of the Company (as
that term is defined below). Any such affiliate will be subject to the resale
limitations of Rule 144 adopted under the Securities Act. The remaining
19,200,000 shares of Common Stock outstanding are "restricted securities" for
purposes of Rule 144 and are held by "affiliates" of the Company within the
meaning of Rule 144 under the Securities Act. Restricted securities may not be
resold in a public distribution except in compliance with the registration
requirements of the Securities Act or pursuant to an exemption therefrom,
including the exemption provided by Rule 144. The Principal Shareholders have
contractual rights to demand or participate in future registrations of shares of
Common Stock under the Securities Act.
In general under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell within any three-month period a number of shares beneficially
owned for at least two years that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock or (ii) the average weekly trading
volume of the outstanding shares of Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. However, a person (or persons whose shares
are aggregated) who is not an "affiliate" of the Company during the 90 days
preceding a proposed sale by such person and who has beneficially owned
"restricted securities" for at least three years is entitled to sell such shares
under Rule 144 without regard to the volume, manner of sale or notice
requirements. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly controls, or is controlled by, or is under common
control with such issuer.
The Selling Shareholders have agreed, subject to certain exceptions, not to
sell or otherwise dispose of any shares of Common Stock or securities
convertible into or exchangeable or exercisable for shares of Common Stock,
except the shares sold to the Underwriters pursuant to the Purchase Agreements
(as defined herein), for a period of 180 days after the date of this Prospectus,
without the prior written consent of the Representatives.
On October 27, 1995, the Company filed a Registration Statement on Form S-8
under the Securities Act to register shares of Common Stock reserved for
issuance to its employees, officers, directors and consultants under its 1995
Stock Incentive Plan. Shares of Common Stock issued upon exercise of options
granted under the 1995 Stock Incentive Plan generally will be available for sale
in the open market. As of December 31, 1995, the Company had granted options
under the 1995 Stock Incentive Plan to certain employees, officers, directors
and consultants to purchase up to 625,211 shares of Common Stock.
No predictions can be made of the effect, if any, that future sales of
shares of Common Stock, and grants of options to acquire shares of Common Stock,
or the availability of shares for future sale, will have on the market price
prevailing from time to time. Sales of substantial amounts of Common Stock in
the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices of the Common Stock. See "Risk Factors
- -- Future Sales by Principal Shareholders; Shares Eligible for Future Sale."
46
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of Common Stock by a
holder that, for United States Federal income tax purposes, is not a "United
States person" (a "Non-United States Holder"). This discussion is based upon the
United States Federal tax law now in effect, which is subject to change,
possibly retroactively. For purposes of this discussion, a "United States
person" means a citizen or resident of the United States; a corporation,
partnership, or other entity created or organized in the United States or under
the laws of the United States or of any political subdivision thereof; or an
estate or trust whose income is includible in gross income for United States
Federal income tax purposes regardless of its source. This discussion does not
consider any specific facts or circumstances that may apply to a particular
Non-United States Holder. Prospective investors are urged to consult their tax
advisors regarding the United States Federal tax consequences of acquiring,
holding, and disposing of Common Stock, as well as any tax consequences that may
arise under the laws of any foreign, state, local, or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business within
the United States by the Non-United States Holder, in which case the dividend
will be subject to the United States Federal income tax on net income on the
same basis that applies to United States persons generally. In the case of a
Non-United States Holder which is a corporation, such effectively connected
income also may be subject to the branch profits tax (which is generally imposed
on a foreign corporation on the repatriation from the United States of
effectively connected earnings and profits). Non-United States Holders should
consult any applicable income tax treaties that may provide for a lower rate of
withholding or other rules different from those described above. A Non-United
States Holder may be required to satisfy certain certification requirements in
order to claim treaty benefits or otherwise claim a reduction of or exemption
from withholding under the foregoing rules.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder, (ii) in
the case of a Non-United States Holder who is a nonresident alien individual and
holds the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of disposition and either such
individual has a "tax home" in the United States or the gain is attributable to
an office or other fixed place of business maintained by such individual in the
United States or (iii) the Company is or has been a "U.S. real property holding
corporation" for United States Federal income tax purposes (which the Company
does not believe that it is or is likely to become) and the Non-United States
Holder holds or has held, directly or indirectly, at any time during the
five-year period ending on the date of disposition, more than 5 percent of the
Common Stock. Gain that is effectively connected with the conduct of a trade or
business within the United States by the Non-United States Holder will be
subject to the United States Federal income tax on net income on the same basis
that applies to United States persons generally (and, with respect to corporate
holders, under certain circumstances, the branch profits tax) but will not be
subject to withholding. Non-United States Holders should consult any applicable
treaties that may provide for different rules.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident of the United States at the date of death will be included in such
individual's estate for United States Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
47
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service and to each
Non-United States Holder the amount of dividends paid to, and the tax withheld
with respect to, such holder, regardless of whether any tax was actually
withheld. This information may also be made available to the tax authorities of
a country in which the Non-United States Holder resides.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally not
apply to dividends paid on the Common Stock to a Non-United States Holder.
Payments by a United States office of a broker of the proceeds of a sale of the
Common Stock is subject to both backup withholding at a rate of 31% and
information reporting unless the holder certifies its Non-United States Holder
status under penalties of perjury or otherwise establishes an exemption.
Information reporting requirements (but not backup withholding) will also apply
to payments of the proceeds of sales of the Common Stock by foreign offices of
United States brokers, or foreign brokers with certain types of relationships to
the United States, unless the broker has documentary evidence in its records
that the holder is a Non-United States Holder and certain other conditions are
met, or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
These information reporting and backup withholding rules are under review by
the United States Treasury and their application to the Common Stock could be
changed by future regulations. On April 15, 1996, the Internal Revenue Service
issued proposed Treasury Regulations concerning the withholding of tax and
reporting for certain amounts paid to non-resident individuals and foreign
corporations. The proposed Treasury Regulations, if adopted in their present
form, would be effective for payments made after December 31, 1997. Prospective
investors should consult their tax advisors concerning the potential adoption of
such proposed Treasury Regulations and the potential effect on their ownership
of the Common Stock.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") and Bylaws is a summary and is qualified in its
entirety by the provisions of the Articles of Incorporation and Bylaws, copies
of which have been filed as exhibits to the Company's Registration Statement of
which this Prospectus is a part.
COMMON STOCK
The authorized capital stock of the Company includes 100,000,000 shares of
Common Stock, $.01 par value per share (the "Common Stock"), of which 35,700,000
shares were outstanding as of March 31, 1996. Holders of Common Stock are
entitled to one vote for each share held on all matters submitted to a vote of
the shareholders, including the election of directors. Accordingly, holders of a
majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. The Articles of
Incorporation do not provide for cumulative voting in the election of directors.
Holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor, and are entitled to receive, pro rata, all assets of
the Company available for distribution to such holders upon liquidation. Holders
of Common Stock have no preemptive, subscription or redemption rights. The
transfer agent with respect to the Common Stock is American Stock Transfer &
Trust Company.
PREFERRED STOCK
Pursuant to its Articles of Incorporation, the Company is authorized to
issue 10,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), which may be issued from time to time in one or more classes
or series or both upon authorization by the Company's Board of Directors. The
Board of Directors, without further approval of the shareholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, and any other rights,
48
<PAGE>
preferences, privileges and restrictions applicable to each class or series of
the Preferred Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more difficult
for a third party to gain control of the Company, discourage bids for the
Company's Common Stock at a premium, or otherwise adversely affect the market
price of the Common Stock.
The Company has no current plans to issue any Preferred Stock. The Company
is not aware of any plans by a third party to seek control of the Company.
CERTAIN ARTICLES OF INCORPORATION, BYLAWS AND STATUTORY PROVISIONS AFFECTING
SHAREHOLDERS
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN
CONSENT. The Company's Articles of Incorporation require that any action
required or permitted to be taken by the Company's shareholders may be effected
at a duly called annual or special meeting of shareholders or by consent in
writing. Additionally, the Articles of Incorporation and Bylaws require that
special meetings of the shareholders of the Company may be called only by a
majority of the Board of Directors or an authorized committee thereof.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Company's Bylaws provide that shareholders seeking to bring
business before or to nominate directors at any meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to, or mailed and received at, the principal executive offices
of the Company not less than (i) with respect to an annual meeting, 120 calendar
days in advance of the date that the Company's proxy statement was released to
shareholders in connection with the previous year's annual meeting, except that
if no annual meeting was held in the previous year or if the date of the annual
meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, such notice
must be received by the Company a reasonable time before the Company's proxy
statement is to be released and (ii) with respect to a special meeting of
shareholders, a reasonable time before the Company's proxy statement is to be
released. The Bylaws also specify certain requirements for a shareholder's
notice to be in proper written form. These provisions may preclude some
shareholders from bringing matters before the shareholders or from making
nominations for directors.
DIRECTOR AND OFFICER INDEMNIFICATION. The Washington Business Act provides
that a Washington corporation may include provisions in its articles of
incorporation relieving each of its directors of monetary liability arising out
of his or her conduct as a director for breach of his or her fiduciary duty
except liability for (i) acts or omissions of a director that involve
intentional misconduct or a knowing violation of law, (ii) conduct violating
Section 23B.08.310 of the Washington Business Act (which section relates to
unlawful distributions) or (iii) any transaction from which a director will
personally receive a benefit in money, property or services to which the
director was not legally entitled. The Company's Articles of Incorporation
include such provisions.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall, to the fullest extent permitted by the Washington Business Act, as
amended from time to time, indemnify and advance expenses to each of its
currently acting and former directors and officers, and may so indemnify and
advance expenses to each of its current and former employees and agents. The
Company believes the foregoing provisions are necessary to attract and retain
qualified persons as directors and officers. Prior to the consummation of the
Offerings, the Company intends to enter into separate indemnification agreements
with each of its directors and executive officers in order to effectuate such
provisions.
RESTRICTIONS ON CHANGE OF CONTROL. Washington law contains certain
provisions that may have the effect of delaying, deterring or preventing a
change in control of the Company. The Washington Business Corporation Act (the
"WBCA"), was amended in 1996. Effective June 6, 1996, Section 23B.17.020 of the
Revised Code of Washington ("RCW"), which prohibited certain business
combinations, was deleted. Chapter 23B.19 of the RCW, prohibits a "target
corporation," with certain exceptions, from engaging in certain "significant
business transactions," with an "acquiring person" who acquires more than 10% of
the voting securities of the target corporation for a period of five years after
such acquisition, unless the transaction is
49
<PAGE>
approved by a majority of the members of the target corporation's board of
directors prior to the date of the transaction or unless the aggregate amount of
the cash and market value of non-cash consideration received by the holders of
outstanding shares of any class or series of stock of the target corporation is
equal to certain minimum amounts. Such transactions include, among others, a
merger with, disposition of assets to, or issuance or redemption of stock to or
from, the acquiring person, or otherwise allowing the acquiring person to
receive any disproportionate benefit as a shareholder. Such prohibitions do not
apply to any shareholders who beneficially owned ten percent or more of the
Company's outstanding voting securities prior to the time the Common Stock was
registered with the Commission pursuant to Section 12 or 15 of the Securities
Exchange Act of 1934, as amended. For purposes of Chapter 23B.19, the Company is
a "target corporation." The Company may not exempt itself from coverage of
Chapter 23B.19.
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement") among the Company, each of the Selling Shareholders
and each of the underwriters named below (the "U.S. Underwriters"), and
concurrently with the sale of 1,000,000 shares of Common Stock to the
International Managers (as defined below), the Selling Shareholders have agreed
to sell to each of the U.S. Underwriters, and each of the U.S. Underwriters
severally has agreed to purchase from the Selling Shareholders, the number of
shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................................
Alex. Brown & Sons Incorporated............................................................
----------
Total............................................................................ 4,000,000
----------
----------
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Alex. Brown & Sons
Incorporated are acting as representatives (the "U.S. Representatives") of the
U.S. Underwriters.
The Company and the Selling Shareholders have also entered into a purchase
agreement (the "International Purchase Agreement" and, together with the U.S.
Purchase Agreement, the "Purchase Agreements") with certain underwriters outside
the United States and Canada (collectively, the "International Managers," and
together with the U.S. Underwriters, the "Underwriters"), for whom Merrill Lynch
International and Alex. Brown & Sons Incorporated are acting as representatives
(the "International Representatives" and, together with the U.S.
Representatives, the "Representatives"). Subject to the terms and conditions set
forth in the International Purchase Agreement, and concurrently with the sale of
4,000,000 shares of Common Stock to the U.S. Underwriters pursuant to the U.S.
Purchase Agreement, the Selling Shareholders have agreed to sell to the
International Managers and the International Managers have severally agreed to
purchase from the Selling Shareholders, an aggregate of 1,000,000 shares of
Common Stock. The public offering price per share of Common Stock and the
underwriting discount per share of Common Stock are identical under the U.S.
Purchase Agreement and the International Purchase Agreement. The respective
percentages of the Common Stock to be sold by each of the Selling Shareholders
will be identical in the U.S. Offering and the International Offering.
51
<PAGE>
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers, respectively,
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the shares of Common Stock being sold pursuant to each such Agreement if
any of the shares of Common Stock being sold pursuant to such Agreement are
purchased. Under certain circumstances, the commitments of non-defaulting U.S.
Underwriters or International Managers (as the case may be) may be increased.
The sale of shares of Common Stock to the U.S. Underwriters is conditioned upon
the sale of shares of Common Stock to the International Managers and vice versa.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. The Underwriters are permitted to sell shares
of Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer
to whom they sell shares of Common Stock will not offer to sell or sell shares
of Common Stock to persons who are non-U.S. or non-Canadian persons or to
persons they believe intend to resell to persons who are non-U.S. or
non-Canadian persons, and the International Managers and any dealer to whom they
sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to U.S. persons or to Canadian persons or to persons they believe intend
to resell to U.S. persons or Canadian persons, except in the case of
transactions pursuant to the Intersyndicate Agreement.
The U.S. Representatives have advised the Company that the U.S. Underwriters
propose initially to offer the shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per share
of Common Stock on sales to certain other dealers. The U.S. Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per share
of Common Stock on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
At the request of the Company, the U.S. Underwriters have reserved up to
250,000 shares of Common Stock for sale at the initial public offering price to
directors, officers, employees, business associates and related persons of the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
The Company and the Selling Shareholders have agreed, subject to certain
exceptions, not to sell or otherwise dispose of any shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock,
without the prior written consent of the Representatives, for a period of 180
days after the date of this Prospectus.
The Selling Shareholders have granted an option to the U.S. Underwriters,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an aggregate of 600,000 additional shares of Common Stock at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The U.S. Underwriters may exercise this option only to cover
over-allotments, if any, made on the sale of the Common Stock offered hereby. To
the extent that the U.S. Underwriters exercise this option, each U.S.
Underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares of Common Stock proportionate to such U.S.
Underwriter's initial amount reflected in the foregoing table. The Selling
Shareholders also have granted an option to the International Managers,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an aggregate of 150,000 additional shares of Common Stock to cover
over-allotments, if any, on terms similar to those granted to the U.S.
Underwriters.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
52
<PAGE>
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof. The Company has agreed to indemnify the
Selling Shareholders, under certain circumstances, in respect of payments made
by them pursuant to these agreements.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock have been passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California
and, with respect to certain matters of Washington law, by Preston Gates &
Ellis, Seattle, Washington. The validity of the Common Stock offered hereby will
be passed upon for the Underwriters by Shearman & Sterling, Los Angeles,
California. Skadden, Arps, Slate, Meagher & Flom has from time to time
represented certain of the Underwriters in connection with unrelated legal
matters.
EXPERTS
The consolidated financial statements of Oakley, Inc. as of December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995 which appear in this Prospectus and the related financial statement
schedule which appears in the Registration Statement have been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their reports
thereon also appearing elsewhere herein and in the Registration Statement and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company or such
Common Stock, reference is made to the Registration Statement and the schedules
and exhibits filed as a part thereof. Statements contained in this Prospectus
regarding the contents of any contract or any other document are not necessarily
complete and, in each instance, reference is hereby made to the copy of such
contract or other document filed as an exhibit to such Registration Statement.
The Registration Statement, including exhibits thereto, may be inspected without
charge at the Commission's principal office in Washington, D.C., and copies of
all or any part thereof may be obtained from the Public Reference Section,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
53
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets, as of December 31, 1994 and 1995 (audited)............... F-3
Consolidated Statements of Income, for the years ended December 31, 1993,
1994 and 1995 (audited)............................................................. F-4
Consolidated Statements of Shareholders' Equity, for the years ended December 31,
1993,
1994 and 1995 (audited)............................................................. F-5
Consolidated Statements of Cash Flows, for the years ended December 31, 1993, 1994
and 1995 (audited).................................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Oakley, Inc.:
We have audited the accompanying consolidated balance sheets of Oakley, Inc.
and subsidiaries (the Company) as of December 31, 1995 and 1994 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Oakley, Inc.
and subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 13, 1996
Costa Mesa, California
F-2
<PAGE>
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER DECEMBER MARCH 31,
31, 1994 31, 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $1,692,000 $9,760,000 $16,879,000
Accounts receivable, less allowance for doubtful
accounts of $271,000 (1994), $591,000 (1995) and
$618,000 (1996)................................... 14,403,000 19,288,000 24,775,000
Inventories (Note 2)............................... 8,453,000 20,488,000 22,548,000
Other receivables.................................. 969,000 348,000 1,514,000
Deferred income taxes (Note 4)..................... -- 3,562,000 3,534,000
Prepaid expenses................................... 976,000 1,731,000 2,019,000
---------- ---------- -----------
Total current assets............................. 26,493,000 55,177,000 71,269,000
PROPERTY AND EQUIPMENT, net (Note 3)................. 19,358,000 38,888,000 43,613,000
OTHER ASSETS......................................... -- 316,000 319,000
DEFERRED TAX ASSET (Note 4).......................... -- 190,000 190,000
DEPOSITS............................................. 3,843,000 3,154,000 1,479,000
---------- ---------- -----------
TOTAL ASSETS......................................... $49,694,000 $97,725,000 $116,870,000
---------- ---------- -----------
---------- ---------- -----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Loan payable -- bank (Note 5)...................... $3,300,000 $ -- $ --
S Distribution Notes (Note 7)...................... -- 263,000 --
Accounts payable................................... 9,685,000 7,123,000 8,571,000
Due to shareholders................................ 25,000 -- --
Accrued expenses and other current liabilities..... 3,551,000 6,601,000 6,844,000
Income taxes payable (Note 4)...................... -- 2,029,000 8,713,000
---------- ---------- -----------
Total current liabilities........................ 16,561,000 16,016,000 24,128,000
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (Note 7):
Preferred stock, par value $.01 per share;
10,000,000 shares authorized; no shares issued.... -- -- --
Common stock, par value $.01 per share; 100,000,000
shares authorized; 32,501,000 (1994) and
35,700,000 (1995 and 1996) issued and
outstanding....................................... 18,000 357,000 357,000
Additional paid-in capital......................... -- 64,427,000 64,429,000
Retained earnings.................................. 33,204,000 16,998,000 27,971,000
Foreign currency translation adjustment............ (89,000) (73,000) (15,000)
---------- ---------- -----------
Total shareholders' equity....................... 33,133,000 81,709,000 92,742,000
---------- ---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........... $49,694,000 $97,725,000 $116,870,000
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
------------ ------------- ------------- THREE MONTHS ENDED MARCH
31,
--------------------------
1995 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES................................ $ 92,714,000 $ 123,952,000 $ 172,752,000 $ 36,615,000 $ 48,706,000
COST OF GOODS SOLD....................... 27,667,000 35,714,000 50,295,000 11,356,000 14,642,000
------------ ------------- ------------- ------------ ------------
GROSS PROFIT............................. 65,047,000 88,238,000 122,457,000 25,259,000 34,064,000
OPERATING EXPENSES:
Research and development............... 15,455,000 25,529,000 16,774,000 6,660,000 949,000
Selling................................ 21,750,000 30,815,000 36,776,000 7,470,000 10,091,000
Shipping and warehousing............... 2,334,000 3,187,000 4,678,000 1,001,000 1,423,000
General and administrative (Note 6).... 11,801,000 14,681,000 15,753,000 3,692,000 3,948,000
Gain on disposition of property and
equipment............................. -- -- (4,794,000) -- --
------------ ------------- ------------- ------------ ------------
Total operating expenses............. 51,340,000 74,212,000 69,187,000 18,823,000 16,411,000
------------ ------------- ------------- ------------ ------------
OPERATING INCOME......................... 13,707,000 14,026,000 53,270,000 6,436,000 17,653,000
INTEREST EXPENSE (INCOME), net........... 69,000 232,000 273,000 30,000 (189,000)
------------ ------------- ------------- ------------ ------------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................... 13,638,000 13,794,000 52,997,000 6,406,000 17,842,000
PROVISION FOR INCOME TAXES (Note 4)...... 308,000 259,000 7,830,000 270,000 6,869,000
------------ ------------- ------------- ------------ ------------
NET INCOME............................... $ 13,330,000 $ 13,535,000 $ 45,167,000 $ 6,136,000 $ 10,973,000
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE........................ $ .31
------------
------------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES....................... 35,916,000
------------
------------
Supplemental data (unaudited)(Note 1):
Historical income before provision for
income taxes.......................... $ 13,638,000 $ 13,794,000 $ 52,997,000 $ 6,406,000
Supplemental provision for income
taxes................................. 5,476,000 5,539,000 20,854,000 2,575,000
------------ ------------- ------------- ------------
Supplemental net income................ $ 8,162,000 $ 8,255,000 $ 32,143,000 $ 3,831,000
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
Supplemental net income per share...... $ .95
-------------
-------------
Weighted average common shares used in
the calculation of supplemental net
income per share........................ 33,770,000
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
-------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS GAIN (LOSS) TOTAL
--------- --------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1993............. 32,501,000 $ 18,000 $ -- $28,550,000 $ 82,000 $28,650,000
Net income.............................. -- -- -- 13,330,000 -- 13,330,000
Dividends............................... -- -- -- (9,047,000) -- (9,047,000)
Foreign currency translation............ -- -- -- -- (158,000 ) (158,000)
--------- --------- -------------- ----------- ----------- -----------
Balance as of December 31, 1993........... 32,501,000 18,000 -- 32,833,000 (76,000 ) 32,775,000
Net income.............................. -- -- -- 13,535,000 -- 13,535,000
Dividends............................... -- -- -- (13,164,000) -- (13,164,000)
Foreign currency translation............ -- -- -- -- (13,000 ) (13,000)
--------- --------- -------------- ----------- ----------- -----------
Balance as of December 31, 1994........... 32,501,000 18,000 -- 33,204,000 (89,000 ) 33,133,000
Issuance of common shares............... 3,300,000 347,000 68,713,000 -- -- 69,060,000
Reclassification of undistributed
taxable S corporation earnings (Note
7)..................................... -- -- (5,080,000 ) 5,080,000 -- --
Contributed capital..................... (101,000) (8,000) 794,000 -- -- 786,000
Net income.............................. -- -- -- 45,167,000 -- 45,167,000
Dividends............................... -- -- -- (66,453,000) -- (66,453,000)
Foreign currency translation............ -- -- -- -- 16,000 16,000
--------- --------- -------------- ----------- ----------- -----------
Balance as of December 31, 1995........... 35,700,000 357,000 64,427,000 16,998,000 (73,000 ) 81,709,000
Deferred compensation................... -- -- 2,000 -- -- 2,000
Net income.............................. -- -- -- 10,973,000 -- 10,973,000
Foreign currency translation............ -- -- -- -- 58,000 58,000
--------- --------- -------------- ----------- ----------- -----------
Balance as of March 31, 1996
(unaudited).............................. 35,700,000 $ 357,000 $ 64,429,000 $27,971,000 $ (15,000 ) $92,742,000
--------- --------- -------------- ----------- ----------- -----------
--------- --------- -------------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------ THREE MONTHS ENDED MARCH
31,
-------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 13,330,000 $ 13,535,000 $ 45,167,000 $6,136,000 $10,973,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 6,553,000 7,606,000 7,393,000 1,772,000 1,876,000
Gain on disposition of equipment.................. (15,000) (31,000) (5,286,000) (12,000 ) (98,000 )
Deferred Compensation............................. -- -- -- -- 2,000
Changes in assets and liabilities:
Accounts receivable............................. (2,518,000) (5,772,000) (4,885,000) (3,124,000 ) (5,487,000 )
Inventories..................................... 741,000 364,000 (12,035,000) (3,270,000 ) (2,060,000 )
Deferred income taxes........................... -- -- (3,752,000) -- 28,000
Other receivables............................... (436,000) 239,000 621,000 590,000 (1,166,000 )
Prepaid expenses................................ (224,000) (150,000) (755,000) 242,000 (288,000 )
Other assets.................................... -- -- (316,000) (285,000 ) (3,000 )
Accounts payable................................ 681,000 7,008,000 (2,562,000) (1,811,000 ) 1,448,000
Due to shareholders............................. -- (40,000) -- 6,493,000 --
Accrued expenses and other current
liabilities.................................... (2,401,000) 2,052,000 3,025,000 170,000 243,000
Income taxes payable............................ -- -- 2,029,000 -- 6,684,000
------------ ------------ ------------ ----------- -----------
Net cash provided by operating activities....... 15,711,000 24,811,000 28,644,000 6,901,000 12,152,000
------------ ------------ ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits............................................ (172,000) (3,093,000) 689,000 (1,495,000 ) 1,675,000
Acquisitions of property and equipment.............. (9,084,000) (6,972,000) (33,239,000) (3,026,000 ) (6,696,000 )
Proceeds from sale of equipment..................... 68,000 69,000 412,000 12,000 193,000
------------ ------------ ------------ ----------- -----------
Net cash used in investing activities............. (9,188,000) (9,996,000) (32,138,000) (4,509,000 ) (4,828,000 )
------------ ------------ ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings....................... -- 3,300,000 57,049,000 -- --
Repayments of bank borrowings....................... (1,261,000) (6,339,000) (60,349,000) (1,265,000 ) --
Repayments to shareholders.......................... (6,803,000) -- -- -- --
Net proceeds from issuance of common stock.......... -- -- 69,060,000 -- --
Contribution of capital............................. -- -- 786,000 -- --
Dividends paid...................................... (8,810,000) (13,401,000) (55,000,000) (1,000,000 ) (263,000 )
------------ ------------ ------------ ----------- -----------
Net cash (used in) provided by financing
activities....................................... (16,874,000) (16,440,000) 11,546,000 (2,265,000 ) (263,000 )
------------ ------------ ------------ ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............... (158,000) (13,000) 16,000 28,000 58,000
------------ ------------ ------------ ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.......................................... (10,509,000) (1,638,000) 8,068,000 155,000 7,119,000
CASH AND CASH EQUIVALENTS, beginning of period........ 13,839,000 3,330,000 1,692,000 1,692,000 9,760,000
------------ ------------ ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end of period.............. $ 3,330,000 $ 1,692,000 $ 9,760,000 $1,847,000 $16,879,000
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amounts capitalized)............. $ 406,000 $ 358,000 $ 585,000 $ 36,000 $ 3,000
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
Income taxes...................................... $ 431,000 $ 275,000 $ 9,257,000 $ -- $ 157,000
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
</TABLE>
During the year ended December 31, 1995, the Company distributed aircraft to
shareholders with a fair value of $11.2 million in the form of a dividend. At
December 31, 1995, the Company had unpaid S distribution notes with an estimated
balance of $0.3 million. At December 31, 1994, the Company had accrued dividends
of $2.0 million.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS -- The Company is an innovation-driven designer,
manufacturer and distributor of high-performance sunglasses and goggles. The
Company's principal strength is its ability to develop eyewear which
demonstrates superior optical performance and comfort through the combination of
patented technology and unique styling. The Company has focused on innovations
for sports applications, and its products are worn by a variety of athletes,
such as skiers, cyclists, runners, surfers, golfers, tennis and baseball players
and motocross riders. In addition, the Company's products, which are currently
sold in over 65 countries worldwide, have become increasingly popular in the
larger nonsports, or recreational, segment of the sunglass market.
INTERIM FINANCIAL DATA -- The interim consolidated financial data as of
March 31, 1996 and for the three-month periods ended March 31, 1995 and 1996 is
unaudited. The information reflects all adjustments, consisting only of normal
recurring adjustments, that, in the opinion of management, are necessary to
present fairly the financial position and results of operations of the Company
for the periods indicated. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the full fiscal year.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of Oakley, Inc. (a Washington corporation, which succeeded to all
the assets and liabilities of Oakley, Inc. a California corporation) and its
subsidiaries (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS -- For purposes of the consolidated financial
statements, investments purchased with original maturities of three months or
less are considered cash equivalents.
INVENTORIES -- Inventories are stated at the lower of cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost, net of
accumulated depreciation and amortization. Depreciation and amortization are
provided for using the straight-line method over the estimated useful lives
(generally 3 to 7 years) of the respective assets or, as to leasehold
improvements, the term of the related lease if less than the estimated service
life.
REVENUE RECOGNITION -- Revenue is recognized when merchandise is shipped to
a customer. Generally the Company extends credit to its customers and does not
require collateral. The Company performs ongoing credit evaluations of its
customers and historic credit losses have been within management's expectations.
INCOME TAXES -- The Company accounts for income taxes under the provisions
of Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting
for Income Taxes." Deferred taxes on income result from temporary differences
between the reporting of income for financial statements and tax reporting
purposes. Prior to August 14, 1995, Oakley, Inc. elected to be treated as an S
corporation under the provisions of the Internal Revenue Code. Accordingly, the
provision for income taxes for the periods through August 14, 1995 are computed
by applying the California franchise tax rate for S corporations of 1.5% to
Oakley, Inc.'s pretax earnings, plus the foreign taxes related to Oakley Europe.
Effective August 14, 1995, the Company converted to a C corporation and became
subject to regular federal and state income taxes on an ongoing basis. As a
result, the Company recorded $1.6 million of deferred income tax assets on
August 14, 1995 through a benefit recorded on the statement of income.
FOREIGN CURRENCY TRANSLATION -- The Company's primary functional currency is
the U.S. dollar. Assets and liabilities expressed in foreign currencies are
translated at exchange rates in effect at the balance sheet
F-7
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS (CONTINUED)
date. Revenue and expense items are translated using the average exchange rate.
Gains and losses resulting from translation of foreign currency financial
statements are reported as a separate component of shareholders' equity. Gains
and losses from foreign currency exchanges are recognized as incurred.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE -- Net income per common
and common equivalent share was computed based on net income divided by the
weighted average number of common and common equivalent shares outstanding
during the three months ended March 31, 1996.
SUPPLEMENTAL NET INCOME -- Supplemental net income represents the results of
operations adjusted to reflect a provision for income tax on historical income
before provision for income taxes which gives effect to the change in Oakley,
Inc.'s income tax status to a C corporation subsequent to the public sale of its
common stock. The difference between the pro forma income tax rates utilized and
the Federal statutory rate of 35% relates primarily to state income taxes
(approximately 5%, net of federal tax benefit).
SUPPLEMENTAL NET INCOME PER SHARE -- Historical net income per common and
common equivalent share is not presented for periods prior to the three months
ended March 31, 1996 because it is not indicative of the ongoing entity.
Supplemental net income per share has been computed by dividing supplemental
net income by the weighted average number of shares of common stock outstanding
during the period.
In accordance with a regulation of the SEC, supplemental earnings per share
data for the period ended December 31, 1995 has been presented to reflect the
effect of the assumed issuance of 11,435 shares of common stock that would
generate sufficient cash to pay the S corporation notes outstanding at December
31, 1995.
STOCK-SPLIT -- On August 1, 1995, Oakley effected a 3,240 for one stock
split of its common stock. All share and per share amounts included in the
accompanying financial statements and footnotes have been restated to reflect
the stock split.
NEW ACCOUNTING PRONOUNCEMENT -- In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." The Company has determined that it
will not change to the fair value method and will continue to use Accounting
Principles Board Opinion No. 25 for measurement and recognition of employee
stock-based transactions.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
GENERAL BUSINESS -- The Company's historical success is attributable, in
part, to its introduction of products which are perceived to represent an
improvement in performance over products available in the market. The Company's
future success will depend, in part, upon its continued ability to develop and
introduce such innovative products, and there can be no assurance of the
Company's ability to do so. The sunglass industry is fragmented and highly
competitive. In order to retain its market share, the Company must continue to
be competitive in the areas of quality, technology, method of distribution,
style, brand image, intellectual property protection and customer service. The
eyewear industry is subject to changing consumer preferences; shifts in consumer
preferences may adversely affect companies that misjudge such preferences.
In addition, the Company has experienced significant growth which has
placed, and could continue to place, a significant strain on its employees and
operations. If management is unable to anticipate or manage growth effectively,
the Company's operating results could be materially adversely affected.
F-8
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS (CONTINUED)
USE OF ESTIMATES -- The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
liabilities at the balance sheet dates and the reported amounts of revenue and
expense during the reporting periods. Actual results could differ from such
estimates.
VULNERABILITY DUE TO SUPPLIER CONCENTRATIONS -- The Company relies on a
single source for the supply of several components, including the uncoated lens
blanks from which substantially all of its sunglass lenses are cut. The effect
of the loss of any of these sources or of a disruption in their business will
depend primarily upon the length of time necessary to find a suitable
alternative source. The loss of the source for lens blanks or a disruption in
such source's business or failure by it to meet the Company's product needs on a
timely basis could cause, at a minimum, temporary shortages in needed materials
and could have a material adverse effect on the Company's results of operations.
VULNERABILITY DUE TO CUSTOMER CONCENTRATIONS -- Sales before discounts to a
sunglass specialty retail chain (including sales to another large sunglass
retailer which was acquired by such chain in July 1995) accounted for
approximately 26.9%, 30.0% and 32.1% of such sales for the years ended December
31, 1993, 1994 and 1995, respectively.
2. INVENTORIES
Inventories consist of the following at December 31, 1994 and 1995 and March
31, 1996:
<TABLE>
<CAPTION>
MARCH 31,
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Raw materials.............................................. $ 6,468,000 $ 13,650,000 $ 16,179,000
Finished goods............................................. 1,985,000 6,838,000 6,369,000
------------ ------------- -------------
$ 8,453,000 $ 20,488,000 $ 22,548,000
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1994 and
1995 and March 31, 1996:
<TABLE>
<CAPTION>
MARCH 31,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Land...................................................... $ -- $ 8,245,000 $ 8,245,000
Airplanes................................................. 13,765,000 -- --
Automobiles and vans...................................... 496,000 573,000 597,000
Furniture and equipment................................... 21,128,000 37,774,000 42,003,000
Tooling................................................... 2,580,000 3,941,000 4,035,000
Leasehold improvements.................................... 2,676,000 3,259,000 3,380,000
Construction in progress.................................. -- 5,096,000 6,974,000
------------- ------------- -------------
40,645,000 58,888,000 65,234,000
Less accumulated depreciation and amortization............ 21,287,000 20,000,000 21,621,000
------------- ------------- -------------
$ 19,358,000 $ 38,888,000 $ 43,613,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Included in construction in progress is capitalized interest of $234,000.
F-9
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
4. INCOME TAXES
The provision for income taxes consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ -- $ 6,756,000
State............................................... 349,000 191,000 2,063,000
Foreign............................................. (41,000) 68,000 1,443,000
---------- ---------- -------------
308,000 259,000 10,262,000
Deferred:
Federal............................................. -- -- (2,081,000)
State............................................... -- -- (351,000)
Foreign............................................. -- -- --
---------- ---------- -------------
-- -- (2,432,000)
---------- ---------- -------------
$ 308,000 $ 259,000 $ 7,830,000
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
The reconciliation of income tax expense computed at U.S. Federal statutory
rates to income tax expense for the year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Tax at U.S. Federal statutory rates............................ $18,549,000
State income taxes, net........................................ 1,316,000
Recording of deferred income tax assets in
connection with the conversion to C corporation............... (1,600,000)
S corporation earnings not subject to Federal tax.............. (10,301,000)
Other, net..................................................... (134,000)
-----------
$ 7,830,000
-----------
-----------
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Warranty reserve.............................................. $1,303,000
Uniform capitalization........................................ 531,000
Sales returns reserve......................................... 500,000
Bonus accrual................................................. 485,000
Other......................................................... 743,000
---------
Net current deferred income taxes............................. 3,562,000
Depreciation.................................................. 190,000
---------
Net noncurrent deferred income taxes.......................... 190,000
---------
Total deferred tax assets....................................... $3,752,000
---------
---------
</TABLE>
Prior to August 14, 1995, Oakley, Inc. elected to be treated as an S
corporation under the provisions of the Internal Revenue Code. Accordingly, the
provisions for income taxes for the period ended August 13,
F-10
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
4. INCOME TAXES (CONTINUED)
1995 and the years ended December 31, 1994 and 1993 are computed by applying the
California franchise tax rate for S corporations of 2.5% in 1993 and 1.5% in
1994, plus the foreign taxes related to Oakley Europe. Effective August 14,
1995, the Company converted to a C corporation and became subject to regular
Federal and state income taxes on an ongoing basis. As a result, the Company
recorded $1.6 million of deferred income tax assets at August 14, 1995. The
Company's provision for income taxes at March 31, 1995 and 1996 is currently
payable and was determined using estimated effective tax rates for each
respective period.
5. LINE OF CREDIT
The Company has an $18.0 million unsecured line of credit with a bank
syndicate which bears interest at; (i) the higher of the bank's prime rate or
the rate which is 1/2 of 1% in excess of the federal funds effective rate or
(ii) the LIBOR rate, as defined in the credit agreement for such line, plus 1.0%
and matures June 1999. At December 31, 1995, there were no borrowings
outstanding under the line of credit. The credit agreement has various
covenants, including the maintenance of minimum tangible net worth
(approximately $51.0 million at December 31, 1995) and certain other financial
ratios. At December 31, 1995, Oakley was in compliance with the restrictive
covenants.
6. COMMITMENTS AND CONTINGENCIES
LEASES -- The Company is committed under noncancelable operating leases
expiring at various dates through 2000 for certain offices, warehouse
facilities, production facilities and aircraft. The aircraft are leased from
entities controlled by officers and shareholders of the Company. Minimum future
annual rentals under these leases are as follows:
<TABLE>
<CAPTION>
RELATED
YEAR ENDING DECEMBER 31, PARTY OTHER TOTAL
- --------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
1996............................................... $ 100,000 $ 969,000 $ 1,069,000
1997............................................... 100,000 282,000 382,000
1998............................................... 100,000 47,0000 147,000
1999............................................... 100,000 4,000 104,000
2000............................................... 67,000 -- 67,000
------------ ------------ ------------
Total.......................................... $ 467,000 $ 1,302,000 $ 1,769,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Certain offices and warehouse facilities are leased on a month-to-month
basis from a partnership whose partners are officers and shareholders of the
Company.
Rent expense is summarized as follows for the years ended December 31, 1993,
1994 and 1995 and the three months ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1993 1994 1995 1995 1996
---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Related parties................ $ 384,000 $ 384,000 $ 421,500 $ 96,000 $ 121,000
Other.......................... 475,000 525,000 819,500 156,000 273,000
---------- ---------- ------------ ---------- ----------
Total........................ $ 859,000 $ 909,000 $ 1,241,000 $ 252,000 $ 394,000
---------- ---------- ------------ ---------- ----------
---------- ---------- ------------ ---------- ----------
</TABLE>
PURCHASE COMMITMENTS -- The Company had purchase commitments of $291,000 to
purchase fixed assets at December 31, 1995.
EMPLOYMENT AGREEMENTS -- During 1995 the Company entered into employment
agreements with certain officers of the Company; these agreements have terms of
two to three years. The agreements require
F-11
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
minimum aggregate compensation to the respective officers. Additionally, the
officers participate in a Performance Bonus Plan, and the employment agreements
establish minimum bonus targets for such officers.
ENDORSEMENT CONTRACTS -- The Company enters into endorsement contracts from
time to time with certain athletes and others to promote the Company's products.
Minimum annual payments under these agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1996............................................................................ $ 2,245,000
1997............................................................................ 1,134,000
1998............................................................................ 786,000
1999............................................................................ 500,000
2000............................................................................ 500,000
Thereafter...................................................................... 2,000,000
------------
Total....................................................................... $ 7,165,000
------------
------------
</TABLE>
Included in such amounts is an annual retainer of $0.5 million through 2005
for a director of the Company.
LITIGATION -- The Company is currently involved in litigation incidental to
the Company's business. In the opinion of management, the ultimate resolution of
such litigation, in the aggregate, will not have a significant effect on the
accompanying financial statements.
7. SHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING -- In August 1995, the Company completed an initial
public offering of 3,300,000 shares of the Company's common stock for $23.00 per
share, netting proceeds to the Company after underwriting discounts and expenses
of approximately $69.1 million.
S CORPORATION DISTRIBUTION -- Prior to the consummation of the public
offering, the Company distributed to Oakley's shareholders certain fixed assets
and a portion of previously earned undistributed taxable S corporation earnings.
In conjunction with the distribution of assets, the Company recorded a gain of
$4.9 million for the year ended December 31, 1995, representing the excess of
the fair value of the assets distributed over their respective net book values.
Additionally, concurrently with the consummation of the initial public offering,
Oakley shareholders contributed certain assets totaling $0.8 million to the
Company.
At December 31, 1995, amounts payable to shareholders for previously earned
and undistributed taxable S corporation earnings (which represents the balance
of S corporation notes) totaled $0.3 million.
At August 14, 1995, in accordance with a regulation of the Securities and
Exchange Commission, the Company reclassified $5.1 million of retained earnings
to additional paid-in capital. This amount represents, for financial reporting
purposes, previously earned and undistributed taxable S corporation earnings.
STOCK INCENTIVE PLAN -- In August 1995, the Company adopted the Oakley, Inc.
Stock Incentive Plan (the "1995 Stock Incentive Plan"). The 1995 Stock Incentive
Plan provides for stock-based incentive awards, including incentive stock
options, nonqualified stock options, restricted stock, performance shares, stock
appreciation rights and deferred stock to the Company officers, employees,
advisors and consultants. A total
F-12
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
of 2,856,000 shares have been reserved for issuance under the 1995 Stock
Incentive Plan. At March 31, 1996, stock options for 2,174 shares were
exercisable. At March 31, 1996, shares available for issuance pursuant to stock
option grants were 2,222,337.
Information with respect to the above plan follows:
<TABLE>
<CAPTION>
OPTION OPTION PRICE
SHARES PER SHARE
--------- ------------------
<S> <C> <C>
Outstanding at December 31, 1994............................... -- --
Granted during 1995............................................ 627,077 $ 23.00 to $37.75
Canceled during 1995........................................... (1,866) $ 23.00
Exercised during 1995.......................................... -- --
---------
Outstanding at December 31, 1995............................... 625,211 $ 23.00 to $37.75
Granted during 1996............................................ 9,023 $ 33.375
Canceled during 1996........................................... (571) $ 23.00
Exercised during 1996.......................................... -- --
---------
Outstanding at March 31, 1996.................................. 633,663 $ 23.00 to $37.75
---------
---------
</TABLE>
8. NET SALES
Net sales are summarized as follows for the years ended December 31, 1993,
1994 and 1995 and the three months ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1993 1994 1995 1995 1996
------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Domestic................ $ 72,783,000 $ 90,565,000 $ 115,202,000 $ 26,044,000 $ 30,470,000
International........... 19,931,000 33,387,000 57,550,000 10,571,000 $ 18,236,000
------------- -------------- -------------- ------------- -------------
$ 92,714,000 $ 123,952,000 $ 172,752,000 $ 36,615,000 $ 48,706,000
------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- ------------- -------------
</TABLE>
F-13
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
9. FOREIGN OPERATIONS
The Company operated principally in two geographic areas, the United States
and Europe, during the years ended December 31, 1993, 1994, and 1995. There were
no significant transfers between geographic areas during the period.
<TABLE>
<CAPTION>
1993
-----------------------------------
U.S. FOREIGN CONSOLIDATED
---------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales to unaffiliated customers...................... $ 87,212 $ 5,502 $ 92,714
Operating income......................................... 13,913 (206) 13,707
Net income............................................... 13,481 (151) 13,330
Identifiable assets...................................... 41,264 2,328 43,592
<CAPTION>
1994
-----------------------------------
U.S. FOREIGN CONSOLIDATED
---------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales to unaffiliated customers...................... $ 114,873 $ 9,079 $ 123,952
Operating income......................................... 13,618 408 14,026
Net income............................................... 13,182 353 13,535
Identifiable assets...................................... 46,385 3,309 49,694
<CAPTION>
1995
-----------------------------------
U.S. FOREIGN CONSOLIDATED
---------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales to unaffiliated customers...................... $ 152,116 $ 20,636 $ 172,752
Operating income......................................... 49,534 3,736 53,270
Net income............................................... 42,831 2,336 45,167
Identifiable assets...................................... 89,188 8,537 97,725
</TABLE>
10. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's balance sheet includes the following financial instruments:
cash and cash equivalents, trade accounts receivable and accounts payable. The
Company considers the carrying amounts in the financial statements to
approximate fair value for these financial instruments because of the relatively
short period of time between origination of the instruments and their expected
realization.
F-14
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Net sales........................................................... $ 26,175 $ 33,973 $ 32,591 $ 31,213
Gross profit........................................................ 19,039 25,429 22,461 21,309
Income before provision for income taxes............................ 3,319 5,544 2,581 2,350
Net income.......................................................... 3,262 5,440 2,531 2,302
Supplemental income data:
Income before provision for income taxes.......................... $ 3,319 $ 5,544 $ 2,581 $ 2,350
Supplemental net income........................................... 1,986 3,318 1,545 1,406
Year ended December 31, 1995:
Net sales........................................................... $ 36,615 $ 45,686 $ 47,499 $ 42,952
Gross profit........................................................ 25,259 34,091 33,359 29,748
Income before provision for income taxes............................ 6,406 10,113 21,537 14,941
Net income.......................................................... 6,136 9,592 20,228 9,211
Supplemental income data:
Income before provision for income taxes.......................... $ 6,406 $ 10,113 $ 21,537 $ 14,941
Supplemental net income........................................... 3,831 6,048 13,161 9,103
</TABLE>
F-15
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS, OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Corporate History and Reorganization........... 10
Use of Proceeds................................ 11
Price Range of Common Stock and Dividend
Policy........................................ 11
Capitalization................................. 12
Selected Financial Data........................ 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 16
Business....................................... 25
Management..................................... 39
Certain Transactions........................... 45
Principal and Selling Shareholders............. 45
Shares Eligible for Future Sale................ 46
Certain United States Federal Tax Consequences
to Non-United States Holders.................. 47
Description of Capital Stock................... 48
Underwriting................................... 51
Legal Matters.................................. 53
Experts........................................ 53
Additional Information......................... 53
Index to Consolidated Financial Statements..... F-1
</TABLE>
5,000,000 SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 5, 1996
PROSPECTUS
5,000,000 SHARES
[LOGO]
COMMON STOCK
------------------------
Of the 5,000,000 shares of Common Stock of Oakley, Inc., a Washington
corporation, (the "Company" or "Oakley"), being offered hereby, 1,000,000 shares
are being offered outside the United States and Canada by the International
Managers (the "International Offering") and 4,000,000 shares are being offered
in a concurrent offering inside the United States and Canada by the U.S.
Underwriters (the "U.S. Offering," and together with the International Offering,
the "Offerings"). The public offering price, the aggregate underwriting discount
per share and the respective percentages of the Common Stock to be sold are
identical for each of the Offerings. See "Underwriting."
All of the shares of Common Stock offered hereby are being sold by certain
shareholders of the Company (the "Selling Shareholders"). The Company will not
receive any of the proceeds from the sale of the shares by the Selling
Shareholders. See "Principal and Selling Shareholders."
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "OO." On June 4, 1996, the last reported sale price of the Common Stock
on the NYSE was $49 1/4 per share.
SEE "RISK FACTORS" (BEGINNING ON PAGE 6) FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
<S> <C> <C> <C>
Per Share.................... $ $ $
Total (3).................... $ $ $
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offerings payable by the Selling
Shareholders estimated to be $600,000.
(3) The Selling Shareholders have granted to the International Managers and the
U.S. Underwriters options exercisable within 30 days after the date of this
Prospectus, to purchase up to an additional 150,000 and 600,000 shares of
Common Stock, respectively, on the same terms as set forth above, to cover
over-allotments, if any. If all such additional shares are purchased, the
total Price to Public, Underwriting Discount, and Proceeds to Selling
Shareholders will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made in New York, New York
on or about June , 1996.
------------------------
MERRILL LYNCH INTERNATIONAL ALEX. BROWN & SONS
INTERNATIONAL
---------------------
The date of this Prospectus is , 1996.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Company, each of
the Selling Shareholders and each of the underwriters named below (the
"International Managers"), and concurrently with the sale of 4,000,000 shares of
Common Stock to the U.S. Underwriters (as defined below), the Selling
Shareholders have agreed to sell to each of the International Managers, and each
of the International Managers severally has agreed to purchase from the Selling
Shareholders, the number of shares of Common Stock set forth opposite its name
below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGERS OF SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Merrill Lynch International................................................................
Alex. Brown & Sons Incorporated............................................................
----------
Total.......................................................................... 1,000,000
----------
----------
</TABLE>
Merrill Lynch International and Alex. Brown & Sons Incorporated are acting
as representatives (the "International Representatives") of the International
Managers.
The Company and the Selling Shareholders have also entered into a purchase
agreement (the "U.S. Purchase Agreement" and, together with the International
Purchase Agreement, the "Purchase Agreements") with certain underwriters in the
United States and Canada (collectively, the "U.S. Underwriters," and together
with the International Managers, the "Underwriters"), for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Alex. Brown & Sons Incorporated are
acting as representatives (the "U.S. Representatives" and, together with the
International Representatives, the "Representatives"). Subject to the terms and
conditions set forth in the U.S. Purchase Agreement, and concurrently with the
sale of 1,000,000 shares of Common Stock to the International Managers pursuant
to the International Purchase Agreement, the Selling Shareholders have agreed to
sell to the U.S. Underwriters, and the U.S. Underwriters have severally agreed
to purchase from the Selling Shareholders, an aggregate of 4,000,000 shares of
Common Stock. The public offering price per share of Common Stock and the
underwriting discount per share of Common Stock are identical under the
International Purchase Agreement and the U.S. Purchase Agreement. The respective
percentages of the Common Stock to be sold by each of the Selling Shareholders
will be identical in the U.S. Offering and the International Offering.
In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Managers and the several U.S. Underwriters, respectively,
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the shares of Common Stock being sold pursuant to each such Agreement
51
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
if any of the shares of Common Stock being sold pursuant to such Agreement are
purchased. Under certain circumstances, the commitments of non-defaulting
International Managers or U.S. Underwriters (as the case may be) may be
increased. The sale of shares of Common Stock to the International Managers is
conditioned upon the sale of shares of Common Stock to the U.S. Underwriters and
vice versa.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. The Underwriters are permitted to sell shares
of Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession. Under
the terms of the Intersyndicate Agreement, the International Managers and any
dealer to whom they sell shares of Common Stock will not offer to sell or sell
shares of Common Stock to persons who are U.S. or Canadian persons or to persons
they believe intend to resell to persons who are U.S. or Canadian persons, and
the U.S. Underwriters and any dealer to whom they sell shares of Common Stock
will not offer to sell or sell shares of Common Stock to non-U.S. persons or to
non-Canadian persons or to persons they believe intend to resell to non-U.S.
persons or non-Canadian persons, except in the case of transactions pursuant to
the Intersyndicate Agreement.
The International Representatives have advised the Company that the
International Managers propose initially to offer the shares of Common Stock to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain selected dealers at such price less a concession not
in excess of $
per share of Common Stock. The International Managers may allow, and such
dealers may reallow, a discount not in excess of $ per share of Common Stock
on sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
At the request of the Company, the U.S. Underwriters have reserved up to
250,000 shares of Common Stock for sale at the initial public offering price to
directors, officers, employees, business associates and related persons of the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
Each International Manager has agreed that (i) it has not offered or sold,
and will not for a period of six months following consummation of the Offerings
offer or sell, in the United Kingdom by means of any document, any shares of
Common Stock offered hereby, other than to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances that do not constitute an offer to the public within the meaning
of the Public Offers of Securities Regulations 1995; (ii) it has complied with
and will comply with all applicable provisions of the Financial Services Act of
1986 with respect to anything done by it in relation to the shares of Common
Stock in, from or otherwise involving the United Kingdom and (iii) it has only
issued or passed on and will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the issue of the shares
of Common Stock if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995,
as amended, or is a person to whom the document may otherwise lawfully be issued
or passed on.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase, in addition to the offering price set forth on the cover page hereby.
The Selling Shareholders have granted an option to the International
Managers, exercisable within 30 days after the date of this Prospectus, to
purchase up to an aggregate of 150,000 additional shares of Common Stock at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The International Managers may exercise this option only
to cover over-allotments, if any, made on the sale of the Common Stock offered
hereby. To the extent that the International Managers exercise this option, each
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of Common Stock proportionate to such
International Manager's initial amount reflected in the foregoing table. The
Selling Shareholders also have granted an option to the U.S.
52
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Underwriters, exercisable within 30 days after the date of this Prospectus, to
purchase up to an aggregate of 600,000 additional shares of Common Stock to
cover over-allotments, if any, on terms similar to those granted to the
International Managers.
The Company and the Selling Shareholders have agreed, subject to certain
exceptions, not to sell or otherwise dispose of any shares of Common Stock or
securities convertible into or exchangeable into or exercisable for Common
Stock, without the prior written consent of the Representatives, for a period of
180 days after the date of this Prospectus.
The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof. The Company has agreed to indemnify the
Selling Shareholders, under certain circumstances, in respect of payments made
by them pursuant to these agreements.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock have been passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California
and, with respect to certain matters of Washington law, by Preston Gates &
Ellis, Seattle, Washington. The validity of the Common Stock offered hereby will
be passed upon for the Underwriters by Shearman & Sterling, Los Angeles,
California. Skadden, Arps, Slate, Meagher & Flom has from time to time
represented certain of the Underwriters in connection with unrelated legal
matters.
EXPERTS
The consolidated financial statements of Oakley, Inc. as of December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995 which appear in this Prospectus and the related financial statement
schedule which appears in the Registration Statement have been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their reports
thereon also appearing elsewhere herein and in the Registration Statement and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company or such
Common Stock, reference is made to the Registration Statement and the schedules
and exhibits filed as a part thereof. Statements contained in this Prospectus
regarding the contents of any contract or any other document are not necessarily
complete and, in each instance, reference is hereby made to the copy of such
contract or other document filed as an exhibit to such Registration Statement.
The Registration Statement, including exhibits thereto, may be inspected without
charge at the Commission's principal office in Washington, D.C., and copies of
all or any part thereof may be obtained from the Public Reference Section,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
53
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS, OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Corporate History and Reorganization........... 10
Use of Proceeds................................ 11
Price Range of Common Stock and Dividend
Policy........................................ 11
Capitalization................................. 12
Selected Financial Data........................ 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 16
Business....................................... 25
Management..................................... 39
Certain Transactions........................... 45
Principal and Selling Shareholders............. 45
Shares Eligible for Future Sale................ 46
Certain United States Federal Tax Consequences
to Non-United States Holders.................. 47
Description of Capital Stock................... 48
Underwriting................................... 51
Legal Matters.................................. 53
Additional Information......................... 53
Experts........................................ 53
Index to Consolidated Financial Statements..... F-1
</TABLE>
5,000,000 SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS
INTERNATIONAL
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 86,127
NASD fee.................................................................. 25,477
Blue sky fees............................................................. 20,000
Printing and engraving expenses........................................... 150,000
Accountants' fees and expenses............................................ 50,000
Attorneys' fees and expenses.............................................. 120,000
Miscellaneous............................................................. 148,396
---------
Total................................................................. $ 600,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall, to the fullest extent permitted by the Washington Business Corporation
Act (the "Washington Business Act"), as amended from time to time, indemnify all
directors and officers of the Company, and may so indemnify employees or agents
of the Company. Section 23B.08.560 of the Washington Business Act provides in
part that if authorized by the corporation's articles of incorporation or a
shareholder approved or ratified bylaw or board resolution, a corporation shall
have the power to indemnify, or agree to indemnify, any individual who was or is
threatened to be made a named defendant or respondent in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative and whether formal or informal (a "proceeding"), by reason of
the fact that the individual is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against the payment of reasonable expenses (including
attorneys' fees), judgments, settlements, penalties, fines (including excise
taxes assessed with respect to an employee benefit plan) incurred with respect
to such proceeding without regard to the restrictions imposed on indemnification
under the Washington Business Act; provided that no indemnification can be
provided for liability for (i) acts or omissions of such individuals finally
adjudged to be intentional misconduct or a knowing violation of law, (ii)
conduct of such individuals finally adjudged to be in violation of Section
23B.08.310 of the Washington Business Act (which section relates to unlawful
distributions), or (iii) any transaction with respect to which it was finally
adjudged that such individuals personally received a benefit in money, property
or services to which such individuals were not legally entitled. The Company's
Articles of Incorporation and Bylaws also require advances for reasonable
expenses for such individuals who are parties to such a proceeding as provided
by applicable law or by written agreement, which written agreement may allow any
required determination as to the availability of indemnification to be made by
any appropriate person or body consisting of a member or members of the Board of
Directors, any other person or body appointed by the Board of Directors who is
not a party to the particular claim, or independent legal counsel.
The Company has entered into separate indemnification agreements (the
"Indemnification Agreements") with each of its directors and executive officers
(the "Indemnified Parties"), pursuant to which the Company has agreed to defend
and indemnify each such Indemnified Party for claims arising from any actions or
omissions of such Indemnified Party in his or her capacity as a director,
officer, employee, agent, fiduciary, or consultant of the Company or any claim
brought against such Indemnified Party by reason of such Indemnified Party
serving in such capacity, or by any reason of such Indemnified Party serving at
the request of the Company in such capacity with another entity. The
Indemnification Agreements do not permit the Company to indemnify the
Indemnified Parties for acts and omissions as to which indemnification is not
permitted under the Washington Business Act. In addition, the Indemnity
Agreements provide that, subject to certain limitations, the Company must
maintain directors and officers insurance covering the
II-1
<PAGE>
Indemnified Parties and must advance expenses incurred by the Indemnified
Parties in defense of claims for which indemnification is available under the
Indemnification Agreements. Each Indemnified Party is obligated to reimburse the
Company for all losses and expenses paid by the Company under the relevant
Indemnity Agreement in the event and only to the extent that a final
determination is made that the Indemnified Party is not entitled to
indemnification under such Indemnity Agreement, the Company's Articles of
Incorporation or Bylaws, the Washington Business Act or other applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of U.S. Purchase Agreement
*1.2 Form of International Purchase Agreement
**3.1 Articles of Incorporation of the Company
**3.2 Bylaws of the Company
*5.1 Opinion and Consent of Preston Gates & Ellis
**10.1.1 Credit Agreement (the "Credit Agreement"), dated June 20, 1995, between Oakley, Inc., Wells
Fargo Bank, National Association, and the Lenders named therein
**10.1.2 Collateral Account Agreement, dated June 20, 1995, between Oakley, Inc. and Wells Fargo
Bank, National Association, as agent for the Lenders party to the Credit Agreement
**10.1.3 Security Agreement, dated June 20, 1995, between Oakley, Inc. and Wells Fargo Bank,
National Association, as agent for the Lenders party to the Credit Agreement
**10.1.4 Security Agreement and Chattel Mortgage, dated June 20, 1995, between Oakley, Inc. and
Wells Fargo Bank, National Association, as agent for the Lenders party to the Credit
Agreement
**10.1.5 Trademark Collateral Security Agreement, dated June 20, 1995, between Oakley, Inc. and
Wells Fargo Bank, National Association, as agent for the Lenders party to the Credit
Agreement
**10.1.6 Patent Collateral Security Agreement, dated June 20, 1995, between Oakley, Inc. and Wells
Fargo Bank, National Association, as agent for the Lenders party to the Credit Agreement
**10.1.7 Subordination Agreement, dated June 20, 1995, between Oakley, Inc., Buffalo Works, Inc.,
James H. Jannard and Mike D. Parnell
</TABLE>
- ------------------------
* Filed herewith.
**Incorporated by reference from the Registration Statement on Form S-1 of
Oakley, Inc. (Registration No. 33-93080)
*** Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
**** Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1995
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------
<C> <S>
***10.1.8 Credit Agreement (the "Amended and Restated Credit Agreement"), dated August 15, 1995,
between Oakley, Inc., Wells Fargo Bank, National Association, as agent and the Lenders
named therein
***10.1.9 Collateral Account Agreement, dated August 15, 1995, between Oakley, Inc. and Wells Fargo
Bank, National Association, as agent for the Lenders party to the Amended and Restated
Credit Agreement
***10.1.10 Guaranty, dated August 15, 1995, by the Guarantors named therein and Wells Fargo Bank,
National Association, as agent for the Lenders party to the Amended and Restated Credit
Agreement
***10.1.11 Shareholder Pledge Agreement (original and English translation), dated August 15, 1995
between Oakley, Inc. and Wells Fargo Bank, National Association, as agent for the Lenders
party to the Amended and Restated Credit Agreement
***10.1.12 Subordination Agreement, dated August 15, 1995 between the Initial Subordinated Creditors
named therein and Wells Fargo Bank, National Association, as agent for the Lenders party to
the Amended and Restated Credit Agreement
***10.1.13 Promissory Note, dated August 8, 1995 between Oakley, Inc. and James H. Jannard
***10.1.14 Promissory Note, dated August 8, 1995 between Oakley, Inc. and M. and M. Parnell Revocable
Trust
***10.1.15 Termination and Release Agreement, dated as of August 15, 1995 between Oakley, Inc. and
Wells Fargo Bank, National Association, as agents for the Lenders party to the Credit
Agreement
****10.1.16 First Amendment to Amended and Restated Credit Agreement dated November 22, 1995 by and
among Oakley, Inc., Wells Fargo Bank, National Association, as agent and the Lenders named
therein
**10.2 Loan Agreement, dated June 14, 1993, between Oakley, Inc. and Union Bank, as amended
**10.3.1 Lease, dated September 15, 1988, between OO Partnership and Oakley, Inc.
**10.3.2 Agreement, dated July 31, 1995, between OO Partnership and Oakley, Inc.
****10.3.3 First Amendment to Lease dated December 31, 1995, by and between Oakley, Inc., and OO
Partnership
**10.4 Lease, dated March 5, 1990, between Weyerhauser Mortgage Company and Oakley, Inc., as
amended
**10.5 Sublease, dated August 17, 1992, between Western Digital Corporation and Oakley, Inc., as
amended
**10.6 Purchase Agreement and Escrow Instructions, dated December 9, 1994, between Oakley, Inc.
and Foothill Ranch Development Corporation
****10.7 Oakley, Inc. Executive Officer Performance Bonus Plan
****10.8 Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan
</TABLE>
- ------------------------
* Filed herewith.
** Incorporated by reference from the Registration Statement on Form S-1 of
Oakley, Inc. (Registration No. 33-93080)
*** Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
**** Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1995
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------------- ------------------------------------------------------------------------------------------
<C> <S>
**10.9 Employment Agreement, dated as of August 1, 1995, between Oakley, Inc. and Jim Jannard
**10.10 Employment Agreement, dated as of August 1, 1995, between Oakley, Inc. and Mike Parnell
**10.11 Employment Agreement, dated April 1, 1995, between Oakley, Inc. and Link Newcomb
****10.12.1 Indemnification Agreement, dated August 1, 1995, between Oakley, Inc. and Jim Jannard
**10.12.2 Schedule of indemnification agreements between Oakley, Inc. and each of its other
directors and executive officers
**10.13 Standard Form of Agreement between Owner and Project Manager, dated December 30, 1994,
between Oakley, Inc. and Snyder Langston
**10.14 Lease Agreement, dated January 26, 1995, between Oakley Europe, Sarl and Investipierre 7
(In French with English translation)
****10.15 Aircraft Lease Agreement, dated August 10, 1995, between Oakley, Inc. and X, Inc.
****10.16 Aircraft Lease Agreement, dated August 10, 1995, between Oakley, Inc. and Time Tool
Incorporated
**10.17 Registration Rights Agreement, dated August 1, 1995, between Oakley, Inc., Jim Jannard and
the M. and M. Parnell Revocable Trust
****10.18 Indemnification Agreement, dated August 9, 1995, between Oakley, Inc., Jim Jannard and the
M. and M. Parnell Revocable Trust
***10.19 Agreement, dated July 17, 1995, between Oakley, Inc. and Michael Jordan
*10.20 Form of Indemnification Agreement between Oakley, Inc., Jim Jannard and
the M. and M. Parnell Revocable Trust
****11.1 Computation of Net Income Per Share
****21.1 List of material subsidiaries
*****23.1 Consent of Deloitte & Touche LLP, independent auditors
*23.2 Consent of Preston Gates & Ellis (contained in Exhibit 5.1)
*****24.1 Power of Attorney
</TABLE>
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
DESCRIPTION
-------------------------------------------------------------------------------
<C> <S> <C>
* Schedule II Valuation and Qualifying Accounts
</TABLE>
- ------------------------
* Filed herewith.
** Incorporated by reference from the Registration Statement on Form S-1 of
Oakley, Inc. (Registration No. 33-93080)
*** Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
**** Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1995
***** Previously filed.
ITEM 7. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission
II-4
<PAGE>
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the Common Stock
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Orange County,
California on June 4, 1996.
OAKLEY, INC.
By: *
-----------------------------------
Name: Jim Jannard
Title: President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ----------------------------------- ------------------------- ----------------
Chairman of the Board,
* President and Director
- ----------------------------------- (Principal Executive June 4, 1996
Jim Jannard Officer)
*
- ----------------------------------- Chief Executive Officer June 4, 1996
Mike Parnell and Director
Executive Vice President
* and Chief Financial
- ----------------------------------- Officer (Principal June 4, 1996
Link Newcomb Financial Officer)
Vice President of Finance
/s/ DONNA GORDON (Principal Accounting
- ----------------------------------- Officer) Controller and June 4, 1996
Donna Gordon Secretary
*
- ----------------------------------- Director June 4, 1996
Irene Miller
*
- ----------------------------------- Director June 4, 1996
Orin Smith
- ----------------------------------- Director
Michael Jordan
* By: /s/ DONNA GORDON
------------------------------
Donna Gordon, attorney-in-fact
II-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the financial statements of Oakley, Inc. as of December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
and have issued our report thereon dated February 13, 1996 included elsewhere in
this Registration Statement. Our audits included the financial statement
schedule listed in Item 14 (a)(2) of this Registration Statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion of this financial statement schedule
based on our audits. In our opinion, such financial statements schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 13, 1996
S-1
<PAGE>
OAKLEY, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND
THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
OF PERIOD EXPENSE DEDUCTIONS ADJUSTMENTS PERIOD
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1993
Allowance for doubtful accounts $ 262,000 $ 104,000 $ (104,000) $ -- $ 262,000
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
For the year ended December 31, 1994
Allowance for doubtful accounts $ 262,000 $ 9,000 $ -- $ -- $ 271,000
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
For the year ended December 31, 1995
Allowance for doubtful accounts $ 271,000 $ 406,000 $ (86,000) $ -- $ 591,000
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
Inventory reserve $ -- $ 400,000 $ -- $ -- $ 400,000
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
For the three months ended March 31, 1996
Allowance for doubtful accounts $ 591,000 $ 27,000 $ -- $ -- $ 618,000
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
Inventory reserve $ 400,000 $ 250,000 $ -- $ -- $ 650,000
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
- --------------- -----------------
<C> <S> <C>
*1.1 Form of U.S. Purchase Agreement
*1.2 Form of International Purchase Agreement
**3.1 Articles of Incorporation of the Company
**3.2 Bylaws of the Company
*5.1 Opinion and Consent of Preston Gates & Ellis
**10.1.1 Credit Agreement (the "Credit Agreement"), dated June 20, 1995, between
Oakley, Inc., Wells Fargo Bank, National Association, and the Lenders named
therein
**10.1.2 Collateral Account Agreement, dated June 20, 1995, between Oakley, Inc. and
Wells Fargo Bank, National Association, as agent for the Lenders party to the
Credit Agreement
**10.1.3 Security Agreement, dated June 20, 1995, between Oakley, Inc. and Wells Fargo
Bank, National Association, as agent for the Lenders party to the Credit
Agreement
**10.1.4 Security Agreement and Chattel Mortgage, dated June 20, 1995, between Oakley,
Inc. and Wells Fargo Bank, National Association, as agent for the Lenders
party to the Credit Agreement
**10.1.5 Trademark Collateral Security Agreement, dated June 20, 1995, between Oakley,
Inc. and Wells Fargo Bank, National Association, as agent for the Lenders
party to the Credit Agreement
**10.1.6 Patent Collateral Security Agreement, dated June 20, 1995, between Oakley,
Inc. and Wells Fargo Bank, National Association, as agent for the Lenders
party to the Credit Agreement
**10.1.7 Subordination Agreement, dated June 20, 1995, between Oakley, Inc., Buffalo
Works, Inc., James H. Jannard and Mike D. Parnell
***10.1.8 Credit Agreement (the "Amended and Restated Credit Agreement"), dated August
15, 1995, between Oakley, Inc., Wells Fargo Bank, National Association, as
agent and the Lenders named therein
***10.1.9 Collateral Account Agreement, dated August 15, 1995, between Oakley, Inc. and
Wells Fargo Bank, National Association, as agent for the Lenders party to the
Amended and Restated Credit Agreement
***10.1.10 Guaranty, dated August 15, 1995, by the Guarantors named therein and Wells
Fargo Bank, National Association, as agent for the Lenders party to the
Amended and Restated Credit Agreement
***10.1.11 Shareholder Pledge Agreement (original and English translation), dated August
15, 1995 between Oakley, Inc. and Wells Fargo Bank, National Association, as
agent for the Lenders party to the Amended and Restated Credit Agreement
</TABLE>
- ------------------------
* Filed herewith.
**Incorporated by reference from the Registration Statement on Form S-1 of
Oakley, Inc. (Registration No. 33-93080)
*** Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
**** Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1995
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
- --------------- -----------------
<C> <S> <C>
***10.1.12 Subordination Agreement, dated August 15, 1995 between the Initial
Subordinated Creditors named therein and Wells Fargo Bank, National
Association, as agent for the Lenders party to the Amended and Restated
Credit Agreement
***10.1.13 Promissory Note, dated August 8, 1995 between Oakley, Inc. and James H.
Jannard
***10.1.14 Promissory Note, dated August 8, 1995 between Oakley, Inc. and M. and M.
Parnell Revocable Trust
***10.1.15 Termination and Release Agreement, dated as of August 15, 1995 between
Oakley, Inc. and Wells Fargo Bank, National Association, as agents for the
Lenders party to the Credit Agreement
****10.1.16 First Amendment to Amended and Restated Credit Agreement dated November 22,
1995 by and among Oakley, Inc., Wells Fargo Bank, National Association, as
agent and the Lenders named therein
**10.2 Loan Agreement, dated June 14, 1993, between Oakley, Inc. and Union Bank, as
amended
**10.3.1 Lease, dated September 15, 1988, between OO Partnership and Oakley, Inc.
**10.3.2 Agreement, dated July 31, 1995, between OO Partnership and Oakley, Inc.
****10.3.3 First Amendment to Lease dated December 31, 1995, by and between Oakley,
Inc., and OO Partnership
**10.4 Lease, dated March 5, 1990, between Weyerhauser Mortgage Company and Oakley,
Inc., as amended
**10.5 Sublease, dated August 17, 1992, between Western Digital Corporation and
Oakley, Inc., as amended
**10.6 Purchase Agreement and Escrow Instructions, dated December 9, 1994, between
Oakley, Inc. and Foothill Ranch Development Corporation
****10.7 Oakley, Inc. Executive Officer Performance Bonus Plan
****10.8 Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan
**10.9 Employment Agreement, dated as of August 1, 1995, between Oakley, Inc. and
Jim Jannard
**10.10 Employment Agreement, dated as of August 1, 1995, between Oakley, Inc. and
Mike Parnell
**10.11 Employment Agreement, dated April 1, 1995, between Oakley, Inc. and Link
Newcomb
****10.12.1 Indemnification Agreement, dated August 1, 1995, between Oakley, Inc. and Jim
Jannard
**10.12.2 Schedule of indemnification agreements between Oakley, Inc. and each of its
other directors and executive officers
</TABLE>
- ------------------------
* Filed herewith.
** Incorporated by reference from the Registration Statement on Form S-1 of
Oakley, Inc. (Registration No. 33-93080)
*** Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
**** Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1995
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER PAGE NUMBER
- ----------------- -----------------
<C> <S> <C>
**10.13 Standard Form of Agreement between Owner and Project Manager, dated
December 30, 1994, between Oakley, Inc. and Snyder Langston
**10.14 Lease Agreement, dated January 26, 1995, between Oakley Europe, Sarl and
Investipierre 7 (In French with English translation)
****10.15 Aircraft Lease Agreement, dated August 10, 1995, between Oakley, Inc. and
X, Inc.
****10.16 Aircraft Lease Agreement, dated August 10, 1995, between Oakley, Inc. and
Time Tool Incorporated
**10.17 Registration Rights Agreement, dated August 1, 1995, between Oakley, Inc.,
Jim Jannard and the M. and M. Parnell Revocable Trust
****10.18 Indemnification Agreement, dated August 9, 1995, between Oakley, Inc., Jim
Jannard and the M. and M. Parnell Revocable Trust
***10.19 Agreement, dated July 17, 1995, between Oakley, Inc. and Michael Jordan
*10.20 Form of Indemnification Agreement between Oakley, Inc., Jim Jannard and the
M. and M. Parnell Revocable Trust
****11.1 Computation of Net Income Per Share
****21.1 List of material subsidiaries
*****23.1 Consent of Deloitte & Touche LLP, independent auditors
*23.2 Consent of Preston Gates & Ellis (contained in Exhibit 5.1)
*****24.1 Power of Attorney
</TABLE>
- ------------------------
* Filed herewith.
** Incorporated by reference from the Registration Statement on Form S-1 of
Oakley, Inc. (Registration No. 33-93080)
*** Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
**** Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1995
***** Previously filed.
<PAGE>
EXHIBIT 1.1
OAKLEY, INC.
(A WASHINGTON CORPORATION)
4,000,000 SHARES OF COMMON STOCK
U.S. PURCHASE AGREEMENT
Dated: June , 1996
<PAGE>
OAKLEY, INC.
(A WASHINGTON CORPORATION)
4,000,000 SHARES OF COMMON STOCK
(PAR VALUE $.01 PER SHARE)
U.S. PURCHASE AGREEMENT
June , 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
ALEX. BROWN & SONS INCORPORATED
As Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
The shareholders named in Schedule B (the "Selling Shareholders") propose to
sell severally to the underwriters named in Schedule A (the "U.S.
Underwriters"), for whom you are acting as representatives (the "U.S.
Representatives"), an aggregate of 4,000,000 shares of Common Stock, par value
$.01 per share (the "Common Stock") of Oakley, Inc., a Washington corporation
(the "Company"), as set forth in the appropriate column on Schedule B. Such
shares of Common Stock are to be sold to each U.S. Underwriter, acting severally
and not jointly, in such amounts as are set forth in Schedule A opposite the
name of such U.S. Underwriter. The Selling Shareholders have also granted to the
U.S. Underwriters, severally and not jointly, the option described in Section 2
to purchase all or any part of 600,000 additional shares of Common Stock to
cover over-allotments. The aforesaid 4,000,000 shares of Common Stock (the
"Initial U.S. Shares"), together with all or any part of the 600,000 additional
shares of Common Stock subject to the option described in Section 2 (the "U.S.
Option Shares"), are collectively herein called the "U.S. Shares." The U.S.
Shares are more fully described in the U.S. Prospectus referred to below.
It is understood that the Company and the Selling Shareholders are
concurrently entering into an agreement, dated the date hereof (the
"International Purchase Agreement"), providing for the sale by the Selling
Shareholders of an aggregate of 1,000,000 shares of Common Stock (the "Initial
International Shares") through arrangements with certain underwriters outside
the United States (the "International Managers" which, together with the U.S.
Underwriters, shall be referred to as the "Underwriters"), for whom Merrill
Lynch International and Alex. Brown & Sons Incorporated are acting as
representatives (the "International Representatives"). The Selling Shareholders
have also granted to the International Managers an option to purchase all or any
part of 150,000 shares of Common Stock (the "International Option Shares" which,
together with the Initial International Shares, shall be referred to as the
"International Shares") to cover over-allotments. The U.S. Shares and the
International Shares are hereinafter collectively referred to as the "Offered
Shares."
The Company and the Selling Shareholders understand that the U.S.
Underwriters will simultaneously enter into an agreement with the International
Managers dated the date hereof (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the U.S. Underwriters and the
International Managers, under the direction of Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
<PAGE>
You have advised us that you and the other U.S. Underwriters, acting
severally and not jointly, desire to purchase the Initial U.S. Shares and, if
the U.S. Underwriters so elect, the U.S. Option Shares, and that you have been
authorized by the other U.S. Underwriters to execute this Agreement and the U.S.
Price Determination Agreement referred to below on their behalf.
The initial public offering price per share for the U.S. Shares and the
purchase price per share for the U.S. Shares shall be agreed upon by the Selling
Shareholders and the U.S. Representatives, acting on behalf of the several U.S.
Underwriters, and such agreement shall be set forth in a separate written
instrument substantially in the form of Exhibit A hereto (the "U.S. Price
Determination Agreement"). The U.S. Price Determination Agreement may take the
form of an exchange of any standard form of written telecommunication between
the Company, the Selling Shareholders and the U.S. Representatives and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the U.S. Shares will be governed by this Agreement, as supplemented
by the U.S. Price Determination Agreement. From and after the date of the
execution and delivery of the U.S. Price Determination Agreement, this Agreement
shall be deemed to incorporate, and all references herein to "this Agreement"
shall be deemed to include, the U.S. Price Determination Agreement.
The initial public offering price per share and the purchase price per share
for the International Shares to be paid by the International Managers pursuant
to the International Purchase Agreement shall be set forth in a separate
agreement (the "International Price Determination Agreement"), the form of which
is attached to the International Purchase Agreement. The purchase price per
share for the International Shares to be paid by the several International
Managers shall be identical to the purchase price per share for the U.S. Shares
to be paid by the several U.S. Underwriters hereunder.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (Registration
No. 333-4608) covering the registration of the Offered Shares under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectuses, and either (A) has prepared and proposes to file,
prior to the effective date of such registration statement, an amendment to such
registration statement, including final prospectuses, or (B) if the Company has
elected to rely upon Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations"), will prepare and
file prospectuses in accordance with the provisions of Rule 430A and Rule 424(b)
("Rule 424(b)") of the 1933 Act Regulations, promptly after execution and
delivery of the U.S. Price Determination Agreement. Additionally, if the Company
has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, the
Company will prepare and file a term sheet (a "Term Sheet") in accordance with
the provisions of Rule 434 and Rule 424(b), promptly after execution and
delivery of the U.S. Price Determination Agreement. Two forms of prospectus are
to be used in connection with the offering and sale of the Offered Shares: one
relating to the U.S. Shares (the "Form of U.S. Prospectus") and one relating to
the International Shares (the "Form of International Prospectus"). The Form of
International Prospectus is identical to the Form of U.S. Prospectus, except for
the front cover and back cover pages and the information under the caption
"Underwriting." The information, if any, included in any such prospectus that
was omitted from any prospectus included in such registration statement at the
time it becomes effective but that is deemed, (a) pursuant to paragraph (b) of
Rule 430A to be part of such registration statement at the time it becomes
effective is referred to herein as the "Rule 430A Information," and (b) pursuant
to paragraph (d) of Rule 434 to be part of such registration statement at the
time it becomes effective is referred to herein as the "Rule 434 Information."
Each Form of U.S. Prospectus and Form of International Prospectus used before
the time such registration statement becomes effective, and any Form of U.S.
Prospectus or Form of International Prospectus that omits the Rule 430A
Information or the Rule 434 Information, as applicable, that is used after such
effectiveness and prior to the execution and delivery of the U.S. Price
Determination Agreement, is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto, as amended at the time
it becomes effective and including, if applicable, the Rule 430A Information and
the Rule 434 Information, is herein called the "Original Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933
Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and the Original Registration Statement and any Rule 462(b)
Registration Statement are herein
2
<PAGE>
referred to collectively as the "Registration Statement." The Form of U.S.
Prospectus and Form of International Prospectus included in the Original
Registration Statement at the time it becomes effective are herein called the
"U.S. Prospectus" and "International Prospectus," respectively, and
collectively, the "Prospectuses," except that, (y) if the final U.S. Prospectus
or International Prospectus first furnished to the U.S. Underwriters or the
International Managers after the execution of the U.S. Price Determination
Agreement or the International Price Determination Agreement, as the case may
be, for use in connection with the offering of the Offered Shares differs from
the prospectuses included in the Original Registration Statement at the time it
becomes effective (whether or not such prospectus is required to be filed
pursuant to Rule 424(b)), the terms "U.S. Prospectus," "International
Prospectus" and "Prospectuses" shall refer to the final U.S. Prospectus and/or
International Prospectus first furnished to the U.S. Underwriters and/or
International Managers, as the case may be, for such use and (z) if Rule 434 is
relied on, the terms "U.S. Prospectus," "International Prospectus" and
"Prospectuses" shall refer to the preliminary U.S. Prospectus and/or
International Prospectus last furnished to the U.S. Underwriters and/or
International Managers, as the case may be, in connection with the offering of
the Offered Shares together with the Term Sheet.
The Company and the Selling Shareholders understand that the U.S.
Underwriters propose to make a public offering of the U.S. Shares as soon as you
deem advisable after the Registration Statement becomes effective and the U.S.
Price Determination Agreement has been executed and delivered.
Section 1. REPRESENTATIONS AND WARRANTIES. (a) The Company represents and
warrants to and agrees with each of the U.S. Underwriters that:
(i) When the Registration Statement shall become effective and at the
Closing Time (and, if any U.S. Option Shares are purchased, at the Date of
Delivery), and, unless the Company has notified you as provided in Section
3(f) below, at all times between the effectiveness of the Registration
Statement and the Closing Time referred to below (and, if any U.S. Option
Shares are purchased, the Date of Delivery referred to below), (A) the
Registration Statement and any amendments and supplements thereto will
comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations; (B) neither the Registration Statement nor any
amendment or supplement thereto will contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; (C) neither of
the Prospectuses nor any amendment or supplement thereto will include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (D) if Rule
434 is used, the Prospectuses shall not be "materially different," as such
term is used in Rule 434, from the prospectuses included in the Registration
Statement at the time it becomes effective; except that this representation
and warranty does not apply to statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company by or
on behalf of any Underwriter through you expressly for use in the
Registration Statement or the Prospectuses.
(ii) Each of Deloitte & Touche LLP and Bernstein, Fox, Whitman & Company
LLP, who are each reporting upon certain audited financial statements and
schedules included in the Registration Statement, are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iii) Each of this Agreement and the International Purchase Agreement has
been duly authorized, executed and delivered by the Company.
(iv) The consolidated financial statements included in the Registration
Statement present fairly the consolidated financial position of the Company,
Oakley Europe, Sarl ("Oakley Europe") and the other subsidiaries of the
Company (the "Other Subsidiaries" and, together with the Company and Oakley
Europe, the "Oakley Companies") as of the dates indicated and the combined
results of operations and the combined cash flows of the Oakley Companies
for the periods specified. Such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. The financial statement
schedules, if any, included in the Registration Statement present fairly the
information required to be stated therein. The selected financial data and
summary financial information included in the Prospectuses present fairly
3
<PAGE>
the information shown therein and have been compiled on a basis consistent
with that of the audited consolidated financial statements included in the
Registration Statement. The pro forma financial statements and other pro
forma financial information included in the Prospectuses present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(v) The Company is a corporation duly organized and validly existing
under the laws of the State of Washington with corporate power and corporate
authority under such laws to own, lease and operate its properties and
conduct its business as described in the Prospectuses; and the Company is
duly qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such qualification
necessary, except to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the Oakley Companies,
considered as one enterprise.
(vi) Oakley Europe is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization with
corporate power and corporate authority under such laws to own, lease and
operate its properties and conduct its business; and Oakley Europe is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such qualification
necessary, except to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the Oakley Companies,
considered as one enterprise. All of the outstanding shares of capital stock
of Oakley Europe have been duly authorized and validly issued, are fully
paid and non-assessable and, as of the date hereof, are owned by the Company
free and clear of any pledge, lien, security interest, charge, claim, equity
or encumbrance of any kind, except that 65% of such shares are pledged by
the Company to Wells Fargo Bank, National Association, for itself and as
agent for certain other banks pursuant to the Credit Agreement described in
the Prospectuses.
(vii) Each of the Other Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization with corporate power and corporate authority under such
laws to own, lease and operate its properties and conduct its business; and
each Other Subsidiary is duly qualified to transact business as a foreign
corporation and is in good standing in each other jurisdiction in which it
owns or leases property of a nature, or transacts business of a type, that
would make such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not have a material
adverse effect on the Oakley Companies, considered as one enterprise. All of
the outstanding shares of capital stock of each Other Subsidiary have been
duly authorized and validly issued and are fully paid and non-assessable,
and, as of the date hereof, all of such shares are owned by the Company, in
each case free and clear of any pledge, lien, security interest, charge,
claim, equity or encumbrance of any kind. The Other Subsidiaries did not
have, in the aggregate, at December 31, 1995, assets in excess of 5% of the
combined assets of the Oakley Companies as at that date and did not have, in
the aggregate, for the fiscal year then ended sales or net income in excess
of 5% of combined sales or combined net income of the Oakley Companies for
such period.
(viii) The Oakley Companies had at March 31, 1996 a duly authorized,
issued and outstanding consolidated capitalization as set forth in the
Prospectuses under the caption "Capitalization;" and the Offered Shares
conform in all material respects to the description thereof contained in the
Prospectuses.
(ix) The Offered Shares to be sold by the Selling Shareholders have been
duly authorized and validly issued and are fully paid and non-assessable.
4
<PAGE>
(x) All of the other outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive rights of any shareholder
of the Company.
(xi) Since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, except as otherwise stated
therein or contemplated thereby, there has not been (A) any material adverse
change in the financial condition, earnings, business affairs or business
prospects of the Oakley Companies, considered as one enterprise, whether or
not arising in the ordinary course of business, (B) any transaction entered
into by any of the Oakley Companies, other than in the ordinary course of
business, that is material to the Oakley Companies, considered as one
enterprise, or (C) any dividend or distribution of any kind declared, paid
or made by any Oakley Company on its capital stock.
(xii) None of the Oakley Companies is in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which it may be bound
or to which any of its properties may be subject, except for such defaults
that would not reasonably be expected to have a material adverse effect on
the financial condition, earnings, business affairs or business prospects of
the Oakley Companies, considered as one enterprise (a "Material Adverse
Effect"). The execution and delivery of each of this Agreement and the
International Purchase Agreement by the Company and the Selling
Shareholders, the sale and delivery of the Offered Shares to be sold by the
Selling Shareholders, the consummation by the Company and the Selling
Shareholders of the transactions contemplated in this Agreement, the
International Purchase Agreement and in the Registration Statement and
compliance by the Company with the terms of this Agreement and the
International Purchase Agreement have been duly authorized by all requisite
corporate action on the part of the Company and do not and will not result
in any violation of the articles of incorporation or by-laws of any of the
Oakley Companies, and do not and will not conflict with, or result in a
breach of any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of any of the Oakley Companies under, (A) any
contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which any of the Oakley Companies is a party or
by which it may be bound or to which any of its properties may be subject
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not reasonably be expected to have a Material
Adverse Effect and would not materially and adversely affect the
consummation of the transactions contemplated by this Agreement and the
International Purchase Agreement) or (B) any existing applicable law, rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over any
of the Oakley Companies or any of their respective properties.
(xiii) No authorization, approval, consent or license of any government,
governmental instrumentality or court, domestic or foreign (other than under
the 1933 Act and the securities or blue sky laws of the various states and
any applicable foreign jurisdictions as to which no representation or
warranty is made), is required for the valid authorization, issuance, sale
and delivery of the Offered Shares, except such as will have been obtained
on or prior to the Closing Time.
(xiv) Except as disclosed in the Prospectuses, there is no action, suit
or proceeding before or by any government, governmental instrumentality or
court, domestic or foreign, now pending or, to the knowledge of the Company,
threatened against or affecting any of the Oakley Companies that is required
to be disclosed in the Prospectuses or that could reasonably be expected to
result in a Material Adverse Effect, or that could materially and adversely
affect the consummation of the transactions contemplated in this Agreement
or the International Purchase Agreement; and the aggregate of all pending
legal or governmental proceedings that are not described in the Prospectuses
to which any of the Oakley Companies is a party or which affect any of their
respective properties, including ordinary routine litigation incidental to
the business of any of the Oakley Companies, could not reasonably be
expected to have a Material Adverse Effect.
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(xv) There are no contracts or documents of a character required to be
filed as exhibits to the Registration Statement that are not filed or
incorporated by reference as required.
(xvi) Each of the Oakley Companies, at the Closing Time, will have good
and marketable title to all properties and assets described in the
Prospectuses as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as (A) are described in the
Prospectuses or (B) are neither material in amount nor materially
significant in relation to the business of the Oakley Companies, considered
as one enterprise; all of the leases and subleases material to the business
of the Oakley Companies, considered as one enterprise, and under which any
of the Oakley Companies holds properties described in the Prospectuses, are
in full force and effect, and none of the Oakley Companies has any notice of
any material claim of any sort that has been asserted by anyone adverse to
the rights of any Oakley Company under any of the leases or subleases
mentioned above, or affecting or questioning the rights of such corporation
to the continued possession of the leased or subleased premises under any
such lease or sublease.
(xvii) (A) Each of the Oakley Companies owns, possesses or has obtained
all material governmental licenses, permits, certificates, consents, orders,
approvals and other authorizations necessary to own or lease, as the case
may be, and to operate its properties and to carry on its business as
presently conducted, and (B) none of the Oakley Companies has received any
notice of proceedings relating to revocation or modification of any such
licenses, permits, certificates, consents, orders, approvals or
authorizations, except, in the case of clauses (A) and (B), as could not
reasonably be expected to have a Material Adverse Effect.
(xviii) Except as disclosed in the Prospectuses, each of the Oakley
Companies owns or possesses, or can acquire on reasonable terms, adequate
patents, patent licenses, trademarks, service marks and trade names
necessary to carry on its business as presently conducted, and none of the
Oakley Companies has received any notice of infringement of or conflict with
asserted rights of others with respect to any patents, patent licenses,
trademarks, service marks or trade names that in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would reasonably be
expected to have a Material Adverse Effect.
(xix) No labor dispute with employees of any of the Oakley Companies
exists or, to the knowledge of the Company, is imminent that could
reasonably be expected to have a Material Adverse Effect and the Company is
not aware of any existing or imminent labor disturbance by the employees of
any of the Oakley Companies' principal suppliers that would reasonably be
expected to have a Material Adverse Effect.
(xx) The Company is in compliance with all applicable federal, state, and
local laws relating to the payment of wages to employees (including, without
limitation, the Fair Labor Standards Act, as amended), except insofar as the
failure to comply with such laws would not reasonably be expected to have a
Material Adverse Effect.
(xxi) The Company has not taken and will not take, directly or
indirectly, any action designed to, or that might be reasonably expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock in violation of law.
(xxii) Each of the Oakley Companies has filed all material federal, state
and foreign income and franchise tax returns and has paid all taxes shown as
due thereon, other than taxes which are being contested in good faith and
for which adequate reserves have been established in accordance with GAAP;
and the Company has no knowledge of any tax deficiency which has been or
might be asserted or threatened against any of the Oakley Companies which
would reasonably be expected to have a Material Adverse Effect.
(xxiii) Except as disclosed in the Registration Statement and except as
would not individually or in the aggregate reasonably be expected to have a
Material Adverse Effect, (A) each of the Oakley Companies is in compliance
with applicable Environmental Laws, (B) each of the Oakley Companies has all
permits, authorizations and approvals required under applicable
Environmental Laws and is in
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compliance with the requirements of such permits, authorizations and
approvals, (C) there are no pending or, to the knowledge of any of the
Oakley Companies, threatened Environmental Claims against any of the Oakley
Companies, and (D) to the knowledge of any of the Oakley Companies, there
are no past or present events, conditions, circumstances, activities,
practices, incidents or actions required to be disclosed in the Registration
Statement that would reasonably be expected to materially interfere with or
prevent compliance by any of the Oakley Companies with applicable
Environmental Laws, or that would reasonably be expected to give rise to
liability under applicable Environmental Laws or subject any of the Oakley
Companies to any Environmental Claim based on the manufacture, processing,
distribution, use, generation, treatment, storage, disposal, transport,
shipping or handling, or the arrangement for treatment or disposal or the
emission, discharge, release or threatened release into the environment, of
any Hazardous Substance.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any applicable United States
federal, state or local statute, law, rule, regulation, ordinance or code
and any final judicial or administrative interpretation thereof including
any final judicial or administrative order, consent decree or judgment,
regulating (x) disposal, emissions, discharges or releases to the
environment or (y) any Hazardous Substance. "Environmental Claims" means any
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings based on any Environmental Law. "Hazardous
Substance" means any substance presently regulated as hazardous, toxic or
radioactive under any Environmental Law, whether by type or by quantity,
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos, asbestos-containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyl to the extent
any such substance is presently regulated under any Environmental Law.
(b) Each of the Selling Shareholders severally represents and warrants to,
and agrees with, each U.S. Underwriter as follows:
(i) Such Selling Shareholder has reviewed and is familiar with the
Original Registration Statement and the Prospectuses contained therein and,
to the best knowledge of such Selling Shareholder, the Prospectuses (and any
amendment or supplement thereto) do not (and, as of the Closing Time, will
not) include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
such Selling Shareholder is not prompted to sell the Offered Shares to be
sold by such Selling Shareholder by any information concerning any of the
Oakley Companies that is not set forth in the Prospectuses.
(ii) When the Registration Statement shall become effective and at the
Closing Time (and, if any U.S. Option Shares are purchased, at the Date of
Delivery), and, unless the Company has notified you as provided in Section
3(f) below, at all times between the effectiveness of the Registration
Statement and the Closing Time (and, if any U.S. Option Shares are
purchased, the Date of Delivery), (A) such parts of the Registration
Statement and any amendments and supplements thereto as specifically refer
to such Selling Shareholder will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and (B) such
parts of the Prospectuses as specifically refer to such Selling Shareholder
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(iii) Each of this Agreement and the International Purchase Agreement has
been duly authorized, executed and delivered by such Selling Shareholder.
The execution and delivery of this Agreement and the International Purchase
Agreement by such Selling Shareholder and the sale and delivery of the
Offered Shares to be sold by such Selling Shareholder, the consummation by
such Selling Shareholder of the transactions contemplated in this Agreement,
the International Purchase Agreement and in the
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Registration Statement and the compliance by such Selling Shareholder with
the terms of this Agreement and the International Purchase Agreement do not
and will not conflict with, or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
such Selling Shareholder under (A) any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument to which such
Selling Shareholder is a party or by which it may be bound or to which any
of its properties may be subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect and would not materially and adversely affect the
consummation of the transactions contemplated by this Agreement and the
International Purchase Agreement) or (B) any existing applicable law, rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over such
Selling Shareholder or any of its respective properties.
(iv) The Company has good and marketable title to all of the outstanding
shares of capital stock of Oakley Europe, free and clear of any pledge,
lien, security interest, charge, claim, equity, or encumbrance of any kind,
except that 65% of such shares have been pledged by the Company to Wells
Fargo Bank, National Association, for itself and as agent for certain other
banks pursuant to the Credit Agreement described in the Prospectuses.
(v) Such Selling Shareholder has and will, at the Closing Time and, if
any U.S. Option Shares or International Option Shares are purchased, on the
Date of Delivery, have good and marketable title to the Offered Shares to be
sold by such Selling Shareholder pursuant to this Agreement and the
International Purchase Agreement, free and clear of any pledge, lien,
security interest, charge, claim, equity or encumbrance of any kind, other
than pursuant to this Agreement and the International Purchase Agreement;
such Selling Shareholder has full right, power and authority to sell,
transfer and deliver such Offered Shares pursuant to this Agreement and the
International Purchase Agreement; and, upon delivery of such Offered Shares
and payment of the purchase price therefor as contemplated in this Agreement
and the International Purchase Agreement, assuming each such Underwriter has
no notice of any adverse claim, each of the Underwriters will receive good
and marketable title to the Offered Shares purchased by it from such Selling
Shareholder, free and clear of any pledge, lien, security interest, charge,
claim, equity or encumbrance of any kind, other than any such pledge, lien,
security interest, charge, claim, equity or encumbrance created by such
Underwriter or resulting from any actions taken by such Underwriter.
(vi) Certificates for all of the Offered Shares to be sold by such
Selling Shareholder pursuant to this Agreement and the International
Purchase Agreement, in suitable form for transfer by delivery or accompanied
by duly executed instruments of transfer or assignment in blank with
signatures guaranteed, are available for the purpose of effecting delivery
pursuant to this Agreement and the International Purchase Agreement.
(vii) For a period of 180 days from the date hereof, such Selling
Shareholder will not, without your prior written consent, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of, any shares of Common Stock or securities convertible
into Common Stock, other than to the Underwriters pursuant to this Agreement
or the International Purchase Agreement; provided that during such period
such Selling Shareholder may make gifts of shares of Common Stock or
securities convertible into Common Stock upon the condition that the donees
agree to be bound by the foregoing restriction in the same manner as it
applies to such Selling Shareholder.
(viii) Such Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Common Stock in violation of law.
(c) Any certificate signed by any officer of any of the Oakley Companies and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each of the
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Underwriters as to the matters covered thereby; and any certificate signed by or
on behalf of the Selling Shareholders as such and delivered to you or to counsel
for the Underwriters shall be deemed a representation and warranty by the
Selling Shareholders to each of the Underwriters as to the matters covered
thereby.
(d) The liability of the Selling Shareholders for breach of the
representation and warranty set forth in clause (b)(i) above is limited as set
forth in Section 7(b).
Section 2. SALE AND DELIVERY TO THE U.S. UNDERWRITERS; CLOSING. (a) On the
basis of the representations and warranties herein contained, and subject to the
terms and conditions herein set forth, each Selling Shareholder agrees,
severally and not jointly, to sell to each U.S. Underwriter, and each U.S.
Underwriter agrees, severally and not jointly, to purchase from each Selling
Shareholder, at the purchase price per share for the Initial U.S. Shares to be
agreed upon by the U.S. Representatives and the Selling Shareholders in
accordance with Section 2(b) or 2(c) and set forth in the U.S. Price
Determination Agreement, in the case of each Selling Shareholder, the number of
Initial U.S. Shares as are proposed to be sold by such Selling Shareholder and
set forth opposite such Selling Shareholder's name in the appropriate column on
Schedule B multiplied by a fraction the numerator of which is the number of
Initial U.S. Shares set forth opposite the name of such Underwriter in Schedule
A and the denominator of which is the total number of Initial U.S. Shares,
subject, in each case, to such adjustments as you, in your discretion, shall
make to eliminate any sales or purchases of fractional shares. If the Company
elects to rely on Rule 430A, Schedules A and B may be attached to the U.S. Price
Determination Agreement.
(b) If the Company has elected not to rely upon Rule 430A, the initial
public offering price per share for the Initial U.S. Shares and the purchase
price per share for the Initial U.S. Shares to be paid by the several U.S.
Underwriters shall be agreed upon and set forth in the U.S. Price Determination
Agreement, dated the date hereof, and an amendment to the Original Registration
Statement containing such per share price information will be filed before the
Original Registration Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A, the initial public
offering price per share for the Initial U.S. Shares and the purchase price per
share for the Initial U.S. Shares to be paid by the several U.S. Underwriters
shall be agreed upon and set forth in the U.S. Price Determination Agreement. In
the event that the U.S. Price Determination Agreement has not been executed by
the close of business on the fourteenth business day following the later of the
date on which the Original Registration Statement and any Rule 462(b)
Registration Statement becomes effective, this Agreement shall terminate
forthwith, without liability of any party to any other party except that
Sections 7, 8 and 18 and the first paragraph of Section 9 shall remain in
effect.
(d) In addition, on the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, each
Selling Shareholder grants an option to the U.S. Underwriters, severally and not
jointly, to purchase up to the additional number of U.S. Option Shares set forth
opposite such Selling Shareholder's name in the appropriate column of Schedule B
at the same purchase price per share as shall be applicable to the Initial U.S.
Shares. The option hereby granted will expire 30 days after the later of the
date upon which the Original Registration Statement and any Rule 462(b)
Registration Statement becomes effective or, if the Company has elected to rely
upon Rule 430A, the date of the U.S. Price Determination Agreement, and may be
exercised, in whole or in part (but not more than once), only for the purpose of
covering over-allotments that may be made in connection with the offering and
distribution of the Initial U.S. Shares upon notice by you to the Company
setting forth the number of U.S. Option Shares as to which the several U.S.
Underwriters are exercising the option, and the time and date of payment and
delivery thereof. Such time and date of delivery (the "Date of Delivery") shall
be determined by you but shall not be later than seven full business days after
the exercise of such option, nor in any event prior to the Closing Time. If the
option is exercised as to only a portion of the U.S. Option Shares, each Selling
Shareholder will sell its pro rata portion of the U.S. Option Shares to be
purchased by the U.S. Underwriters. If the option is exercised as to all or any
portion of the U.S. Option Shares, the U.S. Option Shares as to which the option
is exercised shall be purchased by the U.S. Underwriters, severally and not
jointly, in their respective underwriting obligation proportions.
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(e) Payment of the purchase price for, and delivery of certificates for, the
Initial U.S. Shares shall be made at the offices of Shearman & Sterling, 777
South Figueroa Street, Suite 3400, Los Angeles, California 90017, or at such
other place as shall be agreed upon by the Company, the Selling Shareholders and
you, at 10:00 a.m. (New York City time) either (i) on the fourth full business
day after the later of the effective date of the Original Registration Statement
and any Rule 462(b) Registration Statement (in either case, as permitted under
Rule 15c6-1 under the Securities Exchange Act of 1934, as amended (the "1934
Act")), or (ii) if the Company has elected to rely upon Rule 430A, the fourth
full business day after execution of the U.S. Price Determination Agreement (as
permitted under Rule 15c6-1 under the 1934 Act) (unless, in either case,
postponed pursuant to Section 11 or 12), or at such other time not more than ten
full business days thereafter as you, the Company and the Selling Shareholders
shall determine (such date and time of payment and delivery being herein called
the "Closing Time"). In addition, in the event that any or all of the U.S.
Option Shares are purchased by the U.S. Underwriters, payment of the purchase
price for, and delivery of certificates for, such U.S. Option Shares shall be
made at the offices of Shearman & Sterling set forth above, or at such other
place as the Company, the Selling Shareholders, and you shall determine, on the
Date of Delivery as specified in the notice from you to the Company. Payment
shall be made to the Selling Shareholders by wire transfer of immediately
available funds to the respective accounts of the Selling Shareholders as set
forth opposite their respective signatures below, against delivery to you for
the respective accounts of the several U.S. Underwriters of certificates for the
U.S. Shares to be purchased by them.
(f) Certificates for the Initial U.S. Shares and U.S. Option Shares to be
purchased by the U.S. Underwriters shall be in such denominations and registered
in such names as you may request in writing at least two full business days
before the Closing Time or the Date of Delivery, as the case may be. The
certificates for the Initial U.S. Shares and U.S. Option Shares will be made
available in New York for examination and packaging by you not later than 10:00
A.M. on the business day prior to the Closing Time or the Date of Delivery, as
the case may be.
(g) The U.S. Underwriters agree to reserve a maximum of 250,000 Initial
Shares for offering and sale to directors, officers, employees, business
associates and related persons of the Company, at the public offering price. Any
such shares not purchased by such persons by the end of the first business day
after either (a) the later of the date on which the Original Registration
Statement and any Rule 462(b) Registration Statement has become effective or,
(b) if the Company has elected to rely upon Rule 430A, the date of the U.S.
Price Determination Agreement, will be offered to the public by the U.S.
Underwriters as set forth in the Prospectuses.
(h) It is understood that each U.S. Underwriter has authorized you, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the U.S. Shares that it has agreed to purchase. You, individually and
not as U.S. Representatives, may (but shall not be obligated to) make payment of
the purchase price for the Initial U.S. Shares, or U.S. Option Shares, to be
purchased by any U.S. Underwriter whose check or checks shall not have been
received by the Closing Time or the Date of Delivery, as the case may be.
Section 3. CERTAIN COVENANTS OF THE COMPANY. The Company covenants with
each U.S. Underwriter as follows:
(a) The Company will notify you immediately, and confirm the notice in
writing, (i) when the Registration Statement, or any post-effective
amendment to the Registration Statement, shall have become effective, or any
supplement to the Prospectuses or any amended Prospectuses shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of any
request by the Commission to amend the Registration Statement or amend or
supplement the Prospectuses or for additional information and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use
of any preliminary prospectus, or of the suspension of the qualification of
the Offered Shares for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for any of such purposes. The
Company will use every reasonable effort to prevent the issuance of any such
stop order or of any order preventing or suspending such use and, if any
such order is issued, to obtain the lifting thereof at the earliest possible
moment.
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(b) The Company will not at any time file or make any amendment to the
Registration Statement (including any filing under Rule 462(b)), file a term
sheet or file or make any amendment or supplement (i) if the Company has not
elected to rely upon Rule 430A, to the Prospectuses or (ii) if the Company
has elected to rely upon Rule 430A, to either of the prospectuses included
in the Original Registration Statement at the time it becomes effective or
the Prospectuses, of which you shall not have previously been advised and
furnished a copy or to which counsel for the Underwriters shall reasonably
object.
(c) If the Company uses Rule 434, it will comply with the requirements
of Rule 434 and the Prospectuses will not be "materially different," as such
term is used in Rule 434, from the prospectuses included in the Registration
Statement at the time it becomes effective.
(d) The Company has furnished or will furnish to you and counsel for the
Underwriters as many signed copies of the Registration Statement as
originally filed and of all amendments thereto, whether filed before or
after the Registration Statement becomes effective, copies of all exhibits
and documents filed therewith and signed copies (or copies thereof) of all
consents and certificates of experts, as you may reasonably request and has
furnished or will furnish to you, for each other U.S. Underwriter and
counsel for the Underwriters, one conformed copy of the Registration
Statement as originally filed and each amendment thereto (without exhibits).
(e) The Company will deliver to each U.S. Underwriter, without charge,
from time to time until the later of the effective date of the Original
Registration Statement and any Rule 462(b) Registration Statement (or, if
the Company has elected to rely upon Rule 430A, until the time the U.S.
Price Determination Agreement is executed and delivered), as many copies of
each preliminary prospectus as such U.S. Underwriter may reasonably request,
and the Company hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Company will deliver to each U.S.
Underwriter, without charge, as soon as practicable after the Registration
Statement shall have become effective (or, if the Company has elected to
rely upon Rule 430A, as soon as practicable on or after the date of the U.S.
Price Determination Agreement) and thereafter from time to time as requested
during the period when the Prospectuses are required to be delivered under
the 1933 Act, such number of copies of the U.S. Prospectus (as supplemented
or amended) as such U.S. Underwriter may reasonably request.
(f) If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the U.S. Shares any event shall occur
or condition exist as a result of which it is necessary, in the opinion of
counsel for the U.S. Underwriters or counsel for the Company, to amend the
Registration Statement or amend or supplement the Prospectuses in order that
the Prospectuses will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of either such counsel, at any such time to amend the Registration
Statement or amend or supplement the Prospectuses in order to comply with
the requirements of the 1933 Act or the 1933 Act Regulations, the Company
will promptly prepare and file with the Commission, subject to Section 3(b)
hereof, such amendment or supplement as may be necessary to correct such
untrue statement or omission or to make the Registration Statement or the
Prospectuses comply with such requirements.
(g) The Company will endeavor, in cooperation with the U.S.
Underwriters, to qualify the Offered Shares for offering and sale under the
applicable securities laws of such states and other United States
jurisdictions as you may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Original Registration Statement and any Rule 462(b)
Registration Statement; PROVIDED, HOWEVER, that the Company shall not be
obligated to file any general consent to service of process or to qualify as
a foreign corporation or as a dealer in securities in any jurisdiction in
which it is not so qualified or to subject itself to taxation in respect of
doing business in any jurisdiction in which it is not otherwise so subject.
The Company will file such statements and reports as may be required by the
laws of each United States jurisdiction in which the Offered Shares have
been qualified during the one-year period referred to above and as otherwise
above provided.
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(h) The Company will make generally available to its security holders as
soon as practicable, but not later than 60 days after the close of the
period covered thereby, an earnings statement of the Company (in form
complying with the provisions of Rule 158 of the 1933 Act Regulations),
covering a period of 12 months beginning after the later of the effective
date of the Original Registration Statement and any Rule 462(b) Registration
Statement and covering a period of 12 months beginning after the effective
date of any post-effective amendment to the Registration Statement but not
later than the first day of the Company's fiscal quarter next following such
respective effective dates.
(i) For a period of five years after the Closing Time, the Company will
furnish to you and, upon request, to each U.S. Underwriter, copies of all
annual reports, quarterly reports and current reports filed with the
Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may
be designated by the Commission, and such other documents, reports and
information as shall be furnished by the Company to its shareholders or
security holders generally.
(j) For a period of 180 days from the date hereof, the Company will not,
without your prior written consent, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any Common
Stock or securities convertible into Common Stock, other than to the U.S.
Underwriters pursuant to this Agreement and to the International Managers
pursuant to the International Purchase Agreement and other than pursuant to
incentive stock and other employee benefit plans described in the
Prospectuses.
(k) If the Company has elected to rely upon Rule 430A, it will take such
steps as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for filing
by the Commission and, in the event that it was not, it will promptly file
such prospectus.
(l) If the Company elects to rely upon Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with
Rule 111 of the 1933 Act Regulations by the time confirmations are sent or
given, as specified by Rule 462(b)(2).
(m) The Company has complied and will comply with all the provisions of
Florida H.B. 1771, codified as Section 517.075 of the Florida statutes, and
all regulations promulgated thereunder relating to issuers doing business in
Cuba.
Section 4. PAYMENT OF EXPENSES. The Selling Shareholders will, severally
and not jointly, pay all costs and expenses incident to the performance of its
and the Company's obligations under this Agreement, including (a) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
preliminary prospectuses and the Prospectuses and any amendments or supplements
thereto, and the cost of furnishing copies thereof to the Underwriters, (b) the
copying and distribution of this Agreement (including the U.S. Price
Determination Agreement), the Agreement among U.S. Underwriters, the
International Purchase Agreement (including the International Price
Determination Agreement), the Agreement among International Managers and the
Intersyndicate Agreement between the U.S. Underwriters and the International
Managers, and the preparation, printing and distribution of the certificates for
the Offered Shares and the Blue Sky Survey, (c) the delivery of the Offered
Shares to the Underwriters, including any stock transfer taxes payable upon the
sale of the Offered Shares to the Underwriters and the transfer of the Offered
Shares between the U.S. Underwriters and the International Managers, (d) the
fees and disbursements of the Company's counsel and accountants and the fees and
disbursements of any Selling Shareholders' counsel, and (e) the qualification of
the Offered Shares under the applicable securities laws in accordance with
Section 3(g) and any filing for review of the offering with the National
Association of Securities Dealers, Inc., including filing fees and reasonable
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the Blue Sky Survey; PROVIDED, HOWEVER, that the Company
will bear its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties)
and the expenses of any annual audit.
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If this Agreement is terminated by you in accordance with the provisions of
Section 5, 10(a)(i) or 12, the Company and the Selling Shareholders shall
reimburse the Underwriters for all their reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriters.
The provisions of this Section shall not affect any agreement that the
Company and the Selling Shareholders may make for the sharing of such costs and
expenses.
Section 5. CONDITIONS OF U.S. UNDERWRITERS' OBLIGATIONS. In addition to
the execution and delivery of the U.S. Price Determination Agreement, the
obligations of the several U.S. Underwriters to purchase and pay for the U.S.
Shares that they have respectively agreed to purchase pursuant to this Agreement
(including any U.S. Option Shares as to which the option granted in Section 2
has been exercised and the Date of Delivery determined by you is the same as the
Closing Time) are subject to the accuracy in all material respects (except that
such phrase "in all material respects" shall be disregarded to the extent any
such representation and warranty is qualified by "material", "material adverse
change", "Material Adverse Effect" or any phrase using any such term) of the
representations and warranties of the Company and the Selling Shareholders
contained herein (including those contained in the U.S. Price Determination
Agreement) or in certificates of any officer of any of the Oakley Companies or
certificates by or on behalf of the Selling Shareholders delivered pursuant to
the provisions hereof, to the performance by the Company and the Selling
Shareholders of their obligations hereunder, and to the following further
conditions:
(a) The Original Registration Statement shall have become effective not
later than 5:30 p.m. on the date of this Agreement or, with your consent, at a
later time and date not later, however, than 5:30 p.m. on the first business day
following the date hereof, and if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have become effective not
later than the time confirmations are sent or given, as specified by Rule
462(b)(2), or, with respect to the Original Registration Statement, at such
later time or on such later date as you may agree to in writing with the
approval of a majority in interest of the several U.S. Underwriters; and at the
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act and no proceedings for that
purpose shall have been initiated or shall be pending or, to your knowledge or
the knowledge of the Company, shall be threatened by the Commission. If the
Company has elected to rely upon Rule 430A, Prospectuses containing the Rule
430A Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment providing such information shall have
been filed and declared effective in accordance with the requirements of Rule
430A). If the Company has elected to rely upon Rule 434, a Term Sheet, which
together with the preliminary prospectuses last furnished to the Underwriters in
connection with the offering of the Offered Shares shall not be "materially
different," as such term is used in Rule 434, from the prospectuses included in
the Original Registration Statement at the time it becomes effective, shall have
been filed with the Commission in accordance with Rule 424(b).
(b) At the Closing Time, you shall have received a signed opinion of
Skadden, Arps, Slate, Meagher & Flom, counsel for the Company and the Selling
Shareholders, dated as of the Closing Time, together with signed or reproduced
copies of such opinion for each of the other U.S. Underwriters, in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
(i) Oakley Europe is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its organization
with corporate power and authority under such laws to own, lease and operate
its properties and conduct its business.
(ii) All of the outstanding shares of capital stock of Oakley Europe
have been duly authorized and validly issued and are fully paid and
non-assessable.
(iii) No authorization, approval, consent or license of any government,
governmental instrumentality or court, domestic or foreign (other than under
the 1933 Act, the 1934 Act and the rules and regulations under such Acts and
the securities or blue sky laws of the various states and applicable foreign
jurisdictions), is required for the sale and delivery of the Offered Shares,
except such as have been obtained on or prior to the Closing Time.
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(iv) Such counsel does not know of any statutes or regulations, or any
pending or threatened legal or governmental proceedings, required to be
described in the Prospectuses that are not described as required, nor of any
contracts or documents of a character required to be described or referred
to in the Registration Statement or the Prospectuses or to be filed as
exhibits to the Registration Statement (or incorporated by reference
therein) that are not described, referred to or filed as required.
(v) The statements made in the Prospectuses under "Certain United States
Federal Tax Consequences to Non-United States Holders" and "Shares Eligible
for Future Sale," to the extent that they constitute matters of law or legal
conclusions, have been reviewed by such counsel and fairly present the
information disclosed therein in all material respects.
(vi) The execution and delivery of each of this Agreement and the
International Purchase Agreement by the Company and the Selling
Shareholders, the sale and delivery of the Offered Shares by the Selling
Shareholders, the consummation by the Company and the Selling Shareholders
of the transactions contemplated in this Agreement, the International
Purchase Agreement and in the Registration Statement and compliance by the
Company and the Selling Shareholders with the terms of this Agreement and
the International Purchase Agreement do not and will not conflict with, or
result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or the Selling
Shareholders under (A) any contract, indenture, mortgage, loan agreement,
note, lease or any other agreement or instrument identified on an exhibit to
such opinion (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not reasonably be expected to have a
Material Adverse Effect and would not materially and adversely affect the
consummation of the transactions contemplated by this Agreement and the
International Purchase Agreement), (B) any laws (other than the securities
or blue sky laws of the various states and applicable foreign jurisdictions,
as to which such counsel need express no opinion) that in our experience are
generally applicable to transactions of the type contemplated by this
Agreement and the International Purchase Agreement, or (C) any judgment,
order or decree known to us of any government, governmental instrumentality
or court, domestic or foreign, having jurisdiction over the Company or the
Selling Shareholders or any of their respective properties.
(vii) The Original Registration Statement became effective under the 1933
Act on the date of the Agreement and the Rule 462(b) Registration Statement,
if any, became effective under the 1933 Act no later than the date of the
U.S. Price Determination Agreement; any required filing of the Prospectuses
or any supplement thereto pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and, to the best
of the knowledge of such counsel, the Registration Statement is still
effective, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or are threatened under the 1933 Act.
(viii) The Registration Statement (including the Rule 430A Information and
the Rule 434 Information, if applicable), the Prospectuses and each
amendment or supplement thereto (except for the financial statements and
other financial data included therein or omitted therefrom, as to which such
counsel need express no opinion), as of their respective effective or issue
dates, appear on their face to have been appropriately responsive in all
material respects to the requirements of the 1933 Act and the 1933 Act
Regulations.
(ix) [Form of opinion assuming physical delivery] Assuming that (i) each
of the Underwriters acquired its interest in the Offered Shares to be sold
by the Selling Shareholders pursuant to this Agreement in good faith and
without notice of any adverse claim or restriction on transfer of any of the
Offered Shares imposed by the Company and (ii) the certificates representing
the Offered Shares and registered in the names of the Underwriters do not
contain a lien in favor of the Company or a restriction on transfer imposed
by the Company, upon delivery to Merrill Lynch as agent for the Underwriters
in the State of New York of such Offered Shares registered in such
Underwriters' names, the Underwriters will acquire all of the Selling
Shareholders' rights in the Offered Shares to be sold by
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the Selling Shareholders free and clear of any adverse claim (within the
meaning of Section 8-302 of the New York UCC), any lien in favor of the
Company and any restriction on transfer imposed by the Company. The owner of
such Offered Shares, if other than such Selling Shareholder, is precluded
from asserting against the Underwriters the ineffectiveness of any
unauthorized endorsement.
[Form of opinion assuming settlement through DTC] Upon transfer of the
Offered Shares to be sold by the Selling Shareholders pursuant to this
Agreement to [name of the Underwriter to whose securities account such
Offered Shares will be credited by DTC], and, assuming (i) such person has
purchased the Offered Shares in good faith and without notice of any adverse
claim or restriction on transfer of any of the Offered Shares imposed by the
Company and (ii) the certificates representing the Offered Shares do not
contain a lien in favor of the Company or a restriction on transfer imposed
by the Company, such person has acquired all of the rights of such Selling
Shareholder in such Offered Shares free and clear of any adverse claim
(within the meaning of Section 8-302 of the New York UCC), any lien in favor
of the Company, and any restrictions on transfer imposed by the Company. The
owner of such Offered Shares, if other than such Selling Shareholder, is
precluded from asserting against [name of Underwriter] the ineffectiveness
of any unauthorized endorsement. "Transfer" of such Offered Shares to [name
of Underwriter to whose securities account at DTC the Offered Shares will be
credited by DTC] will occur upon the making by The Depository Trust Company
of appropriate entries transferring such Offered Shares on its books and
records to the account of [name of the Underwriter to whose securities
account at DTC such Offered Shares will be credited by DTC] at The
Depository Trust Company.
The opinion set forth in this paragraph (ix) is subject to the following
qualifications:
(a) we have assumed that appropriate entries transferring such
Offered Shares on the books and records of The Depository Trust Company
to the account of [name of Underwriter to whose securities account at DTC
the Offered Shares will be credited by DTC] have been made and that such
entries are complete and accurate in all respects and that such Offered
Shares will be identified on the records of The Depository Trust Company
for the sole and exclusive account of [identify the specific
Underwriter];
(b) we have assumed that such Offered Shares have been deposited by
American Stock Transfer & Trust Company, as transfer agent in the
"underwriting account" at The Depository Trust Company, to be held in
that account for the benefit of the Selling Shareholders, and will be
transferred from that account to the account of [identify the specific
Underwriter] at The Depository Trust Company upon payment therefor
pursuant to the terms of this Agreement;
(c) we have assumed that (i) such Offered Shares are maintained in
the custody of The Depository Trust Company or a custodian bank or a
nominee of either subject to The Depository Trust Company's exclusive
control, (ii) such Offered Shares are in registered form either (x)
registered in the name of The Depository Trust Company or its nominee
subject to The Depository Trust Company's exclusive control, (y) indorsed
to The Depository Trust Company, or its nominee subject to The Depository
Trust Company's exclusive control or (z) indorsed in blank and (iii) will
contain only signatures thereon which are genuine;
(d) we have assumed that The Depository Trust Company is a "clearing
corporation" within the meaning of Section 8-102 of the New York UCC; and
(e) we express no opinion with respect to the priority of the lien of
The Depository Trust Company.
Such counsel shall also state that, in addition, it has participated in
conferences with officers and other representatives of the Oakley Companies,
representatives of the independent accountants for the Oakley Companies, your
representatives and your counsel at which the contents of the Registration
Statement and the Prospectuses and related matters were discussed and, although
such counsel is not passing upon, and does not assume any responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectuses and has made no independent check or
verification thereof, on the basis of the foregoing, no facts have come to the
attention of such counsel that have led it to believe
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<PAGE>
(A) that the Registration Statement (including the Rule 430A Information and the
Rule 434 Information, if applicable) or any amendment thereto, at the time the
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or (B) that the Prospectuses or any amendment or supplement thereto, as of their
respective dates or at the Closing Time, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or (C) if the Company has elected to rely upon Rule 434,
the Prospectuses are "materially different", as such term is used in Rule 434,
from the prospectuses included in the Original Registration Statement at the
time it became effective, except that such counsel may state that it expresses
no opinion or belief with respect to the financial information included in or
excluded from the Registration Statement or any amendment thereto or the
Prospectuses.
In giving such opinion, such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York, the federal
law of the United States and the law of the State of California, upon opinions
of other counsel, who shall be counsel satisfactory to counsel for the
Underwriters, in which case the opinion shall state that they believe you and
they are entitled to so rely. Such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Oakley Companies and certificates
of public officials; provided that copies of such certificates have been
delivered to the U.S. Underwriters.
(c) At the Closing Time, you shall have received a signed opinion of
Preston, Gates & Ellis, special Washington counsel for the Company, dated as of
the Closing Time, together with signed or reproduced copies of such opinion for
each of the other U.S. Underwriters, in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated and validly existing
under the laws of the State of Washington with corporate power and authority
under such laws to own, lease and operate its properties and conduct its
business as described in the Prospectus.
(ii) The Company is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction set forth on a
schedule attached to such opinion.
(iii) The Offered Shares sold by the Selling Shareholders pursuant to the
provisions of this Agreement have been duly authorized and validly issued
and are fully paid and non-assessable; and none of such Offered Shares was
issued in violation of any statutory or, to our knowledge, contractual
preemptive rights of any shareholder of the Company.
(iv) All of the other outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of any statutory or, to our knowledge,
contractual preemptive rights of any shareholder of the Company.
(v) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectuses under the heading "Capitalization."
(vi) The Offered Shares conform in all material respects as to legal
matters to the description thereof in the Prospectuses under the caption
"Description of Capital Stock."
(vii) Each of this Agreement (including the U.S. Price Determination
Agreement) and the International Purchase Agreement (including the
International Price Determination Agreement) has been duly authorized,
executed and delivered by the Company and each Selling Shareholder.
(viii) No authorization, approval, consent or license of any government,
governmental instrumentality or court in the State of Washington (other than
under the securities or blue sky laws of the State of Washington) is
required for the sale and delivery of the Shares.
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<PAGE>
(ix) The statements made in the Prospectuses under "Description of
Capital Stock," to the extent that they constitute matters of Washington law
or legal conclusions based upon Washington law, have been reviewed by such
counsel and fairly present the information disclosed therein in all material
respects.
(x) The execution and delivery of each of this Agreement and the
International Purchase Agreement by the Company and the Selling
Shareholders, the sale and delivery of the Offered Shares by the Selling
Shareholders, the consummation by the Company and the Selling Shareholders
of the transactions contemplated in this Agreement, the International
Purchase Agreement and in the Registration Statement and compliance by the
Company and the Selling Shareholders with the terms of this Agreement and
the International Purchase Agreement have been duly authorized by all
necessary corporate action on the part of the Company and do not and will
not result in any violation of the articles of incorporation or by-laws of
the Company, and do not and will not conflict with, or result in a breach of
any of the terms or provisions of, or constitute a default under, or result
in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company under (A) any existing applicable law,
rule or regulation of the State of Washington (other than the securities or
blue sky laws of the State of Washington, as to which such counsel need
express no opinion) or (B) any judgment, order or decree or any government,
governmental instrumentality or court of the State of Washington having
jurisdiction over the Company or its properties.
In giving such opinion, such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of Washington and the
federal law of the United States, upon opinions of other counsel, who shall be
counsel reasonably satisfactory to counsel for the Underwriters, in which case
the opinion shall state that they believe you and they are entitled to so rely.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of
officers of the Oakley Companies and certificates of public officials; provided
that such certificates have been delivered to the U.S. Underwriters.
(d) At the Closing Time, you shall have received the favorable opinion of
Shearman & Sterling, counsel for the Underwriters, dated as of the Closing Time,
together with signed or reproduced copies of such opinion for each of the other
U.S. Underwriters, to the effect that the opinions delivered pursuant to
Sections 5(b), 5(c) and 5(n) appear on their face to be appropriately responsive
to the requirements of this Agreement except, specifying the same, to the extent
waived by you, and with respect to the incorporation and legal existence of the
Company, this Agreement, the International Purchase Agreement, the Registration
Statement, the Prospectuses and such other related matters as you may require.
In giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York and the
federal law of the United States, upon opinions of counsel satisfactory to you.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of
officers of the Oakley Companies and certificates of public officials; provided
that such certificates have been delivered to the Underwriters.
(e) At the Closing Time, (i) the Registration Statement and the
Prospectuses, as they may then be amended or supplemented, shall contain all
statements that are required to be stated therein under the 1933 Act and the
1933 Act Regulations and in all material respects shall conform to the
requirements of the 1933 Act and the 1933 Act Regulations, the Company shall
have complied in all material respects with Rule 430A and Rule 434 (if it shall
have elected to rely thereon) and neither the Registration Statement nor the
Prospectuses, as they may then be amended or supplemented, shall contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) there shall not have been, since the respective dates as of which
information is given in the Registration Statement, any material adverse change
in the financial condition, earnings, business affairs or business prospects of
the Oakley Companies, considered as one enterprise, whether or not arising in
the ordinary course of business, (iii) no action, suit or proceeding shall be
pending or, to the knowledge of the Company, threatened against any of the
Oakley Companies that would be required to be set forth in the Prospectuses
other than as set forth therein and no proceedings shall be pending or, to the
knowledge of the Company, threatened against any of the Oakley Companies before
or by
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<PAGE>
any government, governmental instrumentality or court, domestic or foreign, that
could reasonably be expected to result in any material adverse change in the
financial condition, earnings, business affairs or business prospects of the
Oakley Companies, considered as one enterprise, other than as set forth in the
Prospectuses, (iv) the Company shall have complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior to
the Closing Time and (v) the other representations and warranties of the Company
set forth in Section 1(a) shall be accurate in all material respects (except
that such phrase "in all material respects" shall be disregarded to the extent
any such representation and warranty is qualified by "material", "material
adverse change", "Material Adverse Effect" or any phrase using any such term) as
though expressly made at and as of the Closing Time. At the Closing Time, you
shall have received a certificate of the President, the Chief Executive Officer
or any Vice President, and the Chief Financial Officer of the Company, dated as
of the Closing Time, to such effect.
(f) At the Closing Time, the representations and warranties of each Selling
Shareholder set forth in Section 1(b) shall be accurate as though expressly made
at and as of the Closing Time. At the Closing Time, you shall have received a
certificate of or on behalf of each Selling Shareholder, dated as of the Closing
Time, to such effect with respect to such Selling Shareholder.
(g) At the time that this Agreement is executed by the Company, you shall
have received from Deloitte & Touche LLP a letter, dated such date, in form and
substance satisfactory to you, together with signed or reproduced copies of such
letter for each of the other U.S. Underwriters, confirming that they are
independent public accountants with respect to the Oakley Companies within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations, and
stating in effect that:
(i) in their opinion, the audited financial statements dated as of
December 31, 1995 and for the year ended December 31, 1995, and the related
financial statement schedules included in the Registration Statement and the
Prospectuses comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and
regulations thereunder;
(ii) on the basis of procedures (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
latest available unaudited interim consolidated financial statements of the
Oakley Companies included in the Registration Statement and the
Prospectuses, a reading of the minutes of all meetings of the shareholders
and directors of the Oakley Companies since January 1, 1996, inquiries of
certain officials of the Oakley Companies responsible for financial and
accounting matters, a limited review in accordance with standards
established by the American Institute of Certified Public Accountants with
respect to the three-month period ended March 31, 1996 performed at the
request of the Oakley Companies, and such other inquiries and procedures as
may be specified in such letter, nothing came to their attention that caused
them to believe that:
(A) The unaudited financial statements for the three-month periods
ended March 31, 1996 and 1995 included in the Registration Statement and
the Prospectuses do not comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations applicable to unaudited interim financial statements included
in registration statements or any material modifications should be made
to the unaudited consolidated financial statements included in the
Registration Statement and the Prospectuses for them to be in conformity
with generally accepted accounting principles;
(B) At a specified date not more than five days prior to the date of
this Agreement, there was any change in the capital stock of the Oakley
Companies or any decrease in the net current assets or shareholders'
equity of the Oakley Companies or any increase in the long-term debt of
the Oakley Companies, in each case as compared with amounts shown in the
latest balance sheet included in the Registration Statement, except in
each case for changes, decreases or increases that the Registration
Statement discloses have occurred or may occur; or
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(C) For the period from January 1, 1996 to a specified date not more
than five days prior to the date of this Agreement, there was any
decrease in net sales, operating income or net income in each case as
compared with the comparable period in the preceding year, except in each
case for any decreases that the Registration Statement discloses have
occurred or may occur;
(iii) based upon the procedures set forth in clause (ii) above and a
reading of the Selected Financial Data included in the Registration
Statement and a reading of the financial statements, from which certain of
such data were derived, nothing has come to their attention that gives them
reason to believe that the Selected Financial Data included in the
Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations, that the information set forth therein is not fairly stated in
relation to the financial statements from which it was derived or that the
financial statements not included in the Registration Statement from which
certain of such data were derived are not in conformity with generally
accepted accounting principles applied on a basis substantially consistent
with that of the audited financial statements included in the Registration
Statement;
(iv) they are unable to and do not express any opinion on the pro forma
adjustments applied to the historical amounts included in the Summary
Financial Data and Selected Financial Data included in the Registration
Statement; however, for purposes of such letter they have:
(A) read the Summary Financial Data and Selected Financial Data
included in the Registration Statement;
(B) performed (1) an audit of the consolidated financial statements
of the Oakley Companies for the year ended December 31, 1995 and (2) a
review in accordance with SAS 71 of the unaudited consolidated financial
statements of the Oakley Companies for the three-month periods ended
March 31, 1996 and 1995 to which the pro forma adjustments were applied;
(C) made inquiries of certain officials of the Oakley Companies who
have responsibility for financial and accounting matters about the basis
for their determination of the pro forma adjustments and whether the
Summary Financial Data and Selected Financial Data included in the
Registration Statement above comply in form in all material respects with
the applicable accounting requirements of Rule 11-02 of Regulation S-X;
and
(D) proved the arithmetic accuracy of the application of the pro
forma adjustments to the historical amounts in the Summary Financial Data
and Selected Financial Data included in the Registration Statement; and
on the basis of such procedures, and such other inquiries and procedures as
may be specified in such letter, nothing came to their attention that caused
them to believe that the Summary Financial Data and Selected Financial Data
included in the Registration Statement do not comply as to form in all
material respects with the applicable requirements of Rule 11-02 of
Regulation S-X and that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of that statement; and
(v) in addition to the procedures referred to in clause (ii) above, they
have performed other specified procedures, not constituting an audit, with
respect to certain amounts, percentages, numerical data and financial
information appearing in the Registration Statement, which have previously
been specified by you and which shall be specified in such letter, and have
compared certain of such items with, and have found such items to be in
agreement with, the accounting and financial records of the Oakley
Companies.
(h) At the signing of the U.S. Price Determination Agreement, you shall have
received from Deloitte & Touche LLP a letter, in form and substance satisfactory
to you and dated as of the date of the U.S. Price Determination Agreement, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to Section 5(g), except that the specified date shall be a date not
more than five days prior to the date of the U.S. Price Determination Agreement.
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(i) At the time that this Agreement is executed by the Company, you shall
have received from Bernstein, Fox, Whitman & Company LLP a letter, dated such
date, in form and substance satisfactory to you, together with signed or
reproduced copies of such letter for each of the other U.S. Underwriters,
confirming that they are or were, for the relevant periods, independent public
accountants with respect to the Company within the meaning of the 1933 Act and
the applicable published 1933 Act Regulations, and stating in effect that:
(i) based upon a reading of the Selected Financial Data for the years
ended December 31, 1991 and 1992, included in the Registration Statement and
a reading of the financial statements from which certain of such data were
derived, nothing has come to their attention that gives them reason to
believe that the Selected Financial Data for the years ended December 31,
1991 and 1992, included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting requirements of
the 1933 Act and the 1933 Act Regulations, that the information set forth
therein is not fairly stated in relation to the financial statements from
which it was derived or that the financial statements not included in the
Registration Statement from which certain of such data were derived are not
in conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial statements
included in the Registration Statement; and
(ii) they have performed other specified procedures, not constituting an
audit, with respect to certain amounts, percentages, numerical data and
financial information appearing in the Registration Statement, which have
previously been specified by you and which shall be specified in such
letter, and have compared certain of such items with, and have found such
items to be in agreement with, the accounting and financial records of the
Oakley Companies.
(j) At the signing of the U.S. Price Determination Agreement, you shall have
received from Bernstein, Fox, Whitman & Company LLP a letter, in form and
substance satisfactory to you and dated as of the date of the U.S. Price
Determination Agreement, to the effect that they reaffirm the statements made in
the letter furnished pursuant to Section 5(i), except that the specified date
shall be a date not more than five days prior to the date of the U.S. Price
Determination Agreement.
(k) At the Closing Time, you shall have received from (i) Deloitte & Touche
LLP a letter, in form and substance satisfactory to you and dated as of the
Closing Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to Section 5(g), except that the specified date referred to
shall be a date not more than five days prior to the Closing Time and (ii)
Bernstein, Fox, Whitman & Company LLP a letter, in form and substance
satisfactory to you and dated as of the Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to Section 5(i).
(l) At the Closing Time, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may
reasonably request for the purpose of enabling them to pass upon the sale of the
Offered Shares as contemplated in this Agreement and the International Purchase
Agreement and the matters referred to in Section 5(d) hereof and in order to
evidence the accuracy and completeness of any of the representations and
warranties of the Company or the Selling Shareholders, the performance of any of
the covenants of the Company or the Selling Shareholders, or the fulfillment of
any of the conditions herein contained; and all proceedings taken by the Company
and the Selling Shareholders at or prior to the Closing Time in connection with
the sale of the Offered Shares as contemplated in this Agreement and the
International Purchase Agreement shall be reasonably satisfactory in form and
substance to you and to counsel for the Underwriters.
(m) All of the Initial International Shares to be purchased by the
International Managers on such Closing Date shall have been sold to the
International Managers pursuant to the International Purchase Agreement.
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(n) At the Closing Time, you shall have received a signed opinion of
Kennobe, Martens, Olson & Bear, special patent and trademark counsel for the
Company, dated as of the Closing Time, together with signed or reproduced copies
of such opinion for each of the other U.S. Underwriters, in form and substance
satisfactory to counsel of the Underwriters, to the effect that:
(i) The statements made in the Prospectus under the headings "Risk
Factors -- Protection of Proprietary Rights" and "Business -- Intellectual
Property," to the extent that they constitute matters of law or legal
conclusions, have been reviewed by such counsel and fairly present the
information disclosed therein.
(ii) To the best knowledge of such counsel, the Company owns or
possesses adequate licenses or other rights to use all patents, technology,
know-how and other rights necessary to conduct the business presently and as
proposed to be conducted by it as described in the Registration Statement
and the Prospectuses, and, except as described in the Registration Statement
and the Prospectuses, the Company has not received any notice of
infringement of or conflict with, and does not otherwise know of any basis
for, notice of any such infringement of or conflict with, asserted rights of
others with respect to any patents, technology or know-how.
(iii) The Company's discoveries, inventions, products or processes
referred to in the Registration Statement and the Prospectuses do not, to
the knowledge of such counsel, infringe or conflict with any right or patent
which is the subject of a patent application known to the Company, which
infringement or conflict could result in any material adverse effect upon
the Company.
(iv) To the best knowledge of such counsel, the Company has the
exclusive right in the United States to use or license the use of the
trademarks described in the Prospectuses as registered in the United States
in connection with the advertising, promotion and sale of its products.
(v) To the best knowledge of such counsel, the Company is in a position
to prevent the adoption and use by third parties of any trademarks
confusingly similar to the trademarks described in the Prospectuses.
If any of the conditions specified in this Section 5 shall not have been
fulfilled when and as required by this Agreement, this Agreement may be
terminated by you on notice to the Company and the Selling Shareholders at any
time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4
herein. Notwithstanding any such termination, the provisions of Sections 7, 8
and 18 and the first paragraph of Section 9 herein shall remain in effect.
Section 6. CONDITIONS TO PURCHASE OF U.S. OPTION SHARES. In the event that
the U.S. Underwriters exercise their option granted in Section 2 hereof to
purchase all or any of the U.S. Option Shares and the Date of Delivery
determined by you pursuant to Section 2 hereof is later than the Closing Time,
the obligations of the several U.S. Underwriters to purchase and pay for the
U.S. Option Shares that they shall have respectively agreed to purchase pursuant
to this Agreement are subject to the accuracy in all material respects (except
that such phrase "in all material respects" shall be disregarded to the extent
any such representation and warranty is qualified by "material", "material
adverse change", "Material Adverse Effect" or any phrase using any such term) of
the representations and warranties of the Company and the Selling Shareholders
herein contained, to the performance by the Company and the Selling Shareholders
of their obligations hereunder and to the following further conditions:
(a) The Registration Statement shall remain effective at the Date of
Delivery, and, at the Date of Delivery, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or
shall be pending or, to your knowledge or the knowledge of the Company,
shall be contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel for the Underwriters.
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(b) At the Date of Delivery, the provisions of Sections 5(e)(i) through
5(e)(v) shall have been complied with at and as of the Date of Delivery and,
at the Date of Delivery, you shall have received a certificate of the
President, the Chief Executive Officer or any Vice President, and the Chief
Financial Officer of the Company, dated as of the Date of Delivery, to such
effect.
(c) At the Date of Delivery, you shall have received the favorable
opinion of Skadden, Arps, Slate, Meagher & Flom, counsel for each of the
Company and the Selling Shareholders, together with signed or reproduced
copies of such opinion for each of the other U.S. Underwriters, in each case
in form and substance satisfactory to counsel for the Underwriters, dated as
of the Date of Delivery, relating to the U.S. Option Shares and otherwise to
the same effect as the opinion required by Section 5(b).
(d) At the Date of Delivery, you shall have received the favorable
opinion of Preston, Gates & Ellis, counsel for the Company, together with
signed or reproduced copies of such opinion for each of the other U.S.
Underwriters, in each case in form and substance satisfactory to counsel for
the Underwriters, dated as of the Date of Delivery, relating to the U.S.
Option Shares and otherwise to the same effect as the opinion required by
Section 5(c).
(e) At the Date of Delivery, you shall have received the favorable
opinion of Shearman & Sterling, counsel for the Underwriters, dated as of
the Date of Delivery, relating to the U.S. Option Shares and otherwise to
the same effect as the opinion required by Section 5(d).
(f) At the Date of Delivery, you shall have received the favorable
opinion of Kennobe, Martens, Olson & Bear, special patent and trademark
counsel for the Company, dated as of the Date of Delivery, relating to the
U.S. Option Shares and otherwise to the same effect as the opinion required
by Section 5(n).
(g) At the Date of Delivery, you shall have received from (i) Deloitte &
Touche LLP a letter, in form and substance satisfactory to you and dated as
of the Date of Delivery, to the effect that they reaffirm the statements
made in the letter furnished pursuant to Section 5(g), except that the
specified date referred to shall be a date not more than five days prior to
the Date of Delivery and (ii) Bernstein, Fox, Whitman & Company LLP a
letter, in form and substance satisfactory to you and dated as of the Date
of Delivery, to the effect that they reaffirm the statements made in the
letter furnished pursuant to Section 5(i).
(h) At the Date of Delivery, counsel for the Underwriters shall have
been furnished with all such documents, certificates and opinions as they
may reasonably request for the purpose of enabling them to pass upon the
sale of the U.S. Option Shares as contemplated in this Agreement and the
matters referred to in Section 6(e) and in order to evidence the accuracy
and completeness of any of the representations and warranties of the Company
or the Selling Shareholders, the performance of any of the covenants of the
Company or the Selling Shareholders, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company and
the Selling Shareholders at or prior to the Date of Delivery in connection
with the sale of the U.S. Option Shares as contemplated in this Agreement
shall be reasonably satisfactory in form and substance to you and to counsel
for the Underwriters.
(i) At the Date of Delivery, the representations and warranties of the
Selling Shareholders set forth in Section 1(b) hereof shall be accurate in
all material respects (except that such phrase "in all material respects"
shall be disregarded to the extent any such representation and warranty is
qualified by "material", "material adverse change", "Material Adverse
Effect" or any phrase using any such term) as though expressly made at and
as of the Date of Delivery and, at the Date of Delivery, you shall have
received a certificate of each Selling Shareholder, dated as of the Date of
Delivery, to such effect with respect to such Selling Shareholder.
Section 7. INDEMNIFICATION. (a) The Company and each Selling Shareholder,
jointly and severally agree to indemnify and hold harmless each U.S. Underwriter
and each person, if any, who controls any U.S. Underwriter within the meaning of
Section 15 of the 1933 Act as follows:
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(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of an untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the Rule
434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of an untrue
statement or alleged untrue statement of a material fact included in any
preliminary U.S. prospectus or the U.S. Prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; PROVIDED,that (subject to Section 7(e)
below) any such settlement is effected with the written consent of (A) the
Company, to the extent indemnification pursuant to this Section 7(a)(ii) is
sought from the Company and (B) each Selling Shareholder, to the extent
indemnification pursuant to this Section 7(a)(ii) is sought from such
Selling Shareholder;
(iii) against any and all expense whatsoever, as incurred (including fees
and disbursements of counsel chosen by you), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent
that any such expense is not paid as incurred under clause (i) or (ii)
above;
PROVIDED, HOWEVER, that (x) this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through you expressly for use in the Registration Statement (or
any amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary U.S. prospectus or the U.S.
Prospectus (or any amendment or supplement thereto), (y) if the Company has
complied with its obligations under Section 3(e) hereof, the foregoing indemnity
agreement with respect to any preliminary U.S. prospectus shall not inure to the
benefit of any U.S. Underwriter from whom the person asserting any such loss,
claim, damage or liability purchased Offered Shares (or any person who controls
such U.S. Underwriter within the meaning of Section 15 of the 1933 Act) if a
copy of the U.S. Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of any U.S. Underwriter to such person, if such is
required by law, at or prior to the written confirmation of the sale of such
Offered Shares to such person and if the U.S. Prospectus (as then amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability, and (z) each Selling Shareholder's aggregate liability
under this Section 7 and for any breach of the representation and warranty of
such Selling Shareholder set forth in Section 1(b)(i) of this Agreement (to the
extent such breach does not also constitute a breach of any other representation
and warranty of such Selling Shareholder) (together with any liability of such
Selling Shareholder under Section 7 of the International Purchase Agreement or
for any breach of the representation and warranty set forth in Section 1(b)(i)
of the International Purchase Agreement (to the extent such breach does not also
constitute a breach of any other representation and warranty of such Selling
Shareholder)) shall be limited to an amount equal to the net proceeds (after
deducting the aggregate Underwriters' discount, but before deducting expenses)
received by such Selling Shareholder from the sale of his or its Offered Shares
pursuant to this Agreement and the International Purchase Agreement.
In making a claim for indemnification under this Section 7 (other than
pursuant to clause (a)(iii) of this Section 7) or contribution under Section 8
hereof by the Company or the Selling Shareholders, the indemnified parties may
proceed against either (1) both the Company and the Selling Shareholders jointly
or (2) the Company only, but may not proceed solely against the Selling
Shareholders. In the event that the
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indemnified parties are entitled to seek indemnity or contribution hereunder
against any loss, liability, claim, damage and expense to which this paragraph
applies then, as a precondition to any indemnified party obtaining
indemnification or contribution from any Selling Shareholder, the indemnified
parties shall first obtain a final judgment from a trial court that such
indemnified parties are entitled to indemnity or contribution under this
Agreement from the Company and the Selling Shareholders with respect to such
loss, liability, claim, damage or expense (the "Final Judgment") and shall seek
to satisfy such Final Judgment in full from the Company by making a written
demand upon the Company for such satisfaction. Only in the event such Final
Judgment shall remain unsatisfied in whole or in part 45 days following the date
of receipt by the Company of such demand shall any indemnified party have the
right to take action to satisfy such Final Judgment by making demand directly on
the Selling Shareholders (but only if and to the extent the Company has not
already satisfied such Final Judgment, whether by settlement, release or
otherwise). The indemnified parties may exercise this right to first seek to
obtain payment from the Company and thereafter obtain payment from the Selling
Shareholders without regard to the pursuit by any party of its rights to the
appeal of such Final Judgment. The indemnified parties shall, however, be
relieved of their obligation to first obtain a Final Judgment, to seek to obtain
payment from the Company with respect to such Final Judgment or, having sought
such payment, to wait such 45 days after failure by the Company to immediately
satisfy any such Final Judgment if (A) the Company files a petition for relief
under the United States Bankruptcy Code (the "Bankruptcy Code"), (B) an order
for relief is entered against the Company in an involuntary case under the
Bankruptcy Code, (C) the Company makes an assignment for the benefit of its
creditors, or (D) any court orders or approves the appointment of a receiver or
custodian for the Company or a substantial portion of its assets. The foregoing
provisions of this paragraph are not intended to require any indemnified party
to obtain a Final Judgment against the Company or the Selling Shareholders
before obtaining reimbursement of expenses pursuant to clause (a)(iii) of this
Section 7. However, the indemnified parties shall first seek to obtain such
reimbursement in full from the Company by making a written demand upon the
Company for such reimbursement. Only in the event such expenses shall remain
unreimbursed in whole or in part 45 days following the date of receipt by the
Company of such demand shall any indemnified party have the right to receive
reimbursement of such expenses from the Selling Shareholders by making written
demand directly on the Selling Shareholders (but only if and to the extent the
Company has not already satisfied the demand for reimbursement, whether by
settlement, release or otherwise). The indemnified parties shall, however, be
relieved of their obligation to first seek to obtain such reimbursement in full
from the Company or, having made written demand therefor, to wait such 45 days
after failure by the Company to immediately reimburse such expenses if (I) the
Company files a petition for relief under the Bankruptcy Code, (II) an order for
relief is entered against the Company in an involuntary case under the
Bankruptcy Code, (III) the Company makes an assignment for the benefit of its
creditors, or (IV) any court orders or approves the appointment of a receiver or
custodian for the Company or a substantial portion of its assets.
(c) Each U.S. Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act and each Selling Shareholder against any and all
loss, liability, claim, damage and expense described in the indemnity agreement
in Section 7(a), as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary U.S. prospectus or
the U.S. Prospectus (or any amendment or supplement thereto) in reliance upon
and in conformity with written information furnished to the Company by such U.S.
Underwriter through you expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or such preliminary U.S. prospectus or the U.S.
Prospectus (or any amendment or supplement thereto).
(d) Each indemnified party shall give prompt written notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement except to the extent that such
indemnifying party has been materially prejudiced by such failure to so notify.
An indemnifying party may participate at its own expense in the defense of such
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action. If it so elects within a reasonable time after receipt of such notice,
an indemnifying party, jointly with any other indemnifying parties receiving
such notice, may assume the defense of such action with counsel chosen by it and
reasonably acceptable to the indemnified parties defendant in such action,
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying parties
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying party or parties be liable for the fees and expenses of more
than one counsel (in addition to local counsel) for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
(e) If at any time an indemnified party shall have requested an indemnifying
party to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 7 or Section 8 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(f) The provisions of this Section 7 and Section 8 hereof shall not affect
any agreement among the Company and the Selling Shareholders with respect to
indemnification and contribution.
(g) In connection with the Reserve Share Program, the Company agrees to
indemnify and hold harmless the U.S. Underwriters from and against any and all
losses, expenses and liabilities incurred by them as a result of the failure of
the designated employees or other persons to pay for and accept delivery of
shares which, immediately following the effectiveness of the Registration
Statement, were subject to a properly confirmed agreement to purchase.
Section 8. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity provided for in Section
7 is for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, subject to the last paragraph of
Section 7(a) hereof, the Company, the Selling Shareholders and the U.S.
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity incurred by
the Company and the Selling Shareholders and one or more of the U.S.
Underwriters, as incurred, (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Shareholders, on
the one hand, and the U.S. Underwriters, on the other hand, from the offering of
the Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Shareholders,
on the one hand, and the U.S. Underwriters, on the other hand, in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Company and the Selling Shareholders,
on the one hand, and the U.S. Underwriters, on the other hand, shall be deemed
to be in such proportions that (a) the U.S. Underwriters are responsible for
that portion represented by the percentage that the underwriting discount
appearing on the cover page of the Prospectus, or if Rule 434 is used, the
corresponding location on the Term
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Sheet, bears to the initial public offering price appearing thereon and (b) the
Company and the Selling Shareholders are responsible for the balance; PROVIDED
that the aggregate liability of each Selling Shareholder under this Section 8
and for any breach of the representation and warranty of such Selling
Shareholder set forth in Section 1(b)(i) of this Agreement (to the extent such
breach does not also constitute a breach of any other representation and
warranty of such Selling Shareholder) (together with any liability of such
Selling Shareholder under Section 8 of the International Purchase Agreement or
for any breach of the representation and warranty set forth in Section 1(b)(i)
of the International Purchase Agreement (to the extent such breach does not also
constitute a breach of any other representation and warranty of such Selling
Shareholder)) shall be limited to an amount equal to the net proceeds (after
deducting the aggregate Underwriters' discount, but before deducting expenses)
received by such Selling Shareholder from the sale of his or its Offered Shares
pursuant to this Agreement and the International Purchase Agreement.
The relative fault of the Company and the Selling Shareholders on the one
hand, and the Underwriters, on the other hand, shall be determined by reference
to, among other things, whether the untrue or allegedly untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Shareholders or by
the U.S. Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section, each person, if any, who controls a U.S. Underwriter within the meaning
of Section 15 of the 1933 Act shall have the same rights to contribution as such
U.S. Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Company.
The Company, the Selling Shareholders and the U.S. Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation (even if the U.S. Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or allegedly untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section, no U.S. Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
allegedly untrue statement or omission or alleged omission.
The U.S. Underwriters' respective obligations to contribute pursuant to this
Section are several in proportion to the number of Initial U.S. Shares set forth
opposite their respective names in Schedule A hereto and not joint.
Section 9. REPRESENTATIONS AND WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The representations and warranties of the Selling Shareholders, the
Company or its officers set forth in or made pursuant to this Agreement will
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Selling Shareholders, the Company, any U.S.
Underwriter or any person who controls a Selling Shareholder, the Company or any
U.S. Underwriter within the meaning of Section 15 of the 1933 Act (except that
Section 1(b)(vii) shall not survive termination of this Agreement) and will
survive delivery of and payment for the Offered Shares.
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The indemnities and other agreements of the Selling Shareholders, the
Company or its officers set forth in or made pursuant to this Agreement will
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Selling Shareholders, the Company, any U.S.
Underwriter or any person who controls a Selling Shareholder, the Company or any
U.S. Underwriter within the meaning of Section 15 of the 1933 Act and will
survive delivery of and payment for the Offered Shares.
Section 10. TERMINATION OF AGREEMENT. (a) You may terminate this
Agreement, by notice to the Company and the Selling Shareholders, at any time at
or prior to the Closing Time (i) if there has been, since the respective dates
as of which information is given in the Registration Statement, any material
adverse change in the financial condition, earnings, business affairs or
business prospects of the Oakley Companies, considered as one enterprise,
whether or not arising in the ordinary course of business, that would make it,
in your judgment, impracticable to market the U.S. Shares or enforce contracts
for the sale of the U.S. Shares or (ii) if there has occurred any material
adverse change in the financial markets in the United States or any outbreak of
hostilities or escalation thereof or other calamity or crisis the effect of
which on the financial markets of the United States is such as to make it, in
your judgment, impracticable to market the U.S. Shares or enforce contracts for
the sale of the U.S. Shares, or (iii) if trading in any securities of the
Company has been suspended by the Commission or the National Association of
Securities Dealers, Inc., or if trading generally on either the New York Stock
Exchange or in the over-the-counter market has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by such exchange or by order of the Commission,
the National Association of Securities Dealers, Inc. or any other governmental
authority or (iv) if a general banking moratorium has been declared by either
federal, New York or California authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 7, 8 and 18 and the first paragraph of Section 9 shall
remain in effect.
(c) This Agreement may also terminate pursuant to the provisions of Section
2(c), with the effect stated in such Section.
Section 11. DEFAULT BY ONE OR MORE OF THE U.S. UNDERWRITERS. If one or
more of the U.S. Underwriters shall fail at the Closing Time to purchase the
Initial U.S. Shares that it or they are obligated to purchase pursuant to this
Agreement (the "Defaulted U.S. Shares"), you shall have the right, within 24
hours thereafter, to make arrangements for one or more of the non-defaulting
U.S. Underwriters, or any other underwriters, to purchase all, but not less than
all, of the Defaulted U.S. Shares in such amounts as may be agreed upon and upon
the terms set forth in this Agreement; if, however, you have not completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted U.S. Shares does not exceed 10% of the
total number of Initial U.S. Shares, the non-defaulting U.S. Underwriters
shall be obligated to purchase the full amount thereof in the proportions
that their respective Initial U.S. Share underwriting obligation proportions
bear to the underwriting obligations of all non-defaulting U.S.
Underwriters, or
(b) if the number of Defaulted U.S. Shares exceeds 10% of the total
number of Initial U.S. Shares, this Agreement shall terminate without
liability on the part of any non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting U.S.
Underwriter from liability in respect of its default.
In the event of any such default that does not result in a termination of
this Agreement, either you or the Company shall have the right to postpone the
Closing Time for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectuses or in any other
documents or arrangements. As used herein, the term "U.S. Underwriter" includes
any person substituted for a U.S. Underwriter under this Section 11.
Section 12. DEFAULT BY A SELLING SHAREHOLDER OR THE COMPANY. If any
Selling Shareholder shall fail at the Closing Time to sell and deliver the
number of Initial Shares that such Selling Shareholder is obligated to
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sell, the U.S. Underwriters may, at your option, by notice from you to the
Company, either (a) terminate this Agreement without any liability on the part
of any non-defaulting party except to the extent provided in Section 4 and
except that the provisions of Sections 7, 8 and 18 and the first paragraph of
Section 9 shall remain in effect or (b) elect to purchase the Initial U.S.
Shares that the remaining Selling Shareholder has agreed to sell pursuant to
this Agreement.
In the event of a default under this Section that does not result in the
termination of this Agreement, either you, the Company or the Selling
Shareholders shall have the right to postpone the Closing Time for a period not
exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectuses or in any other documents or arrangements.
No action taken pursuant to this Section shall relieve any Selling
Shareholder so defaulting from liability, if any, in respect of such default.
Section 13. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or transmitted by any standard form of telecommunication.
Notices to you or the Underwriters shall be directed to you, c/o Merrill Lynch,
Pierce, Fenner & Smith Incorporated, at Merrill Lynch World Headquarters, North
Tower, World Financial Center, New York, New York 10281, attention of Syndicate
Operations; notices to the Company shall be directed to it at 10 Holland,
Irvine, California 92718, attention of R. Link Newcomb; and notices to the
Selling Shareholders shall be directed to Jim Jannard and Mike Parnell, c/o
Oakley, Inc., 10 Holland, Irvine, California 92718.
Section 14. PARTIES. This Agreement is made solely for the benefit of the
several U.S. Underwriters, the Company and the Selling Shareholders and, to the
extent expressed, any person who controls the Company or any of the U.S.
Underwriters within the meaning of Section 15 of the 1933 Act, and the directors
of the Company, its officers who have signed the Registration Statement, and
their respective executors, administrators, successors and assigns and, subject
to the provisions of Section 11, no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, from any of the several U.S.
Underwriters of the U.S. Shares. All of the obligations of the U.S. Underwriters
hereunder are several and not joint.
Section 15. REPRESENTATION OF UNDERWRITERS. You will act for the several
U.S. Underwriters in connection with the transactions contemplated by this
Agreement, and any action under or in respect of this Agreement taken by you as
U.S. Representatives will be binding upon all the U.S. Underwriters.
Section 16. GOVERNING LAW AND TIME. This Agreement shall be governed by
the laws of the State of New York. Specified times of the day refer to New York
City time.
Section 17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
Section 18. SELLING SHAREHOLDERS. Each of the M. and M. Parnell Revocable
Trust, Mike D. Parnell and Melissa Parnell (collectively, the "Parnell Parties")
agrees that the representations and warranties, indemnities and agreements of
the M. and M. Parnell Revocable Trust set forth in this Agreement shall be
deemed to have been given or made (subject to any limitations specifically set
forth herein), jointly and severally, by the Parnell Parties.
28
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this instrument
will become a binding agreement among the Company, the Selling Shareholders and
the several Underwriters in accordance with its terms.
Very truly yours,
OAKLEY, INC.
By:
-----------------------------------
Name:
Title:
SELLING SHAREHOLDERS
[WIRE TRANSFER INSTRUCTIONS]
By:
-----------------------------------
James H. Jannard
The M. and M. Parnell Revocable
Trust
[WIRE TRANSFER INSTRUCTIONS]
By:
-----------------------------------
Mike D. Parnell, as Co-Trustee and
as
Attorney-in-fact for Melissa
Parnell, as
Co-Trustee
--------------------------------------
Mike D. Parnell
--------------------------------------
Melissa Parnell
29
<PAGE>
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
ALEX. BROWN & SONS INCORPORATED
By: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By:
--------------------------------------------
Name:
Title:
Investment Banking Group
FOR THEMSELVES AND AS REPRESENTATIVES OF THE
OTHER UNDERWRITERS NAMED IN
SCHEDULE A.
30
<PAGE>
EXHIBIT A
OAKLEY, INC.
(A WASHINGTON CORPORATION)
4,000,000 SHARES OF COMMON STOCK
U.S. PRICE DETERMINATION AGREEMENT
June , 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
ALEX. BROWN & SONS INCORPORATED
As Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
Reference is made to the U.S. Purchase Agreement dated June , 1996 (the
"U.S. Purchase Agreement") among Oakley, Inc. (the "Company"), the Selling
Shareholders named in Schedule B thereto or hereto (the "Selling Shareholders")
and the several U.S. Underwriters named in Schedule A thereto or hereto (the
"U.S. Underwriters"), for whom Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Alex. Brown & Sons Incorporated are acting as
representatives (the "U.S. Representatives"). The U.S. Purchase Agreement
provides for the purchase by the U.S. Underwriters from the Company and the
Selling Shareholders, subject to the terms and conditions set forth therein, of
an aggregate of 4,000,000 shares (the "Initial U.S. Shares") of the Company's
Common Stock, par value $.01 per share. This Agreement is the U.S. Price
Determination Agreement referred to in the U.S. Purchase Agreement. Terms not
defined herein are used herein as defined in the U.S. Purchase Agreement.
Pursuant to Section 2 of the U.S. Purchase Agreement, the undersigned agree
with the U.S. Representatives as follows:
1. The initial public offering price per share for the Initial U.S.
Shares shall be $ .
2. The purchase price per share for the Initial U.S. Shares to be paid
by the several U.S. Underwriters shall be $ , representing an amount
equal to the initial public offering price set forth above, less $
per share.
The Company represents and warrants to each of the U.S. Underwriters that
the representations and warranties of the Company set forth in Section 1(a) of
the U.S. Purchase Agreement are accurate in all material respects (except that
such phrase "in all material respects" shall be disregarded to the extent any
such representation and warranty is qualified by "material", "material adverse
change", "Material Adverse Effect" or any phrase using any such term) as though
expressly made at and as of the date hereof.
Additionally, if the Company elects to rely upon Rule 462(b), the Company
represents and warrants to each of the Underwriters that:
(a) the Company has filed a Rule 462(b) Registration Statement in
compliance with and that is effective upon filing pursuant to Rule 462(b)
and has received confirmation of its receipt; and
(b) the Company has given irrevocable instructions for transmission of
the applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 of the 1933 Act
Regulations, or the Commission has received payment of such filing fee.
<PAGE>
Each Selling Shareholder represents and warrants to each of the U.S.
Underwriters that the representations and warranties of such Selling Shareholder
set forth in Section 1(b) of the U.S. Purchase Agreement are accurate in all
material respects (except that such phrase "in all material respects" shall be
disregarded to the extent any such representation and warranty is qualified by
"material", "material adverse change", "Material Adverse Effect" or any phrase
using any such term) as though expressly made at and as of the date hereof.
As contemplated by Section 2 of the U.S. Purchase Agreement, attached as
Schedule A is a complete list of the several U.S. Underwriters and as Schedule B
is a complete list of the Selling Shareholders, which shall be a part of this
Agreement and the U.S. Purchase Agreement.
This Agreement shall be governed by the laws of the State of New York.
If the foregoing is in accordance with the understanding of the U.S.
Representatives of the agreement between the U.S. Underwriters, the Company and
the Selling Shareholders, please sign and return to the Company a counterpart
hereof, whereupon this instrument along with all counterparts and together with
the U.S. Purchase Agreement shall be a binding agreement between the U.S.
Underwriters, the Company and the Selling Shareholders in accordance with its
terms and the terms of the U.S. Purchase Agreement.
Very truly yours,
OAKLEY, INC.
By
------------------------------------
Name:
Title:
SELLING SHAREHOLDERS NAMED IN SCHEDULE
B TO THE U.S. PURCHASE AGREEMENT
--------------------------------------
James H. Jannard
The M. and M. Parnell Revocable Trust
By
------------------------------------
Mike D. Parnell, as Co-Trustee and
as Attorney-in-fact for Melissa
Parnell, as Co-Trustee
--------------------------------------
Mike D. Parnell
--------------------------------------
Melissa Parnell
2
<PAGE>
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
ALEX. BROWN & SONS INCORPORATED
By: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By
--------------------------------------------
Name:
Title:
Investment Banking Group
FOR THEMSELVES AND AS REPRESENTATIVES OF THE
OTHER UNDERWRITERS NAMED IN SCHEDULE A
ATTACHED TO THE PURCHASE AGREEMENT.
3
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
INITIAL U.S.
SHARES
U.S UNDERWRITER TO BE PURCHASED
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated.............................................
-----------------
Alex. Brown & Sons Incorporated................................................................
-----------------
Total...................................................................................... 4,000,000
-----------------
-----------------
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES OF
INITIAL U.S. COMMON
SHARES STOCK SUBJECT
SELLING SHAREHOLDERS TO BE SOLD TO U.S. OPTION
- -------------------------------------------------- ------------ --------------
<S> <C> <C>
Jim Jannard....................................... 3,600,000 540,000
The M. and M. Parnell Revocable Trust............. 400,000 60,000
------------ -------
Total......................................... 4,000,000 600,000
------------ -------
------------ -------
</TABLE>
<PAGE>
EXHIBIT 1.2
OAKLEY, INC.
(A WASHINGTON CORPORATION)
1,000,000 SHARES OF COMMON STOCK
INTERNATIONAL PURCHASE AGREEMENT
Dated: June , 1996
<PAGE>
OAKLEY, INC.
(A WASHINGTON CORPORATION)
1,000,000 SHARES OF COMMON STOCK
(PAR VALUE U.S.$.01 PER SHARE)
INTERNATIONAL PURCHASE AGREEMENT
June , 1996
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS INCORPORATED
As Representatives of the several Managers
c/o Merrill Lynch International
20 Farringdon Road
London EC1M 3NH
England
Ladies and Gentlemen:
The shareholders named in Schedule B (the "Selling Shareholders") propose to
sell severally to the underwriters named in Schedule A (the "Managers"), for
whom you are acting as lead managers (the "Lead Managers"), an aggregate of
1,000,000 shares of Common Stock, par value U.S.$.01 per share (the "Common
Stock") of Oakley, Inc., a Washington corporation (the "Company"), as set forth
in the appropriate column on Schedule B. Such shares of Common Stock are to be
sold to each Manager, acting severally and not jointly, in such amounts as are
set forth in Schedule A opposite the name of such Manager. The Selling
Shareholders have also granted to the Managers, severally and not jointly, the
option described in Section 2 to purchase all or any part of 150,000 additional
shares of Common Stock to cover over-allotments. The aforesaid 1,000,000 shares
of Common Stock (the "Initial International Shares"), together with all or any
part of the 150,000 additional shares of Common Stock subject to the option
described in Section 2 (the "International Option Shares"), are collectively
herein called the "International Shares." The International Shares are more
fully described in the International Prospectus referred to below.
It is understood that the Company and the Selling Shareholders are
concurrently entering into an agreement, dated the date hereof (the "U.S.
Purchase Agreement"), providing for the sale by the Selling Shareholders of an
aggregate of 4,000,000 shares of Common Stock (the "Initial U.S. Shares")
through arrangements with certain underwriters in the United States (the "U.S.
Underwriters" which, together with the Managers, shall be referred to as the
"Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Alex. Brown & Sons Incorporated are acting as representatives (the "U.S.
Representatives"). The Selling Shareholders have also granted to the U.S.
Underwriters an option to purchase all or any part of 600,000 shares of Common
Stock (the "U.S. Option Shares" which, together with the Initial U.S. Shares,
shall be referred to as the "U.S. Shares") to cover over-allotments. The U.S.
Shares and the International Shares are hereinafter collectively referred to as
the "Offered Shares."
The Company and the Selling Shareholders understand that the Managers will
simultaneously enter into an agreement with the U.S. Underwriters dated the date
hereof (the "Intersyndicate Agreement") providing for the coordination of
certain transactions among the Managers and the U.S. Underwriters, under the
direction of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
You have advised us that you and the other Managers, acting severally and
not jointly, desire to purchase the Initial International Shares and, if the
Managers so elect, the International Option Shares, and that you have been
authorized by the other Managers to execute this Agreement and the International
Price Determination Agreement referred to below on their behalf.
The initial public offering price per share for the International Shares and
the purchase price per share for the International Shares shall be agreed upon
by the Selling Shareholders and the Lead Managers, acting on behalf of the
several Managers, and such agreement shall be set forth in a separate written
instrument
<PAGE>
substantially in the form of Exhibit A hereto (the "International Price
Determination Agreement"). The International Price Determination Agreement may
take the form of an exchange of any standard form of written telecommunication
between the Company, the Selling Shareholders and the Lead Managers and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the International Shares will be governed by this Agreement, as
supplemented by the International Price Determination Agreement. From and after
the date of the execution and delivery of the International Price Determination
Agreement, this Agreement shall be deemed to incorporate, and all references
herein to "this Agreement" shall be deemed to include, the International Price
Determination Agreement.
The initial public offering price per share and the purchase price per share
for the U.S. Shares to be paid by the U.S. Underwriters pursuant to the U.S.
Purchase Agreement shall be set forth in a separate agreement (the "U.S. Price
Determination Agreement"), the form of which is attached to the U.S. Purchase
Agreement. The purchase price per share for the U.S. Shares to be paid by the
several U.S. Underwriters shall be identical to the purchase price per share for
the International Shares to be paid by the several Managers hereunder.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (Registration
No. 333-4608) covering the registration of the Offered Shares under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectuses, and either (A) has prepared and proposes to file,
prior to the effective date of such registration statement, an amendment to such
registration statement, including final prospectuses, or (B) if the Company has
elected to rely upon Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations"), will prepare and
file prospectuses in accordance with the provisions of Rule 430A and Rule 424(b)
("Rule 424(b)") of the 1933 Act Regulations, promptly after execution and
delivery of the U.S. Price Determination Agreement and the International Price
Determination Agreement. Additionally, if the Company has elected to rely upon
Rule 434 ("Rule 434") of the 1933 Act Regulations, the Company will prepare and
file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434
and Rule 424(b), promptly after execution and delivery of the U.S. Price
Determination Agreement and the International Price Determination Agreement. Two
forms of prospectus are to be used in connection with the offering and sale of
the Offered Shares: one relating to the U.S. Shares (the "Form of U.S.
Prospectus") and one relating to the International Shares (the "Form of
International Prospectus"). The Form of International Prospectus is identical to
the Form of U.S. Prospectus, except for the front cover and back cover pages and
the information under the caption "Underwriting." The information, if any,
included in any such prospectus that was omitted from any prospectus included in
such registration statement at the time it becomes effective but that is deemed,
(a) pursuant to paragraph (b) of Rule 430A to be part of such registration
statement at the time it becomes effective is referred to herein as the "Rule
430A Information," and (b) pursuant to paragraph (d) of Rule 434 to be part of
such registration statement at the time it becomes effective is referred to
herein as the "Rule 434 Information." Each Form of U.S. Prospectus and Form of
International Prospectus used before the time such registration statement
becomes effective, and any Form of U.S. Prospectus or Form of International
Prospectus that omits the Rule 430A Information or the Rule 434 Information, as
applicable, that is used after such effectiveness and prior to the execution and
delivery of the U.S. Price Determination Agreement or the International Price
Determination Agreement, is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto, as amended at the time
it becomes effective and including, if applicable, the Rule 430A Information and
the Rule 434 Information, is herein called the "Original Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933
Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and the Original Registration Statement and any Rule 462(b)
Registration Statement are herein referred to collectively as the "Registration
Statement." The Form of U.S. Prospectus and Form of International Prospectus
included in the Original Registration Statement at the time it becomes effective
are herein called the "U.S. Prospectus" and "International Prospectus,"
respectively, and collectively, the "Prospectuses," except that, (y) if the
final U.S. Prospectus or International Prospectus first furnished to the U.S.
Underwriters or the Managers after the execution of the U.S. Price Determination
Agreement or the International Price Determination Agreement, as the case may
be, for use in connection with the offering of the Offered Shares differs from
the prospectuses included in
2
<PAGE>
the Original Registration Statement at the time it becomes effective (whether or
not such prospectus is required to be filed pursuant to Rule 424(b)), the terms
"U.S. Prospectus," "International Prospectus" and "Prospectuses" shall refer to
the final U.S. Prospectus and/or International Prospectus first furnished to the
U.S. Underwriters and/or Managers, as the case may be, for such use and (z) if
Rule 434 is relied on, the terms "U.S. Prospectus," "International Prospectus"
and "Prospectuses" shall refer to the preliminary U.S. Prospectus and/or
International Prospectus last furnished to the U.S. Underwriters and/or
Managers, as the case may be, in connection with the offering of the Offered
Shares together with the Term Sheet.
The Company and the Selling Shareholders understand that the Managers
propose to make a public offering of the International Shares as soon as you
deem advisable after the Registration Statement becomes effective and the
International Price Determination Agreement has been executed and delivered.
Section 1. REPRESENTATIONS AND WARRANTIES. (a) The Company represents and
warrants to and agrees with each of the Managers that:
(i) When the Registration Statement shall become effective and at the
Closing Time (and, if any International Option Shares are purchased, at the
Date of Delivery), and, unless the Company has notified you as provided in
Section 3(f) below, at all times between the effectiveness of the
Registration Statement and the Closing Time referred to below (and, if any
International Option Shares are purchased, the Date of Delivery referred to
below), (A) the Registration Statement and any amendments and supplements
thereto will comply in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations; (B) neither the Registration
Statement nor any amendment or supplement thereto will contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
(C) neither of the Prospectuses nor any amendment or supplement thereto will
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (D) if Rule
434 is used, the Prospectuses shall not be "materially different," as such
term is used in Rule 434, from the prospectuses included in the Registration
Statement at the time it becomes effective; except that this representation
and warranty does not apply to statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company by or
on behalf of any Underwriter through you expressly for use in the
Registration Statement or the Prospectuses.
(ii) Each of Deloitte & Touche LLP and Bernstein, Fox, Whitman & Company
LLP, who are each reporting upon certain audited financial statements and
schedules included in the Registration Statement, are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iii) Each of this Agreement and the U.S. Purchase Agreement has been
duly authorized, executed and delivered by the Company.
(iv) The consolidated financial statements included in the Registration
Statement present fairly the consolidated financial position of the Company,
Oakley Europe, Sarl ("Oakley Europe") and the other subsidiaries of the
Company (the "Other Subsidiaries" and, together with the Company and Oakley
Europe, the "Oakley Companies") as of the dates indicated and the combined
results of operations and the combined cash flows of the Oakley Companies
for the periods specified. Such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. The financial statement
schedules, if any, included in the Registration Statement present fairly the
information required to be stated therein. The selected financial data and
summary financial information included in the Prospectuses present fairly
the information shown therein and have been compiled on a basis consistent
with that of the audited consolidated financial statements included in the
Registration Statement. The pro forma financial statements and other pro
forma financial information included in the Prospectuses present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma
3
<PAGE>
bases described therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or circumstances
referred to therein.
(v) The Company is a corporation duly organized and validly existing
under the laws of the State of Washington with corporate power and corporate
authority under such laws to own, lease and operate its properties and
conduct its business as described in the Prospectuses; and the Company is
duly qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such qualification
necessary, except to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the Oakley Companies,
considered as one enterprise.
(vi) Oakley Europe is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization with
corporate power and corporate authority under such laws to own, lease and
operate its properties and conduct its business; and Oakley Europe is duly
qualified to transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make such qualification
necessary, except to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the Oakley Companies,
considered as one enterprise. All of the outstanding shares of capital stock
of Oakley Europe have been duly authorized and validly issued, are fully
paid and non-assessable and, as of the date hereof, are owned by the Company
free and clear of any pledge, lien, security interest, charge, claim, equity
or encumbrance of any kind, except that 65% of such shares are pledged by
the Company to Wells Fargo Bank, National Association, for itself and as
agent for certain other banks pursuant to the Credit Agreement described in
the Prospectuses.
(vii) Each of the Other Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization with corporate power and corporate authority under such
laws to own, lease and operate its properties and conduct its business; and
each Other Subsidiary is duly qualified to transact business as a foreign
corporation and is in good standing in each other jurisdiction in which it
owns or leases property of a nature, or transacts business of a type, that
would make such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not have a material
adverse effect on the Oakley Companies, considered as one enterprise. All of
the outstanding shares of capital stock of each Other Subsidiary have been
duly authorized and validly issued and are fully paid and non-assessable,
and, as of the date hereof, all of such shares are owned by the Company, in
each case free and clear of any pledge, lien, security interest, charge,
claim, equity or encumbrance of any kind. The Other Subsidiaries did not
have, in the aggregate, at December 31, 1995, assets in excess of 5% of the
combined assets of the Oakley Companies as at that date and did not have, in
the aggregate, for the fiscal year then ended sales or net income in excess
of 5% of combined sales or combined net income of the Oakley Companies for
such period.
(viii) The Oakley Companies had at March 31, 1996 a duly authorized,
issued and outstanding consolidated capitalization as set forth in the
Prospectuses under the caption "Capitalization;" and the Offered Shares
conform in all material respects to the description thereof contained in the
Prospectuses.
(ix) The Offered Shares to be sold by the Selling Shareholders have been
duly authorized and validly issued and are fully paid and non-assessable.
(x) All of the other outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive rights of any shareholder
of the Company.
(xi) Since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, except as otherwise stated
therein or contemplated thereby, there has not been (A) any material adverse
change in the financial condition, earnings, business affairs or business
4
<PAGE>
prospects of the Oakley Companies, considered as one enterprise, whether or
not arising in the ordinary course of business, (B) any transaction entered
into by any of the Oakley Companies, other than in the ordinary course of
business, that is material to the Oakley Companies, considered as one
enterprise, or (C) any dividend or distribution of any kind declared, paid
or made by any Oakley Company on its capital stock.
(xii) None of the Oakley Companies is in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which it may be bound
or to which any of its properties may be subject, except for such defaults
that would not reasonably be expected to have a material adverse effect on
the financial condition, earnings, business affairs or business prospects of
the Oakley Companies, considered as one enterprise (a "Material Adverse
Effect"). The execution and delivery of each of this Agreement and the U.S.
Purchase Agreement by the Company and the Selling Shareholders, the sale and
delivery of the Offered Shares to be sold by the Selling Shareholders, the
consummation by the Company and the Selling Shareholders of the transactions
contemplated in this Agreement, the U.S. Purchase Agreement and in the
Registration Statement and compliance by the Company with the terms of this
Agreement and the U.S. Purchase Agreement have been duly authorized by all
requisite corporate action on the part of the Company and do not and will
not result in any violation of the articles of incorporation or by-laws of
any of the Oakley Companies, and do not and will not conflict with, or
result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of any of the Oakley Companies
under, (A) any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument to which any of the Oakley Companies is a
party or by which it may be bound or to which any of its properties may be
subject (except for such conflicts, breaches or defaults or liens, charges
or encumbrances that would not reasonably be expected to have a Material
Adverse Effect and would not materially and adversely affect the
consummation of the transactions contemplated by this Agreement and the U.S.
Purchase Agreement) or (B) any existing applicable law, rule, regulation,
judgment, order or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over any of the Oakley
Companies or any of their respective properties.
(xiii) No authorization, approval, consent or license of any government,
governmental instrumentality or court, domestic or foreign (other than under
the 1933 Act and the securities or blue sky laws of the various states and
any applicable foreign jurisdictions as to which no representation or
warranty is made), is required for the valid authorization, issuance, sale
and delivery of the Offered Shares, except such as will have been obtained
on or prior to the Closing Time.
(xiv) Except as disclosed in the Prospectuses, there is no action, suit
or proceeding before or by any government, governmental instrumentality or
court, domestic or foreign, now pending or, to the knowledge of the Company,
threatened against or affecting any of the Oakley Companies that is required
to be disclosed in the Prospectuses or that could reasonably be expected to
result in a Material Adverse Effect, or that could materially and adversely
affect the consummation of the transactions contemplated in this Agreement
or the U.S. Purchase Agreement; and the aggregate of all pending legal or
governmental proceedings that are not described in the Prospectuses to which
any of the Oakley Companies is a party or which affect any of their
respective properties, including ordinary routine litigation incidental to
the business of any of the Oakley Companies, could not reasonably be
expected to have a Material Adverse Effect.
(xv) There are no contracts or documents of a character required to be
filed as exhibits to the Registration Statement that are not filed or
incorporated by reference as required.
(xvi) Each of the Oakley Companies, at the Closing Time, will have good
and marketable title to all properties and assets described in the
Prospectuses as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as (A) are described in the
Prospectuses or (B) are neither material in amount nor materially
significant in relation to the business of the Oakley Companies,
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considered as one enterprise; all of the leases and subleases material to
the business of the Oakley Companies, considered as one enterprise, and
under which any of the Oakley Companies holds properties described in the
Prospectuses, are in full force and effect, and none of the Oakley Companies
has any notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of any Oakley Company under any of the leases
or subleases mentioned above, or affecting or questioning the rights of such
corporation to the continued possession of the leased or subleased premises
under any such lease or sublease.
(xvii) (A) Each of the Oakley Companies owns, possesses or has obtained
all material governmental licenses, permits, certificates, consents, orders,
approvals and other authorizations necessary to own or lease, as the case
may be, and to operate its properties and to carry on its business as
presently conducted, and (B) none of the Oakley Companies has received any
notice of proceedings relating to revocation or modification of any such
licenses, permits, certificates, consents, orders, approvals or
authorizations, except, in the case of clauses (A) and (B), as could not
reasonably be expected to have a Material Adverse Effect.
(xviii) Except as disclosed in the Prospectuses, each of the Oakley
Companies owns or possesses, or can acquire on reasonable terms, adequate
patents, patent licenses, trademarks, service marks and trade names
necessary to carry on its business as presently conducted, and none of the
Oakley Companies has received any notice of infringement of or conflict with
asserted rights of others with respect to any patents, patent licenses,
trademarks, service marks or trade names that in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would reasonably be
expected to have a Material Adverse Effect.
(xix) No labor dispute with employees of any of the Oakley Companies
exists or, to the knowledge of the Company, is imminent that could
reasonably be expected to have a Material Adverse Effect and the Company is
not aware of any existing or imminent labor disturbance by the employees of
any of the Oakley Companies' principal suppliers that would reasonably be
expected to have a Material Adverse Effect.
(xx) The Company is in compliance with all applicable federal, state, and
local laws relating to the payment of wages to employees (including, without
limitation, the Fair Labor Standards Act, as amended), except insofar as the
failure to comply with such laws would not reasonably be expected to have a
Material Adverse Effect.
(xxi) The Company has not taken and will not take, directly or
indirectly, any action designed to, or that might be reasonably expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock in violation of law.
(xxii) Each of the Oakley Companies has filed all material federal, state
and foreign income and franchise tax returns and has paid all taxes shown as
due thereon, other than taxes which are being contested in good faith and
for which adequate reserves have been established in accordance with GAAP;
and the Company has no knowledge of any tax deficiency which has been or
might be asserted or threatened against any of the Oakley Companies which
would reasonably be expected to have a Material Adverse Effect.
(xxiii) Except as disclosed in the Registration Statement and except as
would not individually or in the aggregate reasonably be expected to have a
Material Adverse Effect, (A) each of the Oakley Companies is in compliance
with applicable Environmental Laws, (B) each of the Oakley Companies has all
permits, authorizations and approvals required under applicable
Environmental Laws and is in compliance with the requirements of such
permits, authorizations and approvals, (C) there are no pending or, to the
knowledge of any of the Oakley Companies, threatened Environmental Claims
against any of the Oakley Companies, and (D) to the knowledge of any of the
Oakley Companies, there are no past or present events, conditions,
circumstances, activities, practices, incidents or actions required to be
disclosed in the Registration Statement that would reasonably be expected to
materially interfere with or prevent compliance by any of the Oakley
Companies with applicable Environmental
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Laws, or that would reasonably be expected to give rise to liability under
applicable Environmental Laws or subject any of the Oakley Companies to any
Environmental Claim based on the manufacture, processing, distribution, use,
generation, treatment, storage, disposal, transport, shipping or handling,
or the arrangement for treatment or disposal or the emission, discharge,
release or threatened release into the environment, of any Hazardous
Substance.
For purposes of this Agreement, the following terms shall have the following
meanings: "Environmental Law" means any applicable United States federal, state
or local statute, law, rule, regulation, ordinance or code and any final
judicial or administrative interpretation thereof including any final judicial
or administrative order, consent decree or judgment, regulating (x) disposal,
emissions, discharges or releases to the environment or (y) any Hazardous
Substance. "Environmental Claims" means any administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings based on any
Environmental Law. "Hazardous Substance" means any substance presently regulated
as hazardous, toxic or radioactive under any Environmental Law, whether by type
or by quantity, including, without limitation, any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance or petroleum or any derivative or by-product
thereof, radon, radioactive material, asbestos, asbestos-containing material,
urea formaldehyde foam insulation, lead or polychlorinated biphenyl to the
extent any such substance is presently regulated under any Environmental Law.
(b) Each of the Selling Shareholders severally represents and warrants to,
and agrees with, each Manager as follows:
(i) Such Selling Shareholder has reviewed and is familiar with the
Original Registration Statement and the Prospectuses contained therein and,
to the best knowledge of such Selling Shareholder, the Prospectuses (and any
amendment or supplement thereto) do not (and, as of the Closing Time, will
not) include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
such Selling Shareholder is not prompted to sell the Offered Shares to be
sold by such Selling Shareholder by any information concerning any of the
Oakley Companies that is not set forth in the Prospectuses.
(ii) When the Registration Statement shall become effective and at the
Closing Time (and, if any International Option Shares are purchased, at the
Date of Delivery), and, unless the Company has notified you as provided in
Section 3(f) below, at all times between the effectiveness of the
Registration Statement and the Closing Time (and, if any International
Option Shares are purchased, the Date of Delivery), (A) such parts of the
Registration Statement and any amendments and supplements thereto as
specifically refer to such Selling Shareholder will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
and (B) such parts of the Prospectuses as specifically refer to such Selling
Shareholder will not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(iii) Each of this Agreement and the U.S. Purchase Agreement has been
duly authorized, executed and delivered by such Selling Shareholder. The
execution and delivery of this Agreement and the U.S. Purchase Agreement by
such Selling Shareholder and the sale and delivery of the Offered Shares to
be sold by such Selling Shareholder, the consummation by such Selling
Shareholder of the transactions contemplated in this Agreement, the U.S.
Purchase Agreement and in the Registration Statement and the compliance by
such Selling Shareholder with the terms of this Agreement and the U.S.
Purchase Agreement do not and will not conflict with, or result in a breach
of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of such Selling Shareholder under (A) any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument to which such Selling Shareholder is a party or by which it may
be bound or to which any of its properties may be subject (except for such
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conflicts, breaches or defaults or liens, charges or encumbrances that would
not have a Material
Adverse Effect and would not materially and adversely affect the
consummation of the transactions contemplated by this Agreement and the U.S.
Purchase Agreement) or (B) any existing applicable law, rule, regulation,
judgment, order or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over such Selling
Shareholder or any of its respective properties.
(iv) The Company has good and marketable title to all of the outstanding
shares of capital stock of Oakley Europe, free and clear of any pledge,
lien, security interest, charge, claim, equity, or encumbrance of any kind,
except that 65% of such shares have been pledged by the Company to Wells
Fargo Bank, National Association, for itself and as agent for certain other
banks pursuant to the Credit Agreement described in the Prospectuses.
(v) Such Selling Shareholder has and will, at the Closing Time and, if
any International Option Shares or U.S. Option Shares are purchased, on the
Date of Delivery, have good and marketable title to the Offered Shares to be
sold by such Selling Shareholder pursuant to this Agreement and the U.S.
Purchase Agreement, free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind, other than pursuant to
this Agreement and the U.S. Purchase Agreement; such Selling Shareholder has
full right, power and authority to sell, transfer and deliver such Offered
Shares pursuant to this Agreement and the U.S. Purchase Agreement; and, upon
delivery of such Offered Shares and payment of the purchase price therefor
as contemplated in this Agreement and the U.S. Purchase Agreement, assuming
each such Underwriter has no notice of any adverse claim, each of the
Underwriters will receive good and marketable title to the Offered Shares
purchased by it from such Selling Shareholder, free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any kind,
other than any such pledge, lien, security interest, charge, claim, equity
or encumbrance created by such Underwriter or resulting from any actions
taken by such Underwriter.
(vi) Certificates for all of the Offered Shares to be sold by such
Selling Shareholder pursuant to this Agreement and the U.S. Purchase
Agreement, in suitable form for transfer by delivery or accompanied by duly
executed instruments of transfer or assignment in blank with signatures
guaranteed, are available for the purpose of effecting delivery pursuant to
this Agreement and the U.S. Purchase Agreement.
(vii) For a period of 180 days from the date hereof, such Selling
Shareholder will not, without your prior written consent, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or
otherwise dispose of, any shares of Common Stock or securities convertible
into Common Stock, other than to the Underwriters pursuant to this Agreement
or the U.S. Purchase Agreement; provided that during such period such
Selling Shareholder may make gifts of shares of Common Stock or securities
convertible into Common Stock upon the condition that the donees agree to be
bound by the foregoing restriction in the same manner as it applies to such
Selling Shareholder.
(viii) Such Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Common Stock in violation of law.
(c) Any certificate signed by any officer of any of the Oakley Companies and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each of the Underwriters as to the
matters covered thereby; and any certificate signed by or on behalf of the
Selling Shareholders as such and delivered to you or to counsel for the
Underwriters shall be deemed a representation and warranty by the Selling
Shareholders to each of the Underwriters as to the matters covered thereby.
(d) The liability of the Selling Shareholders for breach of the
representation and warranty set forth in clause (b)(i) above is limited as set
forth in Section 7(b).
Section 2. SALE AND DELIVERY TO THE MANAGERS; CLOSING. (a) On the basis of
the representations and warranties herein contained, and subject to the terms
and conditions herein set forth, each Selling Shareholder agrees, severally and
not jointly, to sell to each Manager, and each Manager agrees, severally and not
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jointly, to purchase from each Selling Shareholder, at the purchase price per
share for the Initial International Shares to be agreed upon by the Lead
Managers and the Selling Shareholders in accordance with Section 2(b) or 2(c)
and set forth in the International Price Determination Agreement, in the case of
each Selling Shareholder, the number of Initial International Shares as are
proposed to be sold by such Selling Shareholder and set forth opposite such
Selling Shareholder's name in the appropriate column on Schedule B multiplied by
a fraction the numerator of which is the number of Initial International Shares
set forth opposite the name of such Manager in Schedule A and the denominator of
which is the total number of Initial International Shares, subject, in each
case, to such adjustments as you, in your discretion, shall make to eliminate
any sales or purchases of fractional shares. If the Company elects to rely on
Rule 430A, Schedules A and B may be attached to the International Price
Determination Agreement.
(b) If the Company has elected not to rely upon Rule 430A, the initial
public offering price per share for the Initial International Shares and the
purchase price per share for the Initial International Shares to be paid by the
several Managers shall be agreed upon and set forth in the International Price
Determination Agreement, dated the date hereof, and an amendment to the Original
Registration Statement containing such per share price information will be filed
before the Original Registration Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A, the initial public
offering price per share for the Initial International Shares and the purchase
price per share for the Initial International Shares to be paid by the several
Managers shall be agreed upon and set forth in the International Price
Determination Agreement. In the event that the International Price Determination
Agreement has not been executed by the close of business on the fourteenth
business day following the later of the date on which the Original Registration
Statement and any Rule 462(b) Registration Statement becomes effective, this
Agreement shall terminate forthwith, without liability of any party to any other
party except that Sections 7, 8 and 18 and the first paragraph of Section 9
shall remain in effect.
(d) In addition, on the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, each
Selling Shareholder grants an option to the Managers, severally and not jointly,
to purchase up to the additional number of International Option Shares set forth
opposite such Selling Shareholder's name in the appropriate column of Schedule B
at the same purchase price per share as shall be applicable to the Initial
International Shares. The option hereby granted will expire 30 days after the
later of the date upon which the Original Registration Statement and any Rule
462(b) Registration Statement becomes effective or, if the Company has elected
to rely upon Rule 430A, the date of the International Price Determination
Agreement, and may be exercised, in whole or in part (but not more than once),
only for the purpose of covering over-allotments that may be made in connection
with the offering and distribution of the Initial International Shares upon
notice by you to the Company setting forth the number of International Option
Shares as to which the several Managers are exercising the option, and the time
and date of payment and delivery thereof. Such time and date of delivery (the
"Date of Delivery") shall be determined by you but shall not be later than seven
full business days after the exercise of such option, nor in any event prior to
the Closing Time. If the option is exercised as to only a portion of the
International Option Shares, each Selling Shareholder will sell its pro rata
portion of the International Option Shares to be purchased by the Managers. If
the option is exercised as to all or any portion of the International Option
Shares, the International Option Shares as to which the option is exercised
shall be purchased by the Managers, severally and not jointly, in their
respective underwriting obligation proportions.
(e) Payment of the purchase price for, and delivery of certificates for, the
Initial International Shares shall be made at the offices of Shearman &
Sterling, 777 South Figueroa Street, Suite 3400, Los Angeles, California 90017,
or at such other place as shall be agreed upon by the Company, the Selling
Shareholders and you, at 10:00 a.m. (New York City time) either (i) on the
fourth full business day after the later of the effective date of the Original
Registration Statement and any Rule 462(b) Registration Statement (in either
case, as permitted under Rule 15c6-1 under the Securities Exchange Act of 1934,
as amended (the "1934 Act")), or (ii) if the Company has elected to rely upon
Rule 430A, the fourth full business day after execution of the International
Price Determination Agreement (as permitted under Rule 15c6-1 under the 1934
Act) (unless, in either case, postponed pursuant to Section 11 or 12), or at
such other time not more than ten full business days thereafter as you, the
Company and the Selling Shareholders shall determine (such date and
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time of payment and delivery being herein called the "Closing Time"). In
addition, in the event that any or all of the International Option Shares are
purchased by the Managers, payment of the purchase price for, and delivery of
certificates for, such International Option Shares shall be made at the offices
of Shearman & Sterling set forth above, or at such other place as the Company,
the Selling Shareholders, and you shall determine, on the Date of Delivery as
specified in the notice from you to the Company. Payment shall be made to the
Selling Shareholders by wire transfer of immediately available funds to the
respective accounts of the Selling Shareholders as set forth opposite their
respective signatures below, against delivery to you for the respective accounts
of the several Managers of certificates for the International Shares to be
purchased by them.
(f) Certificates for the Initial International Shares and International
Option Shares to be purchased by the Managers shall be in such denominations and
registered in such names as you may request in writing at least two full
business days before the Closing Time or the Date of Delivery, as the case may
be. The certificates for the Initial International Shares and International
Option Shares will be made available in New York for examination and packaging
by you not later than 10:00 A.M. on the business day prior to the Closing Time
or the Date of Delivery, as the case may be.
(g) It is understood that each Manager has authorized you, for its account,
to accept delivery of, receipt for, and make payment of the purchase price for,
the International Shares that it has agreed to purchase. You, individually and
not as Lead Managers, may (but shall not be obligated to) make payment of the
purchase price for the Initial International Shares, or International Option
Shares, to be purchased by any Manager whose check or checks shall not have been
received by the Closing Time or the Date of Delivery, as the case may be.
Section 3. CERTAIN COVENANTS OF THE COMPANY. The Company covenants with
each Manager as follows:
(a) The Company will notify you immediately, and confirm the notice in
writing, (i) when the Registration Statement, or any post-effective
amendment to the Registration Statement, shall have become effective, or any
supplement to the Prospectuses or any amended Prospectuses shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of any
request by the Commission to amend the Registration Statement or amend or
supplement the Prospectuses or for additional information and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use
of any preliminary prospectus, or of the suspension of the qualification of
the Offered Shares for offering or sale in any jurisdiction, or of the
institution or threatening of any proceedings for any of such purposes. The
Company will use every reasonable effort to prevent the issuance of any such
stop order or of any order preventing or suspending such use and, if any
such order is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) The Company will not at any time file or make any amendment to the
Registration Statement (including any filing under Rule 462(b)), file a term
sheet or file or make any amendment or supplement (i) if the Company has not
elected to rely upon Rule 430A, to the Prospectuses or (ii) if the Company
has elected to rely upon Rule 430A, to either of the prospectuses included
in the Original Registration Statement at the time it becomes effective or
the Prospectuses, of which you shall not have previously been advised and
furnished a copy or to which counsel for the Underwriters shall reasonably
object.
(c) If the Company uses Rule 434, it will comply with the requirements
of Rule 434 and the Prospectuses will not be "materially different," as such
term is used in Rule 434, from the prospectuses included in the Registration
Statement at the time it becomes effective.
(d) The Company has furnished or will furnish to you and counsel for the
Underwriters as many signed copies of the Registration Statement as
originally filed and of all amendments thereto, whether filed before or
after the Registration Statement becomes effective, copies of all exhibits
and documents filed therewith and signed copies (or copies thereof) of all
consents and certificates of experts, as you
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may reasonably request and has furnished or will furnish to you, for each
other Manager and counsel for the Underwriters, one conformed copy of the
Registration Statement as originally filed and each amendment thereto
(without exhibits).
(e) The Company will deliver to each Manager, without charge, from time
to time until the later of the effective date of the Original Registration
Statement and any Rule 462(b) Registration Statement (or, if the Company has
elected to rely upon Rule 430A, until the time the International Price
Determination Agreement is executed and delivered), as many copies of each
preliminary prospectus as such Manager may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by
the 1933 Act. The Company will deliver to each Manager, without charge, as
soon as practicable after the Registration Statement shall have become
effective (or, if the Company has elected to rely upon Rule 430A, as soon as
practicable on or after the date of the International Price Determination
Agreement) and thereafter from time to time as requested during the period
when the Prospectuses are required to be delivered under the 1933 Act, such
number of copies of the International Prospectus (as supplemented or
amended) as such Manager may reasonably request.
(f) If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the International Shares any event
shall occur or condition exist as a result of which it is necessary, in the
opinion of counsel for the International Underwriters or counsel for the
Company, to amend the Registration Statement or amend or supplement the
Prospectuses in order that the Prospectuses will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of either such counsel, at any such time
to amend the Registration Statement or amend or supplement the Prospectuses
in order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b) hereof, such amendment or supplement as may be
necessary to correct such untrue statement or omission or to make the
Registration Statement or the Prospectuses comply with such requirements.
(g) The Company will endeavor, in cooperation with the Managers, to
qualify the Offered Shares for offering and sale under the applicable
securities laws of such states and other jurisdictions as you may designate
and to maintain such qualifications in effect for a period of not less than
one year from the later of the effective date of the Original Registration
Statement and any Rule 462(b) Registration Statement; PROVIDED, HOWEVER,
that the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to subject
itself to taxation in respect of doing business in any jurisdiction in which
it is not otherwise so subject. The Company will file such statements and
reports as may be required by the laws of each jurisdiction in which the
Offered Shares have been qualified during the one-year period referred to
above and as otherwise above provided.
(h) The Company will make generally available to its security holders as
soon as practicable, but not later than 60 days after the close of the
period covered thereby, an earnings statement of the Company (in form
complying with the provisions of Rule 158 of the 1933 Act Regulations),
covering a period of 12 months beginning after the later of the effective
date of the Original Registration Statement and any Rule 462(b) Registration
Statement and covering a period of 12 months beginning after the effective
date of any post-effective amendment to the Registration Statement but not
later than the first day of the Company's fiscal quarter next following such
respective effective dates.
(i) For a period of five years after the Closing Time, the Company will
furnish to you and, upon request, to each Manager, copies of all annual
reports, quarterly reports and current reports filed with the Commission on
Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated
by the Commission, and such other documents, reports and information as
shall be furnished by the Company to its shareholders or security holders
generally.
(j) For a period of 180 days from the date hereof, the Company will not,
without your prior written consent, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise
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dispose of, any Common Stock or securities convertible into Common Stock,
other than to the Managers pursuant to this Agreement and to the U.S.
Underwriters pursuant to the U.S. Purchase Agreement and other than pursuant
to incentive stock and other employee benefit plans described in the
Prospectuses.
(k) If the Company has elected to rely upon Rule 430A, it will take such
steps as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for filing
by the Commission and, in the event that it was not, it will promptly file
such prospectus.
(l) If the Company elects to rely upon Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with
Rule 111 of the 1933 Act Regulations by the time confirmations are sent or
given, as specified by Rule 462(b)(2).
(m) The Company has complied and will comply with all the provisions of
Florida H.B. 1771, codified as Section 517.075 of the Florida statutes, and
all regulations promulgated thereunder relating to issuers doing business in
Cuba.
Section 4. PAYMENT OF EXPENSES. The Selling Shareholders will, severally
and not jointly, pay all costs and expenses incident to the performance of its
and the Company's obligations under this Agreement, including (a) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as amended, the
preliminary prospectuses and the Prospectuses and any amendments or supplements
thereto, and the cost of furnishing copies thereof to the Underwriters, (b) the
copying and distribution of this Agreement (including the International Price
Determination Agreement), the Agreement among Managers, the U.S. Purchase
Agreement (including the U.S. Price Determination Agreement), the Agreement
among U.S. Underwriters and the Intersyndicate Agreement between the Managers
and the U.S. Underwriters, and the preparation, printing and distribution of the
certificates for the Offered Shares and the Blue Sky Survey, (c) the delivery of
the Offered Shares to the Underwriters, including any stock transfer taxes
payable upon the sale of the Offered Shares to the Underwriters and the transfer
of the Offered Shares between the Managers and the U.S. Underwriters, (d) the
fees and disbursements of the Company's counsel and accountants and the fees and
disbursements of any Selling Shareholders' counsel, and (e) the qualification of
the Offered Shares under the applicable securities laws in accordance with
Section 3(g) and any filing for review of the offering with the National
Association of Securities Dealers, Inc., including filing fees and reasonable
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the Blue Sky Survey; PROVIDED, HOWEVER, that the Company
will bear its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties)
and the expenses of any annual audit.
If this Agreement is terminated by you in accordance with the provisions of
Section 5, 10(a)(i) or 12, the Company and the Selling Shareholders shall
reimburse the Underwriters for all their reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriters.
The provisions of this Section shall not affect any agreement that the
Company and the Selling Shareholders may make for the sharing of such costs and
expenses.
Section 5. CONDITIONS OF MANAGERS' OBLIGATIONS. In addition to the
execution and delivery of the International Price Determination Agreement, the
obligations of the several Managers to purchase and pay for the International
Shares that they have respectively agreed to purchase pursuant to this Agreement
(including any International Option Shares as to which the option granted in
Section 2 has been exercised and the Date of Delivery determined by you is the
same as the Closing Time) are subject to the accuracy in all material respects
(except that such phrase "in all material respects" shall be disregarded to the
extent any such representation and warranty is qualified by "material",
"material adverse change", "Material Adverse Effect" or any phrase using any
such term) of the representations and warranties of the Company and the Selling
Shareholders contained herein (including those contained in the International
Price Determination
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Agreement) or in certificates of any officer of any of the Oakley Companies or
certificates by or on behalf of the Selling Shareholders delivered pursuant to
the provisions hereof, to the performance by the Company and the Selling
Shareholders of their obligations hereunder, and to the following further
conditions:
(a) The Original Registration Statement shall have become effective not
later than 5:30 p.m. on the date of this Agreement or, with your consent, at a
later time and date not later, however, than 5:30 p.m. on the first business day
following the date hereof, and if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have become effective not
later than the time confirmations are sent or given, as specified by Rule
462(b)(2), or, with respect to the Original Registration Statement, at such
later time or on such later date as you may agree to in writing with the
approval of a majority in interest of the several Managers; and at the Closing
Time no stop order suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act and no proceedings for that purpose
shall have been initiated or shall be pending or, to your knowledge or the
knowledge of the Company, shall be threatened by the Commission. If the Company
has elected to rely upon Rule 430A, Prospectuses containing the Rule 430A
Information shall have been filed with the Commission in accordance with Rule
424(b) (or a post-effective amendment providing such information shall have been
filed and declared effective in accordance with the requirements of Rule 430A).
If the Company has elected to rely upon Rule 434, a Term Sheet, which together
with the preliminary prospectuses last furnished to the Underwriters in
connection with the offering of the Offered Shares shall not be "materially
different," as such term is used in Rule 434, from the prospectuses included in
the Original Registration Statement at the time it becomes effective, shall have
been filed with the Commission in accordance with Rule 424(b).
(b) At the Closing Time, you shall have received a signed opinion of
Skadden, Arps, Slate, Meagher & Flom, counsel for the Company and the Selling
Shareholders, dated as of the Closing Time, together with signed or reproduced
copies of such opinion for each of the other Managers, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) Oakley Europe is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its organization
with corporate power and authority under such laws to own, lease and operate
its properties and conduct its business.
(ii) All of the outstanding shares of capital stock of Oakley Europe
have been duly authorized and validly issued and are fully paid and
non-assessable.
(iii) No authorization, approval, consent or license of any government,
governmental instrumentality or court, domestic or foreign (other than under
the 1933 Act, the 1934 Act and the rules and regulations under such Acts and
the securities or blue sky laws of the various states and applicable foreign
jurisdictions), is required for the sale and delivery of the Offered Shares,
except such as have been obtained on or prior to the Closing Time.
(iv) Such counsel does not know of any statutes or regulations, or any
pending or threatened legal or governmental proceedings, required to be
described in the Prospectuses that are not described as required, nor of any
contracts or documents of a character required to be described or referred
to in the Registration Statement or the Prospectuses or to be filed as
exhibits to the Registration Statement (or incorporated by reference
therein) that are not described, referred to or filed as required.
(v) The statements made in the Prospectuses under "Certain United States
Federal Tax Consequences to Non-United States Holders" and "Shares Eligible
for Future Sale," to the extent that they constitute matters of law or legal
conclusions, have been reviewed by such counsel and fairly present the
information disclosed therein in all material respects.
(vi) The execution and delivery of each of this Agreement and the U.S.
Purchase Agreement by the Company and the Selling Shareholders, the sale and
delivery of the Offered Shares by the Selling Shareholders, the consummation
by the Company and the Selling Shareholders of the transactions contemplated
in this Agreement, the U.S. Purchase Agreement and in the Registration
Statement and compliance by the Company and the Selling Shareholders with
the terms of this Agreement and the U.S. Purchase Agreement do not and will
not conflict with, or result in a breach of any of the terms or
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provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or the Selling Shareholders under (A) any contract, indenture,
mortgage, loan agreement, note, lease or any other agreement or instrument
identified on an exhibit to such opinion (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not
reasonably be expected to have a Material Adverse Effect and would not
materially and adversely affect the consummation of the transactions
contemplated by this Agreement and the U.S. Purchase Agreement), (B) any
laws (other than the securities or blue sky laws of the various states and
applicable foreign jurisdictions, as to which such counsel need express no
opinion) that in our experience are generally applicable to transactions of
the type contemplated by this Agreement and the U.S. Purchase Agreement, or
(C) any judgment, order or decree known to us of any government,
governmental instrumentality or court, domestic or foreign, having
jurisdiction over the Company or the Selling Shareholders or any of their
respective properties.
(vii) The Original Registration Statement became effective under the 1933
Act on the date of the Agreement and the Rule 462(b) Registration Statement,
if any, became effective under the 1933 Act no later than the date of the
International Price Determination Agreement; any required filing of the
Prospectuses or any supplement thereto pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b); and, to
the best of the knowledge of such counsel, the Registration Statement is
still effective, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or are threatened under the 1933 Act.
(viii) The Registration Statement (including the Rule 430A Information and
the Rule 434 Information, if applicable), the Prospectuses and each
amendment or supplement thereto (except for the financial statements and
other financial data included therein or omitted therefrom, as to which such
counsel need express no opinion), as of their respective effective or issue
dates, appear on their face to have been appropriately responsive in all
material respects to the requirements of the 1933 Act and the 1933 Act
Regulations.
(ix) [Form of opinion assuming physical delivery] Assuming that (i) each
of the Underwriters acquired its interest in the Offered Shares to be sold
by the Selling Shareholders pursuant to this Agreement in good faith and
without notice of any adverse claim or restriction on transfer of any of the
Offered Shares imposed by the Company and (ii) the certificates representing
the Offered Shares and registered in the names of the Underwriters do not
contain a lien in favor of the Company or a restriction on transfer imposed
by the Company, upon delivery to Merrill Lynch as agent for the Underwriters
in the State of New York of such Offered Shares registered in such
Underwriters' names, the Underwriters will acquire all of the Selling
Shareholders' rights in the Offered Shares to be sold by the Selling
Shareholders free and clear of any adverse claim (within the meaning of
Section 8-302 of the New York UCC), any lien in favor of the Company and any
restriction on transfer imposed by the Company. The owner of such Offered
Shares, if other than such Selling Shareholder, is precluded from asserting
against the Underwriters the ineffectiveness of any unauthorized
endorsement.
[Form of opinion assuming settlement through DTC] Upon transfer of the
Offered Shares to be sold by the Selling Shareholders pursuant to this
Agreement to [name of the Underwriter to whose securities account such
Offered Shares will be credited by DTC], and, assuming (i) such person has
purchased the Offered Shares in good faith and without notice of any adverse
claim or restriction on transfer of any of the Offered Shares imposed by the
Company and (ii) the certificates representing the Offered Shares do not
contain a lien in favor of the Company or a restriction on transfer imposed
by the Company, such person has acquired all of the rights of such Selling
Shareholder in such Offered Shares free and clear of any adverse claim
(within the meaning of Section 8-302 of the New York UCC), any lien in favor
of the Company, and any restrictions on transfer imposed by the Company. The
owner of such Offered Shares, if other than such Selling Shareholder, is
precluded from asserting against [name of Underwriter]the ineffectiveness of
any unauthorized endorsement. "Transfer" of such Offered Shares to [name of
Underwriter to whose securities account at DTC the Offered Shares will be
credited by DTC] will occur
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upon the making by The Depository Trust Company of appropriate entries
transferring such Offered Shares on its books and records to the account of
[name of the Underwriter to whose securities account at DTC such Offered
Shares will be credited by DTC] at The Depository Trust Company.
The opinion set forth in this paragraph (ix) is subject to the following
qualifications:
(a) we have assumed that appropriate entries transferring such
Offered Shares on the books and records of The Depository Trust Company
to the account of [name of Underwriter to whose securities account at DTC
the Offered Shares will be credited by DTC] have been made and that such
entries are complete and accurate in all respects and that such Offered
Shares will be identified on the records of The Depository Trust Company
for the sole and exclusive account of [identify the specific
Underwriter];
(b) we have assumed that such Offered Shares have been deposited by
American Stock Transfer & Trust Company, as transfer agent in the
"underwriting account" at The Depository Trust Company, to be held in
that account for the benefit of the Selling Shareholders, and will be
transferred from that account to the account of [identify the specific
Underwriter] at The Depository Trust Company upon payment therefor
pursuant to the terms of this Agreement;
(c) we have assumed that (i) such Offered Shares are maintained in
the custody of The Depository Trust Company or a custodian bank or a
nominee of either subject to The Depository Trust Company's exclusive
control, (ii) such Offered Shares are in registered form either (x)
registered in the name of The Depository Trust Company or its nominee
subject to The Depository Trust Company's exclusive control, (y) indorsed
to The Depository Trust Company, or its nominee subject to The Depository
Trust Company's exclusive control or (z) indorsed in blank and (iii) will
contain only signatures thereon which are genuine;
(d) we have assumed that The Depository Trust Company is a "clearing
corporation" within the meaning of Section 8-102 of the New York UCC; and
(e) we express no opinion with respect to the priority of the lien of
The Depository Trust Company.
Such counsel shall also state that, in addition, it has participated in
conferences with officers and other representatives of the Oakley Companies,
representatives of the independent accountants for the Oakley Companies, your
representatives and your counsel at which the contents of the Registration
Statement and the Prospectuses and related matters were discussed and, although
such counsel is not passing upon, and does not assume any responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectuses and has made no independent check or
verification thereof, on the basis of the foregoing, no facts have come to the
attention of such counsel that have led it to believe (A) that the Registration
Statement (including the Rule 430A Information and the Rule 434 Information, if
applicable) or any amendment thereto, at the time the Registration Statement or
any such amendment became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or (B) that the
Prospectuses or any amendment or supplement thereto, as of their respective
dates or at the Closing Time, contained an untrue statement of a material fact
or omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or (C) if the Company has elected to rely upon Rule 434, the
Prospectuses are "materially different", as such term is used in Rule 434, from
the prospectuses included in the Original Registration Statement at the time it
became effective, except that such counsel may state that it expresses no
opinion or belief with respect to the financial information included in or
excluded from the Registration Statement or any amendment thereto or the
Prospectuses.
In giving such opinion, such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York, the federal
law of the United States and the law of the State of California, upon opinions
of other counsel, who shall be counsel satisfactory to counsel for the
Underwriters, in which case the opinion shall state that they believe you and
they are entitled to so rely. Such counsel may
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<PAGE>
also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Oakley Companies and certificates of public officials; provided that copies of
such certificates have been delivered to the Managers.
(c) At the Closing Time, you shall have received a signed opinion of
Preston, Gates & Ellis, special Washington counsel for the Company, dated as of
the Closing Time, together with signed or reproduced copies of such opinion for
each of the other Managers, in form and substance satisfactory to counsel for
the Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated and validly existing
under the laws of the State of Washington with corporate power and authority
under such laws to own, lease and operate its properties and conduct its
business as described in the Prospectus.
(ii) The Company is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction set forth on a
schedule attached to such opinion.
(iii) The Offered Shares sold by the Selling Shareholders pursuant to the
provisions of this Agreement have been duly authorized and validly issued
and are fully paid and non-assessable; and none of such Offered Shares was
issued in violation of any statutory or, to our knowledge, contractual
preemptive rights of any shareholder of the Company.
(iv) All of the other outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of any statutory or, to our knowledge,
contractual preemptive rights of any shareholder of the Company.
(v) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectuses under the heading "Capitalization."
(vi) The Offered Shares conform in all material respects as to legal
matters to the description thereof in the Prospectuses under the caption
"Description of Capital Stock."
(vii) Each of this Agreement (including the International Price
Determination Agreement) and the U.S. Purchase Agreement (including the U.S.
Price Determination Agreement) has been duly authorized, executed and
delivered by the Company and each Selling Shareholder.
(viii) No authorization, approval, consent or license of any government,
governmental instrumentality or court in the State of Washington (other than
under the securities or blue sky laws of the State of Washington) is
required for the sale and delivery of the Shares.
(ix) The statements made in the Prospectuses under "Description of
Capital Stock," to the extent that they constitute matters of Washington law
or legal conclusions based upon Washington law, have been reviewed by such
counsel and fairly present the information disclosed therein in all material
respects.
(x) The execution and delivery of each of this Agreement and the U.S.
Purchase Agreement by the Company and the Selling Shareholders, the sale and
delivery of the Offered Shares by the Selling Shareholders, the consummation
by the Company and the Selling Shareholders of the transactions contemplated
in this Agreement, the U.S. Purchase Agreement and in the Registration
Statement and compliance by the Company and the Selling Shareholders with
the terms of this Agreement and the U.S. Purchase Agreement have been duly
authorized by all necessary corporate action on the part of the Company and
do not and will not result in any violation of the articles of incorporation
or by-laws of the Company, and do not and will not conflict with, or result
in a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company under (A) any
existing applicable law, rule or regulation of the State of Washington
(other than the securities or blue sky laws of the State of Washington, as
to
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<PAGE>
which such counsel need express no opinion) or (B) any judgment, order or
decree or any government, governmental instrumentality or court of the State
of Washington having jurisdiction over the Company or its properties.
In giving such opinion, such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of Washington and the
federal law of the United States, upon opinions of other counsel, who shall be
counsel reasonably satisfactory to counsel for the Underwriters, in which case
the opinion shall state that they believe you and they are entitled to so rely.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of
officers of the Oakley Companies and certificates of public officials; provided
that such certificates have been delivered to the Managers.
(d) At the Closing Time, you shall have received the favorable opinion of
Shearman & Sterling, counsel for the Underwriters, dated as of the Closing Time,
together with signed or reproduced copies of such opinion for each of the other
Managers, to the effect that the opinions delivered pursuant to Sections 5(b),
5(c) and 5(n) appear on their face to be appropriately responsive to the
requirements of this Agreement except, specifying the same, to the extent waived
by you, and with respect to the incorporation and legal existence of the
Company, this Agreement, the U.S. Purchase Agreement, the Registration
Statement, the Prospectuses and such other related matters as you may require.
In giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York and the
federal law of the United States, upon opinions of counsel satisfactory to you.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of
officers of the Oakley Companies and certificates of public officials; provided
that such certificates have been delivered to the Underwriters.
(e) At the Closing Time, (i) the Registration Statement and the
Prospectuses, as they may then be amended or supplemented, shall contain all
statements that are required to be stated therein under the 1933 Act and the
1933 Act Regulations and in all material respects shall conform to the
requirements of the 1933 Act and the 1933 Act Regulations, the Company shall
have complied in all material respects with Rule 430A and Rule 434 (if it shall
have elected to rely thereon) and neither the Registration Statement nor the
Prospectuses, as they may then be amended or supplemented, shall contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) there shall not have been, since the respective dates as of which
information is given in the Registration Statement, any material adverse change
in the financial condition, earnings, business affairs or business prospects of
the Oakley Companies, considered as one enterprise, whether or not arising in
the ordinary course of business, (iii) no action, suit or proceeding shall be
pending or, to the knowledge of the Company, threatened against any of the
Oakley Companies that would be required to be set forth in the Prospectuses
other than as set forth therein and no proceedings shall be pending or, to the
knowledge of the Company, threatened against any of the Oakley Companies before
or by any government, governmental instrumentality or court, domestic or
foreign, that could reasonably be expected to result in any material adverse
change in the financial condition, earnings, business affairs or business
prospects of the Oakley Companies, considered as one enterprise, other than as
set forth in the Prospectuses, (iv) the Company shall have complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Closing Time and (v) the other representations and warranties
of the Company set forth in Section 1(a) shall be accurate in all material
respects (except that such phrase "in all material respects" shall be
disregarded to the extent any such representation and warranty is qualified by
"material", "material adverse change", "Material Adverse Effect" or any phrase
using any such term) as though expressly made at and as of the Closing Time. At
the Closing Time, you shall have received a certificate of the President, the
Chief Executive Officer or any Vice President, and the Chief Financial Officer
of the Company, dated as of the Closing Time, to such effect.
(f) At the Closing Time, the representations and warranties of each Selling
Shareholder set forth in Section 1(b) shall be accurate as though expressly made
at and as of the Closing Time. At the Closing Time, you shall have received a
certificate of or on behalf of each Selling Shareholder, dated as of the Closing
Time, to such effect with respect to such Selling Shareholder.
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<PAGE>
(g) At the time that this Agreement is executed by the Company, you shall
have received from Deloitte & Touche LLP a letter, dated such date, in form and
substance satisfactory to you, together with signed or reproduced copies of such
letter for each of the other Managers, confirming that they are independent
public accountants with respect to the Oakley Companies within the meaning of
the 1933 Act and the applicable published 1933 Act Regulations, and stating in
effect that:
(i) in their opinion, the audited financial statements dated as of
December 31, 1995 and for the year ended December 31, 1995, and the related
financial statement schedules included in the Registration Statement and the
Prospectuses comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and
regulations thereunder;
(ii) on the basis of procedures (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
latest available unaudited interim consolidated financial statements of the
Oakley Companies included in the Registration Statement and the
Prospectuses, a reading of the minutes of all meetings of the shareholders
and directors of the Oakley Companies since January 1, 1996, inquiries of
certain officials of the Oakley Companies responsible for financial and
accounting matters, a limited review in accordance with standards
established by the American Institute of Certified Public Accountants with
respect to the three-month period ended March 31, 1996 performed at the
request of the Oakley Companies, and such other inquiries and procedures as
may be specified in such letter, nothing came to their attention that caused
them to believe that:
(A) The unaudited financial statements for the three-month periods
ended March 31, 1996 and 1995 included in the Registration Statement and
the Prospectuses do not comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations applicable to unaudited interim financial statements included
in registration statements or any material modifications should be made
to the unaudited consolidated financial statements included in the
Registration Statement and the Prospectuses for them to be in conformity
with generally accepted accounting principles;
(B) At a specified date not more than five days prior to the date of
this Agreement, there was any change in the capital stock of the Oakley
Companies or any decrease in the net current assets or shareholders'
equity of the Oakley Companies or any increase in the long-term debt of
the Oakley Companies, in each case as compared with amounts shown in the
latest balance sheet included in the Registration Statement, except in
each case for changes, decreases or increases that the Registration
Statement discloses have occurred or may occur; or
(C) For the period from January 1, 1996 to a specified date not more
than five days prior to the date of this Agreement, there was any
decrease in net sales, operating income or net income in each case as
compared with the comparable period in the preceding year, except in each
case for any decreases that the Registration Statement discloses have
occurred or may occur;
(iii) based upon the procedures set forth in clause (ii) above and a
reading of the Selected Financial Data included in the Registration
Statement and a reading of the financial statements, from which certain of
such data were derived, nothing has come to their attention that gives them
reason to believe that the Selected Financial Data included in the
Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations, that the information set forth therein is not fairly stated in
relation to the financial statements from which it was derived or that the
financial statements not included in the Registration Statement from which
certain of such data were derived are not in conformity with generally
accepted accounting principles applied on a basis substantially consistent
with that of the audited financial statements included in the Registration
Statement;
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<PAGE>
(iv) they are unable to and do not express any opinion on the pro forma
adjustments applied to the historical amounts included in the Summary
Financial Data and Selected Financial Data included in the Registration
Statement; however, for purposes of such letter they have:
(A) read the Summary Financial Data and Selected Financial Data
included in the Registration Statement;
(B) performed (1) an audit of the consolidated financial statements
of the Oakley Companies for the year ended December 31, 1995 and (2) a
review in accordance with SAS 71 of the unaudited consolidated financial
statements of the Oakley Companies for the three-month periods ended
March 31, 1996 and 1995 to which the pro forma adjustments were applied;
(C) made inquiries of certain officials of the Oakley Companies who
have responsibility for financial and accounting matters about the basis
for their determination of the pro forma adjustments and whether the
Summary Financial Data and Selected Financial Data included in the
Registration Statement above comply in form in all material respects with
the applicable accounting requirements of Rule 11-02 of Regulation S-X;
and
(D) proved the arithmetic accuracy of the application of the pro
forma adjustments to the historical amounts in the Summary Financial Data
and Selected Financial Data included in the Registration Statement; and
on the basis of such procedures, and such other inquiries and procedures as
may be specified in such letter, nothing came to their attention that caused
them to believe that the Summary Financial Data and Selected Financial Data
included in the Registration Statement do not comply as to form in all
material respects with the applicable requirements of Rule 11-02 of
Regulation S-X and that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of that statement; and
(v) in addition to the procedures referred to in clause (ii) above, they
have performed other specified procedures, not constituting an audit, with
respect to certain amounts, percentages, numerical data and financial
information appearing in the Registration Statement, which have previously
been specified by you and which shall be specified in such letter, and have
compared certain of such items with, and have found such items to be in
agreement with, the accounting and financial records of the Oakley
Companies.
(h) At the signing of the International Price Determination Agreement, you
shall have received from Deloitte & Touche LLP a letter, in form and substance
satisfactory to you and dated as of the date of the International Price
Determination Agreement, to the effect that they reaffirm the statements made in
the letter furnished pursuant to Section 5(g), except that the specified date
shall be a date not more than five days prior to the date of the International
Price Determination Agreement.
(i) At the time that this Agreement is executed by the Company, you shall
have received from Bernstein, Fox, Whitman & Company LLP a letter, dated such
date, in form and substance satisfactory to you, together with signed or
reproduced copies of such letter for each of the other Managers, confirming that
they are or were, for the relevant periods, independent public accountants with
respect to the Company within the meaning of the 1933 Act and the applicable
published 1933 Act Regulations, and stating in effect that:
(i) based upon a reading of the Selected Financial Data for the years
ended December 31, 1991 and 1992, included in the Registration Statement and
a reading of the financial statements from which certain of such data were
derived, nothing has come to their attention that gives them reason to
believe that the Selected Financial Data for the years ended December 31,
1991 and 1992, included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting requirements of
the 1933 Act and the 1933 Act Regulations, that the information set forth
therein is not fairly stated in relation to the financial statements from
which it was derived or that the financial
19
<PAGE>
statements not included in the Registration Statement from which certain of
such data were derived are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that
of the audited financial statements included in the Registration Statement;
and
(ii) they have performed other specified procedures, not constituting an
audit, with respect to certain amounts, percentages, numerical data and
financial information appearing in the Registration Statement, which have
previously been specified by you and which shall be specified in such
letter, and have compared certain of such items with, and have found such
items to be in agreement with, the accounting and financial records of the
Oakley Companies.
(j) At the signing of the International Price Determination Agreement, you
shall have received from Bernstein, Fox, Whitman & Company LLP a letter, in form
and substance satisfactory to you and dated as of the date of the International
Price Determination Agreement, to the effect that they reaffirm the statements
made in the letter furnished pursuant to Section 5(i), except that the specified
date shall be a date not more than five days prior to the date of the
International Price Determination Agreement.
(k) At the Closing Time, you shall have received from (i) Deloitte & Touche
LLP a letter, in form and substance satisfactory to you and dated as of the
Closing Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to Section 5(g), except that the specified date referred to
shall be a date not more than five days prior to the Closing Time and (ii)
Bernstein, Fox, Whitman & Company LLP a letter, in form and substance
satisfactory to you and dated as of the Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to Section 5(i).
(l) At the Closing Time, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may
reasonably request for the purpose of enabling them to pass upon the sale of the
Offered Shares as contemplated in this Agreement and the U.S. Purchase Agreement
and the matters referred to in Section 5(d) hereof and in order to evidence the
accuracy and completeness of any of the representations and warranties of the
Company or the Selling Shareholders, the performance of any of the covenants of
the Company or the Selling Shareholders, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company and the
Selling Shareholders at or prior to the Closing Time in connection with the sale
of the Offered Shares as contemplated in this Agreement and the U.S. Purchase
Agreement shall be reasonably satisfactory in form and substance to you and to
counsel for the Underwriters.
(m) All of the Initial U.S. Shares to be purchased by the U.S. Underwriters
on such Closing Date shall have been sold to the U.S. Underwriters pursuant to
the U.S. Purchase Agreement.
(n) At the Closing Time, you shall have received a signed opinion of
Kennobe, Martens, Olson & Bear, special patent and trademark counsel for the
Company, dated as of the Closing Time, together with signed or reproduced copies
of such opinion for each of the other Managers, in form and substance
satisfactory to counsel of the Underwriters, to the effect that:
(i) The statements made in the Prospectus under the headings "Risk
Factors -- Protection of Proprietary Rights" and "Business -- Intellectual
Property," to the extent that they constitute matters of law or legal
conclusions, have been reviewed by such counsel and fairly present the
information disclosed therein.
(ii) To the best knowledge of such counsel, the Company owns or
possesses adequate licenses or other rights to use all patents, technology,
know-how and other rights necessary to conduct the business presently and as
proposed to be conducted by it as described in the Registration Statement
and the Prospectuses, and, except as described in the Registration Statement
and the Prospectuses, the Company has not received any notice of
infringement of or conflict with, and does not otherwise know of any basis
for, notice of any such infringement of or conflict with, asserted rights of
others with respect to any patents, technology or know-how.
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(iii) The Company's discoveries, inventions, products or processes
referred to in the Registration Statement and the Prospectuses do not, to
the knowledge of such counsel, infringe or conflict with any right or patent
which is the subject of a patent application known to the Company, which
infringement or conflict could result in any material adverse effect upon
the Company.
(iv) To the best knowledge of such counsel, the Company has the
exclusive right in the United States to use or license the use of the
trademarks described in the Prospectuses as registered in the United States
in connection with the advertising, promotion and sale of its products.
(v) To the best knowledge of such counsel, the Company is in a position
to prevent the adoption and use by third parties of any trademarks
confusingly similar to the trademarks described in the Prospectuses.
If any of the conditions specified in this Section 5 shall not have been
fulfilled when and as required by this Agreement, this Agreement may be
terminated by you on notice to the Company and the Selling Shareholders at any
time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4
herein. Notwithstanding any such termination, the provisions of Sections 7, 8
and 18 and the first paragraph of Section 9 herein shall remain in effect.
Section 6. CONDITIONS TO PURCHASE OF INTERNATIONAL OPTION SHARES. In the
event that the Managers exercise their option granted in Section 2 hereof to
purchase all or any of the International Option Shares and the Date of Delivery
determined by you pursuant to Section 2 hereof is later than the Closing Time,
the obligations of the several Managers to purchase and pay for the
International Option Shares that they shall have respectively agreed to purchase
pursuant to this Agreement are subject to the accuracy in all material respects
(except that such phrase "in all material respects" shall be disregarded to the
extent any such representation and warranty is qualified by "material",
"material adverse change", "Material Adverse Effect" or any phrase using any
such term) of the representations and warranties of the Company and the Selling
Shareholders herein contained, to the performance by the Company and the Selling
Shareholders of their obligations hereunder and to the following further
conditions:
(a) The Registration Statement shall remain effective at the Date of
Delivery, and, at the Date of Delivery, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or
shall be pending or, to your knowledge or the knowledge of the Company,
shall be contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel for the Underwriters.
(b) At the Date of Delivery, the provisions of Sections 5(e)(i) through
5(e)(v) shall have been complied with at and as of the Date of Delivery and,
at the Date of Delivery, you shall have received a certificate of the
President, the Chief Executive Officer or any Vice President, and the Chief
Financial Officer of the Company, dated as of the Date of Delivery, to such
effect.
(c) At the Date of Delivery, you shall have received the favorable
opinion of Skadden, Arps, Slate, Meagher & Flom, counsel for each of the
Company and the Selling Shareholders, together with signed or reproduced
copies of such opinion for each of the other Managers, in each case in form
and substance satisfactory to counsel for the Underwriters, dated as of the
Date of Delivery, relating to the International Option Shares and otherwise
to the same effect as the opinion required by Section 5(b).
(d) At the Date of Delivery, you shall have received the favorable
opinion of Preston, Gates & Ellis, counsel for the Company, together with
signed or reproduced copies of such opinion for each of the other Managers,
in each case in form and substance satisfactory to counsel for the
Underwriters, dated as of the Date of Delivery, relating to the
International Option Shares and otherwise to the same effect as the opinion
required by Section 5(c).
(e) At the Date of Delivery, you shall have received the favorable
opinion of Shearman & Sterling, counsel for the Underwriters, dated as of
the Date of Delivery, relating to the International Option Shares and
otherwise to the same effect as the opinion required by Section 5(d).
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(f) At the Date of Delivery, you shall have received the favorable
opinion of Kennobe, Martens, Olson & Bear, special patent and trademark
counsel for the Company, dated as of the Date of Delivery, relating to the
International Option Shares and otherwise to the same effect as the opinion
required by Section 5(n).
(g) At the Date of Delivery, you shall have received from (i) Deloitte &
Touche LLP a letter, in form and substance satisfactory to you and dated as
of the Date of Delivery, to the effect that they reaffirm the statements
made in the letter furnished pursuant to Section 5(g), except that the
specified date referred to shall be a date not more than five days prior to
the Date of Delivery and (ii) Bernstein, Fox, Whitman & Company LLP a
letter, in form and substance satisfactory to you and dated as of the Date
of Delivery, to the effect that they reaffirm the statements made in the
letter furnished pursuant to Section 5(i).
(h) At the Date of Delivery, counsel for the Underwriters shall have
been furnished with all such documents, certificates and opinions as they
may reasonably request for the purpose of enabling them to pass upon the
sale of the International Option Shares as contemplated in this Agreement
and the matters referred to in Section 6(e) and in order to evidence the
accuracy and completeness of any of the representations and warranties of
the Company or the Selling Shareholders, the performance of any of the
covenants of the Company or the Selling Shareholders, or the fulfillment of
any of the conditions herein contained; and all proceedings taken by the
Company and the Selling Shareholders at or prior to the Date of Delivery in
connection with the sale of the International Option Shares as contemplated
in this Agreement shall be reasonably satisfactory in form and substance to
you and to counsel for the Underwriters.
(i) At the Date of Delivery, the representations and warranties of the
Selling Shareholders set forth in Section 1(b) hereof shall be accurate in
all material respects (except that such phrase "in all material respects"
shall be disregarded to the extent any such representation and warranty is
qualified by "material", "material adverse change", "Material Adverse
Effect" or any phrase using any such term) as though expressly made at and
as of the Date of Delivery and, at the Date of Delivery, you shall have
received a certificate of each Selling Shareholder, dated as of the Date of
Delivery, to such effect with respect to such Selling Shareholder.
Section 7. INDEMNIFICATION. (a) The Company and each Selling Shareholder,
jointly and severally agree to indemnify and hold harmless each Manager and each
person, if any, who controls any Manager within the meaning of Section 15 of the
1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of an untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the Rule
434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of an untrue
statement or alleged untrue statement of a material fact included in any
preliminary international prospectus or the International Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; PROVIDED, that (subject to Section
7(e) below) any such settlement is effected with the written consent of (A)
the Company, to the extent indemnification pursuant to this Section 7(a)(ii)
is sought from the Company and (B) each Selling Shareholder, to the extent
indemnification pursuant to this Section 7(a)(ii) is sought from such
Selling Shareholder;
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(iii) against any and all expense whatsoever, as incurred (including fees
and disbursements of counsel chosen by you), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent
that any such expense is not paid as incurred under clause (i) or (ii)
above;
PROVIDED, HOWEVER, that (x) this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Manager through you expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary international prospectus or the
International Prospectus (or any amendment or supplement thereto), (y) if the
Company has complied with its obligations under Section 3(e) hereof, the
foregoing indemnity agreement with respect to any preliminary international
prospectus shall not inure to the benefit of any Manager from whom the person
asserting any such loss, claim, damage or liability purchased Offered Shares (or
any person who controls such Manager within the meaning of Section 15 of the
1933 Act) if a copy of the International Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of any Manager to such person, if
such is required by law, at or prior to the written confirmation of the sale of
such Offered Shares to such person and if the International Prospectus (as then
amended or supplemented) would have cured the defect giving rise to such loss,
claim, damage or liability, and (z) each Selling Shareholder's aggregate
liability under this Section 7 and for any breach of the representation and
warranty of such Selling Shareholder set forth in Section 1(b)(i) of this
Agreement (to the extent such breach does not also constitute a breach of any
other representation and warranty of such Selling Shareholder) (together with
any liability of such Selling Shareholder under Section 7 of the U.S. Purchase
Agreement or for any breach of the representation and warranty set forth in
Section 1(b)(i) of the U.S. Purchase Agreement (to the extent such breach does
not also constitute a breach of any other representation and warranty of such
Selling Shareholder)) shall be limited to an amount equal to the net proceeds
(after deducting the aggregate Underwriters' discount, but before deducting
expenses) received by such Selling Shareholder from the sale of his or its
Offered Shares pursuant to this Agreement and the U.S. Purchase Agreement.
In making a claim for indemnification under this Section 7 (other than
pursuant to clause (a)(iii) of this Section 7) or contribution under Section 8
hereof by the Company or the Selling Shareholders, the indemnified parties may
proceed against either (1) both the Company and the Selling Shareholders jointly
or (2) the Company only, but may not proceed solely against the Selling
Shareholders. In the event that the indemnified parties are entitled to seek
indemnity or contribution hereunder against any loss, liability, claim, damage
and expense to which this paragraph applies then, as a precondition to any
indemnified party obtaining indemnification or contribution from any Selling
Shareholder, the indemnified parties shall first obtain a final judgment from a
trial court that such indemnified parties are entitled to indemnity or
contribution under this Agreement from the Company and the Selling Shareholders
with respect to such loss, liability, claim, damage or expense (the "Final
Judgment") and shall seek to satisfy such Final Judgment in full from the
Company by making a written demand upon the Company for such satisfaction. Only
in the event such Final Judgment shall remain unsatisfied in whole or in part 45
days following the date of receipt by the Company of such demand shall any
indemnified party have the right to take action to satisfy such Final Judgment
by making demand directly on the Selling Shareholders (but only if and to the
extent the Company has not already satisfied such Final Judgment, whether by
settlement, release or otherwise). The indemnified parties may exercise this
right to first seek to obtain payment from the Company and thereafter obtain
payment from the Selling Shareholders without regard to the pursuit by any party
of its rights to the appeal of such Final Judgment. The indemnified parties
shall, however, be relieved of their obligation to first obtain a Final
Judgment, to seek to obtain payment from the Company with respect to such Final
Judgment or, having sought such payment, to wait such 45 days after failure by
the Company to immediately satisfy any such Final Judgment if (A) the Company
files a petition for relief under the United States Bankruptcy Code (the
"Bankruptcy Code"), (B) an order for relief is entered against the Company in an
involuntary case
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under the Bankruptcy Code, (C) the Company makes an assignment for the benefit
of its creditors, or (D) any court orders or approves the appointment of a
receiver or custodian for the Company or a substantial portion of its assets.
The foregoing provisions of this paragraph are not intended to require any
indemnified party to obtain a Final Judgment against the Company or the Selling
Shareholders before obtaining reimbursement of expenses pursuant to clause
(a)(iii) of this Section 7. However, the indemnified parties shall first seek to
obtain such reimbursement in full from the Company by making a written demand
upon the Company for such reimbursement. Only in the event such expenses shall
remain unreimbursed in whole or in part 45 days following the date of receipt by
the Company of such demand shall any indemnified party have the right to receive
reimbursement of such expenses from the Selling Shareholders by making written
demand directly on the Selling Shareholders (but only if and to the extent the
Company has not already satisfied the demand for reimbursement, whether by
settlement, release or otherwise). The indemnified parties shall, however, be
relieved of their obligation to first seek to obtain such reimbursement in full
from the Company or, having made written demand therefor, to wait such 45 days
after failure by the Company to immediately reimburse such expenses if (I) the
Company files a petition for relief under the Bankruptcy Code, (II) an order for
relief is entered against the Company in an involuntary case under the
Bankruptcy Code, (III) the Company makes an assignment for the benefit of its
creditors, or (IV) any court orders or approves the appointment of a receiver or
custodian for the Company or a substantial portion of its assets.
(c) Each Manager severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act and each Selling Shareholder against any and all
loss, liability, claim, damage and expense described in the indemnity agreement
in Section 7(a), as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary international
prospectus or the International Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Manager through you expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or such preliminary international
prospectus or the International Prospectus (or any amendment or supplement
thereto).
(d) Each indemnified party shall give prompt written notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement except to the extent that such
indemnifying party has been materially prejudiced by such failure to so notify.
An indemnifying party may participate at its own expense in the defense of such
action. If it so elects within a reasonable time after receipt of such notice,
an indemnifying party, jointly with any other indemnifying parties receiving
such notice, may assume the defense of such action with counsel chosen by it and
reasonably acceptable to the indemnified parties defendant in such action,
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying parties
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying party or parties be liable for the fees and expenses of more
than one counsel (in addition to local counsel) for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
(e) If at any time an indemnified party shall have requested an indemnifying
party to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30
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days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(f) The provisions of this Section 7 and Section 8 hereof shall not affect
any agreement among the Company and the Selling Shareholders with respect to
indemnification and contribution.
(g) In connection with the Reserve Share Program, the Company agrees to
indemnify and hold harmless the Managers from and against any and all losses,
expenses and liabilities incurred by them as a result of the failure of the
designated employees or other persons to pay for and accept delivery of shares
which, immediately following the effectiveness of the Registration Statement,
were subject to a properly confirmed agreement to purchase.
Section 8. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances under which the indemnity provided for in Section
7 is for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, subject to the last paragraph of
Section 7(a) hereof, the Company, the Selling Shareholders and the Managers
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity incurred by the Company
and the Selling Shareholders and one or more of the Managers, as incurred, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Shareholders, on the one hand, and the Managers,
on the other hand, from the offering of the Securities pursuant to this
Agreement or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Selling Shareholders, on the one hand, and the Managers, on
the other hand, in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.
The relative benefits received by the Company and the Selling Shareholders,
on the one hand, and the Managers, on the other hand, shall be deemed to be in
such proportions that (a) the Managers are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectus, or if Rule 434 is used, the corresponding location
on the Term Sheet, bears to the initial public offering price appearing thereon
and (b) the Company and the Selling Shareholders are responsible for the
balance; PROVIDED that the aggregate liability of each Selling Shareholder under
this Section 8 and for any breach of the representation and warranty of such
Selling Shareholder set forth in Section 1(b)(i) of this Agreement (to the
extent such breach does not also constitute a breach of any other representation
and warranty of such Selling Shareholder) (together with any liability of such
Selling Shareholder under Section 8 of the U.S. Purchase Agreement or for any
breach of the representation and warranty set forth in Section 1(b)(i) of the
U.S. Purchase Agreement (to the extent such breach does not also constitute a
breach of any other representation and warranty of such Selling Shareholder))
shall be limited to an amount equal to the net proceeds (after deducting the
aggregate Managers' discount, but before deducting expenses) received by such
Selling Shareholder from the sale of his or its Offered Shares pursuant to this
Agreement and the U.S. Purchase Agreement.
The relative fault of the Company and the Selling Shareholders on the one
hand, and the Underwriters, on the other hand, shall be determined by reference
to, among other things, whether the untrue or allegedly untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Shareholders or by
the Managers and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
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No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section, each person, if any, who controls a Manager within the meaning of
Section 15 of the 1933 Act shall have the same rights to contribution as such
Manager, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Company.
The Company, the Selling Shareholders and the Managers agree that it would
not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation (even if the Managers were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or allegedly untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section, no Manager shall be required
to contribute any amount in excess of the amount by which the total price at
which the Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or allegedly untrue
statement or omission or alleged omission.
The Managers' respective obligations to contribute pursuant to this Section
are several in proportion to the number of Initial International Shares set
forth opposite their respective names in Schedule A hereto and not joint.
Section 9. REPRESENTATIONS AND WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The representations and warranties of the Selling Shareholders, the
Company or its officers set forth in or made pursuant to this Agreement will
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Selling Shareholders, the Company, any Manager or
any person who controls a Selling Shareholder, the Company or any Manager within
the meaning of Section 15 of the 1933 Act (except that Section 1(b)(vii) shall
not survive termination of this Agreement) and will survive delivery of and
payment for the Offered Shares.
The indemnities and other agreements of the Selling Shareholders, the
Company or its officers set forth in or made pursuant to this Agreement will
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Selling Shareholders, the Company, any U.S.
Underwriter or any person who controls a Selling Shareholder, the Company or any
U.S. Underwriter within the meaning of Section 15 of the 1933 Act and will
survive delivery of and payment for the Offered Shares.
Section 10. TERMINATION OF AGREEMENT. (a) You may terminate this
Agreement, by notice to the Company and the Selling Shareholders, at any time at
or prior to the Closing Time (i) if there has been, since the respective dates
as of which information is given in the Registration Statement, any material
adverse change in the financial condition, earnings, business affairs or
business prospects of the Oakley Companies, considered as one enterprise,
whether or not arising in the ordinary course of business, that would make it,
in your judgment, impracticable to market the International Shares or enforce
contracts for the sale of the International Shares or (ii) if there has occurred
any material adverse change in the financial markets in the United States or any
outbreak of hostilities or escalation thereof or other calamity or crisis the
effect of which on the financial markets of the United States is such as to make
it, in your judgment, impracticable to market the International Shares or
enforce contracts for the sale of the International Shares, or (iii) if trading
in any securities of the Company has been suspended by the Commission or the
National Association of Securities Dealers, Inc., or if trading generally on
either the New York Stock Exchange or in the over-the-counter market has been
suspended, or minimum or maximum prices for trading have been fixed, or
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maximum ranges for prices for securities have been required, by such exchange or
by order of the Commission, the National Association of Securities Dealers, Inc.
or any other governmental authority or (iv) if a general banking moratorium has
been declared by either federal, New York or California authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 7, 8 and 18 and the first paragraph of Section 9 shall
remain in effect.
(c) This Agreement may also terminate pursuant to the provisions of Section
2(c), with the effect stated in such Section.
Section 11. DEFAULT BY ONE OR MORE OF THE MANAGERS. If one or more of the
Managers shall fail at the Closing Time to purchase the Initial International
Shares that it or they are obligated to purchase pursuant to this Agreement (the
"Defaulted International Shares"), you shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting Managers,
or any other underwriters, to purchase all, but not less than all, of the
Defaulted International Shares in such amounts as may be agreed upon and upon
the terms set forth in this Agreement; if, however, you have not completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted International Shares, when added to the
number of Defaulted U.S. Shares (as defined in the U.S. Purchase Agreement),
does not exceed 10% of the total number of Initial International Shares and
Initial U.S. Shares (as defined in the U.S. Purchase Agreement), the
non-defaulting Managers shall be obligated to purchase the full amount
thereof in the proportions that their respective Initial International Share
underwriting obligation proportions bear to the underwriting obligations of
all non-defaulting Managers, or
(b) if the number of Defaulted International Shares, when added to the
number of Defaulted U.S. Shares (as defined in the U.S. Purchase Agreement),
exceeds 10% of the total number of Initial International Shares and Initial
U.S. Shares (as defined in the U.S. Purchase Agreement), this Agreement
shall terminate without liability on the part of any non-defaulting Manager.
No action taken pursuant to this Section shall relieve any defaulting
Manager from liability in respect of its default.
In the event of any such default that does not result in a termination of
this Agreement, either you or the Company shall have the right to postpone the
Closing Time for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectuses or in any other
documents or arrangements. As used herein, the term "Manager" includes any
person substituted for a Manager under this Section 11.
Section 12. DEFAULT BY A SELLING SHAREHOLDER OR THE COMPANY. If any
Selling Shareholder shall fail at the Closing Time to sell and deliver the
number of Initial Shares that such Selling Shareholder is obligated to sell, the
Managers may, at your option, by notice from you to the Company, either (a)
terminate this Agreement without any liability on the part of any non-defaulting
party except to the extent provided in Section 4 and except that the provisions
of Sections 7, 8 and 18 and the first paragraph of Section 9 shall remain in
effect or (b) elect to purchase the Initial International Shares that the
remaining Selling Shareholder has agreed to sell pursuant to this Agreement.
In the event of a default under this Section that does not result in the
termination of this Agreement, either you, the Company or the Selling
Shareholders shall have the right to postpone the Closing Time for a period not
exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectuses or in any other documents or arrangements.
No action taken pursuant to this Section shall relieve any Selling
Shareholder so defaulting from liability, if any, in respect of such default.
Section 13. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered, mailed or transmitted by any standard form of
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telecommunication. Notices to you or the Managers shall be directed to you, c/o
Merrill Lynch International, 20 Farringdon Road, London EC1M 3NH, England,
attention of Equity Capital Markets; notices to the Company shall be directed to
it at 10 Holland, Irvine, California 92718, attention of R. Link Newcomb; and
notices to the Selling Shareholders shall be directed to Jim Jannard and Mike
Parnell, c/o Oakley, Inc., 10 Holland, Irvine, California 92718.
Section 14. PARTIES. This Agreement is made solely for the benefit of the
several Managers, the Company and the Selling Shareholders and, to the extent
expressed, any person who controls the Company or any of the Managers within the
meaning of Section 15 of the 1933 Act, and the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns and, subject to the provisions
of Section 11, no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include
any purchaser, as such purchaser, from any of the several Managers of the
International Shares. All of the obligations of the Managers hereunder are
several and not joint.
Section 15. REPRESENTATION OF MANAGERS. You will act for the several
Managers in connection with the transactions contemplated by this Agreement, and
any action under or in respect of this Agreement taken by you as Lead Managers
will be binding upon all the Managers.
Section 16. GOVERNING LAW AND TIME. This Agreement shall be governed by
the laws of the State of New York. Specified times of the day refer to New York
City time.
Section 17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
Section 18. SELLING SHAREHOLDERS. Each of the M. and M. Parnell Revocable
Trust, Mike D. Parnell and Melissa Parnell (collectively, the "Parnell Parties")
agrees that the representations and warranties, indemnities and agreements of
the M. and M. Parnell Revocable Trust set forth in this Agreement shall be
deemed to have been given or made (subject to any limitations specifically set
forth herein), jointly and severally, by the Parnell Parties.
28
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this instrument
will become a binding agreement among the Company, the Selling Shareholders and
the several Managers in accordance with its terms.
Very truly yours,
OAKLEY, INC.
By
--------------------------------------
Name:
Title:
SELLING SHAREHOLDERS
[WIRE TRANSFER INSTRUCTIONS]
--------------------------------------
James H. Jannard
The M. and M. Parnell Revocable Trust
[WIRE TRANSFER INSTRUCTIONS]
By
--------------------------------------
Mike D. Parnell, as Co-Trustee and
as
Attorney-in-fact for Melissa
Parnell, as
Co-Trustee
--------------------------------------
Mike D. Parnell
--------------------------------------
Melissa Parnell
29
<PAGE>
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS INCORPORATED
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Attorney-in-Fact
By:
--------------------------------------------
Name:
Title:
FOR THEMSELVES AND AS LEAD MANAGERS OF THE
OTHER MANAGERS NAMED IN SCHEDULE A.
30
<PAGE>
EXHIBIT A
OAKLEY, INC.
(A WASHINGTON CORPORATION)
1,000,000 SHARES OF COMMON STOCK
INTERNATIONAL PRICE DETERMINATION AGREEMENT
June , 1996
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS INCORPORATED
As Representatives of the several Managers
c/o Merrill Lynch International
20 Farringdon Road
London EC1M 3NH
England
Ladies and Gentleman:
Reference is made to the International Purchase Agreement dated June ,
1996 (the "International Purchase Agreement") among Oakley, Inc. (the
"Company"), the Selling Shareholders named in Schedule B thereto or hereto (the
"Selling Shareholders") and the several Managers named in Schedule A thereto or
hereto (the "Managers"), for whom Merrill Lynch International and Alex. Brown &
Sons Incorporated are acting as representatives (the "Lead Managers"). The
International Purchase Agreement provides for the purchase by the Managers from
the Company and the Selling Shareholders, subject to the terms and conditions
set forth therein, of an aggregate of 1,000,000 shares (the "Initial
International Shares") of the Company's Common Stock, par value U.S.$.01 per
share. This Agreement is the International Price Determination Agreement
referred to in the International Purchase Agreement. Terms not defined herein
are used herein as defined in the International Purchase Agreement.
Pursuant to Section 2 of the International Purchase Agreement, the
undersigned agree with the Lead Managers as follows:
1. The initial public offering price per share for the Initial
International Shares shall be U.S.$ .
2. The purchase price per share for the Initial International Shares to
be paid by the several Managers shall be U.S.$ , representing an
amount equal to the initial public offering price set forth above, less
U.S.$ per share.
The Company represents and warrants to each of the Managers that the
representations and warranties of the Company set forth in Section 1(a) of the
International Purchase Agreement are accurate in all material respects (except
that such phrase "in all material respects" shall be disregarded to the extent
any such representation and warranty is qualified by "material", "material
adverse change", "Material Adverse Effect" or any phrase using any such term) as
though expressly made at and as of the date hereof.
Additionally, if the Company elects to rely upon Rule 462(b), the Company
represents and warrants to each of the Managers that:
(a) the Company has filed a Rule 462(b) Registration Statement in
compliance with and that is effective upon filing pursuant to Rule 462(b)
and has received confirmation of its receipt; and
(b) the Company has given irrevocable instructions for transmission of
the applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 of the 1933 Act
Regulations, or the Commission has received payment of such filing fee.
<PAGE>
Each Selling Shareholder represents and warrants to each of the Managers
that the representations and warranties of such Selling Shareholder set forth in
Section 1(b) of the International Purchase Agreement are accurate in all
material respects (except that such phrase "in all material respects" shall be
disregarded to the extent any such representation and warranty is qualified by
"material", "material adverse change", "Material Adverse Effect" or any phrase
using any such term) as though expressly made at and as of the date hereof.
As contemplated by Section 2 of the International Purchase Agreement,
attached as Schedule A is a complete list of the several Managers and as
Schedule B is a complete list of the Selling Shareholders, which shall be a part
of this Agreement and the International Purchase Agreement.
This Agreement shall be governed by the laws of the State of New York.
If the foregoing is in accordance with the understanding of the Lead
Managers of the agreement between the Managers, the Company and the Selling
Shareholders, please sign and return to the Company a counterpart hereof,
whereupon this instrument along with all counterparts and together with the
International Purchase Agreement shall be a binding agreement between the
Managers, the Company and the Selling Shareholders in accordance with its terms
and the terms of the International Purchase Agreement.
Very truly yours,
OAKLEY, INC.
By:
-----------------------------------
Name:
Title:
SELLING SHAREHOLDERS NAMED IN
SCHEDULE B TO THE INTERNATIONAL
PURCHASE AGREEMENT
--------------------------------------
James H. Jannard
The M. and M. Parnell Revocable Trust
By:
-----------------------------------
Mike D. Parnell, as Co-Trustee and
as
Attorney-in-fact for Melissa
Parnell, as
Co-Trustee
--------------------------------------
Mike D. Parnell
--------------------------------------
Melissa Parnell
2
<PAGE>
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH INTERNATIONAL
ALEX. BROWN & SONS INCORPORATED
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Attorney-in-Fact
By:
--------------------------------------------
Name:
Title:
FOR THEMSELVES AND AS REPRESENTATIVES OF THE
OTHER MANAGERS NAMED IN SCHEDULE A
ATTACHED TO THE INTERNATIONAL PURCHASE AGREEMENT.
3
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF INITIAL
INTERNATIONAL
SHARES
U.S UNDERWRITER TO BE PURCHASED
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
Merrill Lynch International..................................................................
----------
Alex. Brown & Sons Incorporated..............................................................
----------
Total.................................................................................... 1,000,000
----------
----------
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NUMBER OF COMMON
INITIAL STOCK SUBJECT
INTERNATIONAL TO
SHARES INTERNATIONAL
SELLING SHAREHOLDERS TO BE SOLD OPTION
- ----------------------------------------------------------------------------------- ------------ --------------
<S> <C> <C>
Jim Jannard........................................................................ 900,000 135,000
------------ -------
The M. and M. Parnell Revocable Trust.............................................. 100,000 15,000
------------ -------
Total.......................................................................... 1,000,000 150,000
------------ -------
------------ -------
</TABLE>
<PAGE>
EXHIBIT 5.1
May 16, 1996
Oakley, Inc.
10 Holland
Irvine, CA 92718
Re: Registration Statement on Form S-1 of Oakley, Inc.
Ladies and Gentlemen:
We have acted as special Washington counsel to Oakley, Inc. (the "Company")
in connection with the filing of the above-referenced Registration Statement
(the "Registration Statement") relating to the registration of shares (the
"Shares") of common stock, $.01 par value per share, of the Company. In
connection therewith, we have reviewed the Company's Amended and Restated
Articles of Incorporation, Bylaws (as amended), minutes of appropriate meetings,
and such other matters we deemed appropriate.
Based on this review, it is our opinion that:
1. The Company is duly incorporated and validly existing under the laws
of the State of Washington.
2. The Shares will be fully paid and non-assessable under the
Washington Business Corporation Act when certificates representing the
Shares shall have been duly executed, countersigned and registered and duly
delivered to the purchasers thereof against payment of the agreed
consideration therefor.
We do not find it necessary for the purposes of this opinion to cover, and
accordingly we express no opinion as to, the application of the securities or
blue sky laws of the various states to the sale of the Shares.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement.
Very truly yours,
PRESTON GATES & ELLIS
By /s/ Gary Kocher
<PAGE>
EXHIBIT 10.20
FORM
OF
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (the "Agreement"), dated June , 1996, among the
following parties (the "Parties"): OAKLEY, INC., a Washington corporation (the
"Company"), JIM JANNARD and the M. AND M. PARNELL REVOCABLE TRUST, a trust
organized under the laws of the State of California (the "Parnell Trust, and
together with Jim Jannard, the "Selling Shareholders").
R E C I T A L S
WHEREAS, the Parties, together with Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Alex. Brown & Sons Incorporated, as representatives of the U.S.
Underwriters named therein (the "U.S. Underwriters"), are parties to a U.S.
Purchase Agreement of even date herewith (the "U.S. Purchase Agreement") and,
together with Merrill Lynch International and Alex. Brown & Sons Incorporated,
as representatives of the Managers named therein (the "Managers"), are parties
to an International Purchase Agreement of even date herewith (the "International
Purchase Agreement," and, together with the U.S. Purchase Agreement, the
"Purchase Agreements");
WHEREAS, pursuant to the terms of the Purchase Agreements, the Selling
Shareholders may be required to indemnify the U.S. Underwriters or the Managers
(as the case may be) with respect to, or contribute to, certain liabilities
arising out of the sale of the common stock of the Company, par value $.01 per
share, contemplated by the Purchase Agreements;
WHEREAS, the Company wishes to indemnify and advance expenses to the Selling
Shareholders in connection with any proceedings and liabilities arising from the
obligations of the Selling Shareholders under the Purchase Agreements in the
manner provided for herein.
NOW THEREFORE, in consideration of the foregoing recitals, the agreements
contained herein and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the Parties hereby agree as follows:
A G R E E M E N T
Section 1. INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. In respect of any
proceeding by any Indemnified Party (as defined in the U.S. Purchase Agreement
or the International Purchase Agreement, as the case may be) against a Selling
Shareholder in respect of indemnification under Section 7 or contribution under
Section 8 of the U.S. Purchase Agreement or the International Purchase
Agreement:
(a) Subject to the provisions of paragraph (b) of this Section 1,
i) the Company agrees to advance the reasonable expenses incurred by
such Selling Shareholder in respect of such proceeding including those
incurred by such Selling Shareholder for separate counsel and to
reimburse any such reasonable expenses not advanced by the Company in the
first instance;
ii) the Company agrees to indemnify such Selling Shareholder in
respect of any liability incurred in or as a result of such proceeding;
and
iii) the authorization by the Company's shareholders of the agreement
to indemnify contained herein and the execution of this Agreement
constitute a conclusive determination that indemnification is due to such
Selling Shareholder in such circumstances and the specific shareholder
authorization for such indemnification.
(b) The Company shall not indemnify such Selling Shareholder from or on
account of:
i) such individual's acts or omissions finally adjudged to be
intentional misconduct or a knowing violation of law;
<PAGE>
ii) such individual's conduct finally adjudged to be in violation of
Washington RCW 23B.08.310; or
iii) any transaction with respect to which it was finally adjudged
that such individual personally received a benefit in money, property, or
services to which such individual was not legally entitled.
Section 2. SUCCESSORS AND ASSIGNS. This Agreement and all obligations,
rights and remedies of the Parties hereunder shall be binding upon and inure to
the benefit of their respective legal representatives, successors and assigns.
Section 3. ENTIRE AGREEMENT. Each of the Parties acknowledge that there
are no other agreements or representations, either oral or written, express or
implied, not embodied or referenced in this Agreement, which represents a
complete integration of all prior and contemporaneous agreements and
understandings of the parties hereto with respect to the subject matter hereof.
Section 4. GOVERNING LAW. This agreement shall be construed in accordance
with the laws of the State of New York, without regard to the choice of law
rules thereof, and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.
Section 5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties have caused their names to be signed hereto,
all as of the day and year first above written.
OAKLEY, INC.,
a Washington corporation
By:
--------------------------------------
Name:
Title:
JIM JANNARD
--------------------------------------
M. AND M. PARNELL REVOCABLE TRUST
By:
--------------------------------------
Name: Mike Parnell
Title: Co-Trustee, and as
Attorney-in-Fact for
Melissa Parnell, Co-Trustee
2
