<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-13848
OAKLEY INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 95-3194947
(State of incorporation) (IRS Employer Identification No.)
ONE ICON, FOOTHILL RANCH, CALIFORNIA 92610
(Address of principal executive offices) (zip code)
(714) 951-0991
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
------------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
The number of shares of issuer's Common Stock, $.01 par value, outstanding
on May 7, 1998 was 70,666,266 shares.
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<PAGE>
OAKLEY, INC.
INDEX TO FORM 10-Q
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of December 31, 1997
and March 31, 1998 (unaudited)..................................... 3
Consolidated Statements of Income for the three-month periods
ended March 31, 1997 and 1998 (unaudited)........................... 4
Consolidated Statements of Cash Flows for the three-month periods
ended March 31, 1997 and 1998 (unaudited)........................... 5
Notes to Consolidated Financial Statements............................ 6-8
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 9-12
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk... 12
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings............................................ 13-16
ITEM 2 - Changes in Securities and Use of Proceeds.................... 16
ITEM 3 - Defaults Upon Senior Securities.............................. 16
ITEM 4 - Submission of Matters to a Vote of Security Holders.......... 16
ITEM 5 - Other Information............................................ 16
ITEM 6 - Exhibits and Reports on Form 8-K............................. 17
Signatures............................................................ 18
Exhibits.............................................................. 19
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
OAKLEY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
December 31,1997 March 31, 1998
---------------- --------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,657 $ 2,511
Accounts receivable, less allowance for
doubtful accounts of $551 (1997), $457 (1998) 24,015 25,460
Inventories (Note 2) 26,200 26,714
Other receivables 2,427 2,752
Deferred income taxes 4,829 4,829
Prepaid expenses 2,978 2,787
--------- ---------
Total current assets 63,106 65,053
Property and equipment, net 104,230 107,447
Deposits 1,519 557
Other assets 12,436 14,198
--------- ---------
TOTAL ASSETS $ 181,291 $ 187,255
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit (Note 3) $ 2,800 $ -
Accounts payable 6,762 14,259
Accrued expenses and other current liabilities 8,666 8,438
Income taxes payable 1,671 2,364
Current maturities of long-term debt (Note 3) 1,519 1,519
--------- ---------
Total current liabilities 21,418 26,580
Deferred income taxes 2,030 2,030
Long-term debt, net of current maturities (Note 3) 20,882 20,502
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share: 20,000,000
shares authorized; no shares issued - -
Common stock, par value $.01 per share: 200,000,000
shares authorized; 70,659,086 (1997) and
70,662,720 (1998) issued and outstanding 707 707
Additional paid-in capital 55,170 55,245
Retained earnings 82,238 83,549
Foreign currency translation adjustment (1,154) (1,358)
--------- ---------
Total shareholders' equity 136,961 138,143
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 181,291 $ 187,255
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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OAKLEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1998
-------- --------
<S> <C> <C>
Net sales $ 34,403 $ 41,000
Cost of goods sold 14,747 16,182
-------- --------
Gross profit 19,656 24,818
Operating expenses:
Research and development 551 1,199
Selling 12,010 13,499
Shipping and warehousing 1,253 1,400
General and administrative 5,007 6,214
-------- --------
Total operating expenses 18,821 22,312
Operating income 835 2,506
Interest (income) expense, net (58) 378
-------- --------
Income before provision for income taxes 893 2,128
Provision for income taxes 343 817
-------- --------
Net income $ 550 $ 1,311
-------- --------
-------- --------
Basic net income per common share $ 0.01 $ 0.02
-------- --------
-------- --------
Basic weighted average common shares 70,656 70,663
-------- --------
-------- --------
Diluted net income per common share $ 0.01 $ 0.02
-------- --------
-------- --------
Diluted weighted average common shares 70,669 70,769
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
OAKLEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 550 $ 1,311
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,984 3,550
Deferred compensation 21 33
Loss on disposition of equipment 19 3
Changes in assets and liabilities, net of effects of
business acquisitions:
Accounts receivable (1,278) (1,445)
Inventories 780 (514)
Other receivables (1,296) (325)
Prepaid expenses and other 1,311 191
Accounts payable 1,002 7,497
Accrued expenses and other current liabilities (1,770) (228)
Income taxes payable 519 693
----------- ------------
Net cash provided by operating activities 2,842 10,766
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits (311) 962
Acquisitions of property and equipment (18,888) (6,523)
Proceeds from sale of property and equipment 106 -
Other assets 1,250 (2,009)
----------- ------------
Net cash used in investing activities (17,843) (7,570)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 41,000 -
Repayments of bank borrowings (28,000) (3,180)
Net proceeds from issuance of common shares 42
Repurchase of common shares (3,193) -
----------- ------------
Net cash provided by (used in) financing activities 9,807 (3,138)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (487) (204)
NET DECREASE
IN CASH AND CASH EQUIVALENTS (5,681) (146)
CASH AND CASH EQUIVALENTS, beginning of period 8,063 2,657
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,382 $ 2,511
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Oakley, Inc. and its
wholly-owned subsidiaries (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles ("GAAP") for complete
financial statements.
In the opinion of management, the consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair statement of the balance sheets as of December 31, 1997
and March 31, 1998 and the statements of income and cash flows for the three
month periods ended March 31, 1997 and 1998. The results of operations for
the three month period ended March 31, 1998 are not necessarily indicative of
the results of operations for the entire fiscal year ending December 31, 1998.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
Raw Materials $11,814,000 $11,989,000
Finished Goods 14,386,000 14,725,000
----------- -----------
$26,200,000 $26,714,000
----------- -----------
----------- -----------
</TABLE>
NOTE 3 - FINANCING ARRANGEMENTS
LINE OF CREDIT - The Company has a $30.0 million unsecured line of credit
with a bank syndicate which bears interest at either the bank's prime lending
rate (8.5% at March 31, 1998) or LIBOR plus 1.00% (6.66% at March 31, 1998),
as defined in the credit agreement, and matures June 1999. At March 31,
1998, there were no borrowings outstanding under the credit agreement. The
credit agreement contains various restrictive covenants including the
maintenance of certain financial ratios. At March 31, 1998, the Company was
in compliance with all restrictive covenants and financial ratios.
LONG-TERM DEBT - In August 1997, the Company obtained a term loan
collateralized by the Company's corporate facility. The term loan requires
quarterly principal payments of approximately $380,000 ($1,519,000 annually),
plus interest based upon LIBOR plus 1.15% (6.84% at March 31, 1998) for five
years. The then outstanding balance payable is due in September 2002. At
March 31, 1998, the outstanding balance under the term loan was $22.0
million.
NOTE 4 - LITIGATION
During December 1996, three putative class action lawsuits (the "California
Securities Actions") were filed in the California Superior Court for the
County of Orange (the "Superior Court") against the Company and three of its
officers and directors alleging material misstatements and omissions in
certain of the Company's public statements, SEC filings and reports of
third-party analysts. The plaintiffs seek unspecified damages and other
relief. In addition, one of the lawsuits also asserted claims against firms
who served as underwriters of the June 6, 1996 offering of the Company's
common stock by certain of its shareholders of (the "Secondary Offering").
Pursuant to certain provisions of the underwriting agreement between the
Company and the firms, the Company agreed to indemnify the firms against
certain liabilities, including liabilities under the Securities Act.
Pursuant to a court order sustaining demurrers to certain claims and to
plaintiffs' dismissal without prejudice of certain other claims, the only
claim remaining in the Superior Court in the California Securities Actions is
a claim for purported violations of the antifraud provision of the California
6
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Corporation Code with respect to two of the Company's officers and directors.
On April 1, 1998, the Superior Court entered a judgment (the "Judgment") in
the California Securities Actions in favor of the Company, one of the
Company's officers and directors and the firms who served as underwriters of
the Secondary Offering. On April 15, 1998, plaintiffs filed a notice of
appeal from the Judgment in the Superior Court, which concerns plaintiffs'
cause of action for purported violations of the antifraud provisions of the
California Corporations Code. In March 1997, the Company was named as a
nominal defendant in a putative derivative action against two of the
Company's officers and directors based on substantially the same allegations
as those in the California Securities Actions. The derivative plaintiff
seeks to recover damages and other relief on behalf of the Company. On
February 4, 1998, the court entered a final order of dismissal of the
putative derivative action. On April 8, 1998, the derivative plaintiff filed
a notice of appeal in the Superior Court. During October, November and
December 1997, five putative class action lawsuits (the "Federal Securities
Actions") were filed in the United States District Court for the Central
District of California, Southern Division against the Company, three of its
officers and directors and firms that served as underwriters of the Secondary
Offering, alleging material misstatements and omissions in certain of the
Company's public statements, the reports of third-party analysts and/or
certain of the Company's SEC filings. The plaintiffs in the Federal
Securities Actions seek unspecified damages and other relief. Although it is
too soon to predict the outcome of the California Securities Actions, the
California Derivative Action or the Federal Securities Actions with any
certainty, based on its current understanding of the facts, the Company
believes that the plaintiffs' claims are without merit and intends to
vigorously defend the actions.
In addition, 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 consolidated financial statements.
NOTE 5 - CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This
statement requires that all items recognized under accounting standards as
components of comprehensive earnings be reported in an annual financial
statement that is displayed with the same prominence as other annual
financial statements. This statement also requires that an entity classify
items of other comprehensive earnings by their nature in an annual financial
statement. For example, other comprehensive earnings includes foreign
currency translation adjustments. Annual financial statements for prior
periods will be reclassified, as required. The Company's total comprehensive
income is as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1998
---------- -----------
<S> <C> <C>
Net income $ 550,000 $1,311,000
Foreign currency translation (loss) (487,000) (204,000)
---------- -----------
Total comprehensive income $ 63,000 $1,107,000
---------- -----------
---------- -----------
</TABLE>
NOTE 6 - RECENT ACCOUNTING DEVELOPMENTS
In 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued and is effective for the year ending
December 31, 1998. The Company is reviewing the impact of the statement on
its year end financial statements.
NOTE 7 - EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the reporting period. Earnings per share
assuming dilution is computed using the weighted average number of common
shares outstanding and the dilutive effect of potential common shares
outstanding. For the three months ended March 31, 1998 and 1997, the diluted
weighted
7
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average common shares outstanding includes 106,000 and 13,000, respectively,
of dilutive stock options.
NOTE 8 - SUBSEQUENT EVENTS
On April 2, 1998, the Company acquired the Oakley division of its exclusive
Canadian distributor, which enables the Company to market and sell its
products on a direct basis in Canada.
8
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes the operations of Oakley, Inc. and
subsidiaries for each of the periods discussed.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NET SALES
Net sales increased to $41.0 million for the three months ended March 31,
1998 from $34.4 million for the three months ended March 31, 1997, an
increase of $6.6 million, or 19.2%. This increase was the result of strong
sales of FIVES, increased ROMEO sales and initial sales from the new RACING
JACKET introduced in January 1998 and MARS introduced in March 1998. The
Company's domestic sales increased 36.9% to $24.1 million from $17.6 million
in the comparable 1997 period, principally as a result of a 141.6% increase
in net sales to the Company's largest customer, Sunglass Hut. The
significant increase in net sales to Sunglass Hut is attributable to a large
reduction in 1997 in Sunglass Hut purchases related to their 1997 inventory
realignment initiative. The Company's international sales increased 0.5% to
$16.9 million in 1998 from $16.8 million in 1997, principally as a result of
increased sales in South America, Europe, Canada, South Africa, Australia and
New Zealand. These increases were offset by decreased sales in Southeast
Asia and Japan. Southeast Asia sales represented 1.2% of net sales for the
three months ended March 31, 1998. International net sales in the 1998
period were negatively affected by the strength of the dollar compared to the
functional currency of direct operations in continental Europe.
GROSS PROFIT
Gross profit increased to $24.8 million for the three months ended March 31,
1998 from $19.7 million for the three months ended March 31, 1997, an
increase of $5.1 million, or 25.9%. As a percentage of net sales, gross
profit increased to 60.5% in 1998 from 57.3% in 1997. Gross profit as a
percentage of net sales was positively affected by increased X METAL
production, a 15% increase in unit volume sales, a 1% increase in the average
selling price and a shift in product mix to higher-margin sunglasses from
lower-margin clothing.
OPERATING EXPENSES
Operating expenses increased to $22.3 million for the three months ended
March 31, 1998 from $18.8 million for the three months ended March 31, 1997,
an increase of $3.5 million. Research and development costs increased $0.6
million to $1.2 million. The 1997 period included a $0.9 million reduction
related to the forfeiture of the Chairman and President's 1996 bonus.
Excluding this non-recurring adjustment, research and development expenses
decreased $0.2 million in the 1998 period to 2.9% of net sales, from $1.4
million, or 4.1% of net sales, in the 1997 period. Selling expenses
increased $1.5 million to $13.5 million in 1998, or 32.9% of net sales, from
$12.0 million, or 34.9% of net sales, in 1997 as a result of increased
depreciation, increased professional fees and increases in variable cost such
as commissions. As a percentage of net sales, shipping expenses decreased to
3.4% for the three months ended March 31, 1998 from 3.6% in the comparable
1997 period. General and administrative expenses increased $1.2 million to
$6.2 million, or 15.1% of net sales, in the 1998 period from $5.0 million, or
14.5% of net sales, in the 1997 period primarily due to increased
depreciation and amortization and costs associated with additional personnel.
For the three months ended March 31, 1997, general and administrative
expenses included income of $0.8 million paid to
9
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the Company by Arnet Optic to settle litigation, $0.7 million of relocation
costs associated with the new facility and professional fees of $0.1 million
related to lawsuits filed by shareholders against the Company and three of
its officers (see Note 4 to the consolidated financial statements).
OPERATING INCOME
The Company's operating income increased to $2.5 million for the three months
ended March 31, 1998 from $0.8 million for the three months ended March 31,
1997, an increase of $1.7 million. As a percentage of net sales, operating
income increased to 6.1% for the three months ended 1998 from 2.4% for the
three months ended March 31, 1997. This increase was the result of the
Company's increase in net sales and gross profit margin and a decrease in
operating expenses as a percentage of net sales.
INTEREST EXPENSE, NET
The Company had net interest expense of $0.4 million in the 1998 period, as
compared with net interest income of $58,000 for the comparable 1997 period.
The increase in interest expense is primarily attributable to interest
payments on the Company's term loan.
NET INCOME
The Company's net income increased to $1.3 million for the three months ended
March 31, 1998 from $0.6 million for the three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations almost entirely with
cash flow generated from operations and borrowings from its credit facility.
Cash provided by operating activities totaled $10.8 million for the quarter
ended March 31, 1998 and $2.8 million for the comparable period of 1997. The
increase is primarily due to a temporary increase in accounts payable
attributable to increased inventory in anticipation of the peak selling
season as well as first quarter capital expenditures. At March 31, 1998,
working capital was $38.5 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. In January 1997, the Company amended its unsecured line of credit to
increase its borrowing limits from $18.0 million to $30.0 million. At March
31, 1998, there were no borrowings outstanding under such facility. In
August 1997, the Company obtained a term loan collateralized by the Company's
new headquarters. The term loan requires quarterly principal payments of
approximately $380,000 plus interest based on LIBOR plus 1.15% (6.84% at
March 31, 1998) for five years. The then outstanding balance payable is due
in September 2002. At March 31, 1998, the outstanding balance on the term
loan was $22.0 million.
Capital expenditures for the quarter ended March 31, 1998 totaled $6.5
million. The capital expenditures were primarily attributable to completion
of the enterprisewide information system (SAP) installation, facility
improvements and footwear production equipment.
The Company believes that existing capital, anticipated cash flow from
operations and current and anticipated credit facilities will be sufficient
to meet operating needs and capital expenditures for the foreseeable future.
10
<PAGE>
SEASONALITY
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, gross and operating margins
are 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 and first 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 new product introductions since late 1993 and
the Company's international expansion have partially 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. At March 31, 1998, the Company had a backlog of $8.4 million,
including backorders (merchandise remaining unshipped beyond its scheduled
shipping date) of $2.3 million as of such date. In September 1997, the
Company implemented changes in its replenishment system with Sunglass Hut,
which affected its reported backlog. Under the new system, in an effort to
more closely match inventory replenishment with Sunglass Hut's sales, certain
high-volume Oakley products are shipped to Sunglass Hut weekly, based on the
previous week's retail sales. As a result, Sunglass Hut will no longer place
future shipment orders for these products except in anticipation of major
seasonal sales increases. These changes reduced the Company's reported
backlog at September 30, 1997 and have continued to do so for future periods.
These system enhancements are the result of the joint efforts of the two
companies to achieve the long-term benefits of lower overall inventory
levels, while increasing inventory turns and sales at retail.
INFLATION
The Company does not believe inflation has had a material impact on the
Company in the past, although there can be no assurance that this will be the
case in the future.
YEAR 2000
The Company is assessing the internal readiness of its computer systems for
handling the year 2000. The Company expects to successfully implement the
systems and programming changes necessary to address year 2000 issues with
respect to its internal systems and does not believe that the cost of such
actions will have a material adverse effect on its results of operations or
financial condition. Although the Company is not aware of any material
operational issues or costs associated with preparing its internal systems
for the year 2000, there can be no assurance that there will not be a delay
in, or increased costs associated with, the implementation of the necessary
systems and changes to address the year 2000 issues, and the Company's
inability to implement such systems and changes could have an adverse effect
on future results of operations. In addition, the failure of certain of the
Company's significant customers and vendors to address the year 2000 issue
could have a material adverse effect on the Company.
FORWARD-LOOKING STATEMENTS
When used in this document, the words "believes", "anticipates", "expects"
and similar expressions are intended to identify in certain circumstances
forward-looking statements. Such statements are subject to a number of risks
and uncertainties that could cause actual results to differ materially from
those projected, including risks related to the dependence on sales to
Sunglass Hut; the acceptance in the marketplace of new products; the ability
to source raw materials at prices favorable to the Company; the ability to
develop and introduce innovative products; currency fluctuations; and other
risks outlined in the Company's previously filed public documents, copies of
which may be obtained
11
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without cost from the Company. Given these uncertainties, prospective
investors are cautioned not to place undue reliance on such statements. The
Company also undertakes no obligation to update these forward-looking
statements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Certain of the Company's foreign subsidiaries enter into derivative financial
instruments, including foreign currency forward exchange contracts, to manage
foreign exchange risk on foreign currency transactions and do not use the
contracts for trading purposes. These financial instruments are used to
protect the Company from the risk that the eventual net cash inflows from the
foreign currency transactions will be adversely affected by changes in
exchange rates. Gains and losses related to hedges of firmly committed
transactions are deferred and recognized when the hedged transaction occurs.
Gains and losses resulting from foreign currency contracts which are not
hedges of firmly committed transactions are recorded each period to the
consolidated statement of income.
A summary of forward exchange contracts is as follows:
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------------
U.S. Dollar Fair
Equivalent Maturity Value
---------- --------- -----------
<S> <C> <C> <C>
British Pounds 240,000 Apr. 1998 244,000
British Pounds 1,900,000 July 1998 1,941,000
British Pounds 1,650,000 Oct. 1998 1,690,000
British Pounds 750,000 Jan. 1999 770,000
---------- -----------
$4,540,000 $4,645,000
---------- -----------
---------- -----------
</TABLE>
The Company is exposed to credit losses in the event of nonperformance by
counterparties to its forward exchange contracts but has no off-balance sheet
credit risk of accounting loss. The Company anticipates, however, that the
counterparties will be able to fully satisfy their obligations under the
contracts. The Company does not obtain collateral or other security to
support the forward exchange contracts subject to credit risk but monitors
the credit standing of the counterparties. As of March 31, 1998, each of the
contracts was recorded at fair market value and the resulting gains and
losses were recorded to the consolidated statements of income.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
THE CALIFORNIA SECURITIES ACTIONS
The Company and certain of its officers and directors have been named as
defendants in three putative class action lawsuits (the "California
Securities Actions") filed in December 1996 in the California Superior Court
for the County of Orange (the "Superior Court"). The cases are captioned:
YOSEF S. ROSENSHEIN V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB AND JIM
JANNARD, Case No. 773051 (filed December 17, 1996);
HERSCHEL HARMAN V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB AND JIM
JANNARD, Case No. 773053 (filed December 17, 1996); and
ERIC SHER, HAROLD BARON AND DAVID O. ECKERT V. OAKLEY, INC., MIKE PARNELL,
LINK NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS,
INC., Case No. 773366 (filed December 24, 1996).
By order dated January 30, 1997, the Superior Court ordered that the
California Securities Actions be assigned to the Superior Court's Complex
Litigation Panel, where they have since been consolidated. On April 18,
1997, the plaintiffs filed a consolidated amended complaint in the California
Securities Actions. The plaintiffs seek to represent a class of persons who
purchased the Company's common stock between March 22, 1996 and December 5,
1996.
The complaint in the California Securities Actions alleges claims for
violations of the antifraud provisions of the California Corporations Code,
unfair business practices and false advertising in violation of certain
provisions of the California Business and Professions Code, fraud and
negligent misrepresentation. The plaintiffs' claims are based on alleged
material misstatements and omissions in certain of the Company's public
statements, Securities and Exchange Commission filings and in the reports of
third-party analysts regarding the Company's retail distribution practices,
market conditions, new product developments and extensions of existing
product lines, business with Sunglass Hut and earnings prospects. The
plaintiffs seek unspecified damages and other relief against the Company and
the other defendants.
The plaintiffs in the California Securities Actions have also asserted claims
against Merrill Lynch & Co. ("Merrill Lynch") and Alex. Brown and Sons, Inc.
("Alex. Brown"), which served as the U.S. Representatives of the U.S.
Underwriters of the June 6, 1996 offering of five million shares of common
stock of the Company by certain of its shareholders (the "Secondary
Offering"). By letter dated February 7, 1997, counsel for Merrill Lynch and
Alex. Brown gave the Company notice pursuant to the indemnification
provisions of the U.S. Purchase Agreement dated June 6, 1996, for the
Secondary Offering that they were asserting a claim for indemnification under
such provisions and requested that the Company reimburse Merrill Lynch and
Alex. Brown on a current basis for their attorneys' fees and expenses
incurred in defending the California Securities Actions. Counsel for Merrill
Lynch and Alex. Brown subsequently indicated that this claim for
indemnification also applies to attorneys' fees and expenses incurred in
defending the Federal Securities Actions (described below).
The Company and the other defendants filed demurrers to the California
Securities Actions and also filed a motion to stay proceedings in the
California Securities Actions pending the resolution of the Federal
Securities Actions (described below).
13
<PAGE>
On November 14, 1997, the Superior Court (1) sustained the demurrers without
leave to amend with respect to the Company and defendants Link Newcomb,
Merrill Lynch and Alex. Brown on plaintiffs' cause of action for purported
violations of the antifraud provisions of the California Corporations Code;
(2) overruled the demurrer with respect to the Company and defendants Mike
Parnell, Link Newcomb and Jim Jannard, but sustained the demurrer with leave
to amend with respect to defendants Merrill Lynch and Alex. Brown, on
plaintiffs' cause of action for fraud and negligent misrepresentation; and
(3) sustained the demurrers with leave to amend with respect to the Company
and each of the other defendants on plaintiffs' cause of action for unfair
business practices and false advertising in violation of certain provisions
of the California Business and Professions Code. Subsequently, dismissed
without prejudice their causes of action for fraud and negligent
misrepresentation and unfair business practices and false advertising. The
only claim remaining in the Superior Court is plaintiffs' cause of action for
purported violations of the antifraud provisions of the California
Corporations Code with respect to defendants Mike Parnell and Jim Jannard.
On April 1, 1998, the Superior Court entered a judgment (the "Judgment") in
favor of the Company and defendants Link Newcomb, Merrill Lynch and Alex.
Brown. On April 15, 1998, plaintiffs filed a notice of appeal from the
Judgment in the Superior Court, which concerns plaintiffs' cause of action
for purported violations of Superior Court, which concerns plaintiffs' cause
of action for purported violations of the antifraud provisions of the
California Corporations Code with respect to the Company and defendants Link
Newcomb, Merrill Lynch and Alex. Brown.
On January 22, 1998, the Superior Court denied the motion to stay proceedings
in the California Securities Actions pending the resolution of the Federal
Securities Actions described below. The plaintiffs in the California
Securities Actions have served document requests on the Company and others,
and documents have been produced in response to plaintiffs' demands.
THE FEDERAL SECURITIES ACTIONS
The Company and certain of its officers and directors have been named as
defendants in five putative class action lawsuits (the "Federal Securities
Actions") filed in October, November and December 1997 in the United States
District Court for the Central District of California, Southern Division.
The cases are captioned:
KENSINGTON CAPITAL MANAGEMENT V. OAKLEY, INC., MIKE PARNELL, LINK
NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS
INCORPORATED, No. SACV 97-808 GLT (EEx) (filed October 10, 1997) (the
"KENSINGTON CAPITAL MANAGEMENT Action");
FRANK LISTER, JAMES J. SCOTELLA, RAYMOND E. NEVEAU, JAMES S. LEWINSKI,
JACK ROSENSON AND LEE SPERLING V. OAKLEY, INC., MIKE PARNELL, LINK
NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS
INCORPORATED, No. SACV 97-809 LHM (EEx) (filed October 10, 1997) (the
"LISTER Action");
STUART CHAIT AND MARILYN SCHWARTZ V. OAKLEY, INC., MIKE PARNELL, LINK
NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS,
INCORPORATED, No. SACV 97-829 AHS (EEx) (filed October 20, 1997) (the
"CHAIT Action");
VAL FICHERA V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB, JIM JANNARD,
MERRILL LYNCH & CO. AND ALEX. BROWN AND SONS INCORPORATED, No. SACV
97-928 GLT (EEx) (filed November 17, 1997 (the "FICHERA Action"); and
YOSEF J. ROSENSHEIN AND HERSHEL HARMAN V. OAKLEY, INC., MIKE PARNELL,
LINK NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS
INCORPORATED, No. SACV 97-993 AHS (EEx) (filed December 5, 1997 (the
"ROSENSHEIN Federal Action").
14
<PAGE>
The plaintiffs in the KENSINGTON CAPITAL MANAGEMENT and the FICHERA Actions
seek to represent a class of persons who purchased the Company's common stock
in the Secondary Offering and allege claims for violations of sections 11,
12(a)(2) and 15 of the Securities Act of 1933. The plaintiffs' claims are
based on alleged material misstatements and omissions in the prospectus issued
and registration statement filed in connection with the Secondary Offering
regarding the Company's retail distribution practices, market conditions, new
product developments and extensions of existing product lines, business with
Sunglass Hut and quality control standards. The plaintiffs seek unspecified
damages and other relief against the Company and the other defendants.
Plaintiffs in the KENSINGTON CAPITAL MANAGEMENT Action filed a motion to
consolidate that action with the FICHERA Action, and plaintiffs in the
KENSINGTON CAPITAL MANAGEMENT and the FICHERA Actions filed competing motions
to be appointed lead plaintiffs for the purported plaintiff class and for the
selection of lead counsel to the purported plaintiff class. Plaintiff's
motion in the FICHERA Action was later withdrawn.
The plaintiffs in the LISTER and CHAIT Actions and the ROSENSHEIN Federal
Action seek to represent a class of persons who purchased the Company's common
stock between March 22, 1996 and December 5, 1996, including in the Secondary
Offering, and allege claims for violations of sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The
plaintiffs' claims are based on alleged material misstatements and omissions
in certain of the Company's public statements, Securities and Exchange
Commission filings and in the reports of third-party analysts regarding the
Company's retail distribution practices, market conditions, new product
developments and extensions of existing product lines, business with Sunglass
Hut, earnings prospects and quality control standards. The plaintiffs seek
unspecified damages and other relief against the Company and the other
defendants. Plaintiffs in the LISTER and CHAIT Actions filed a motion to
consolidate the LISTER and CHAIT Actions and the ROSENSHEIN Federal Action, to
appoint certain persons as lead plaintiffs for the purported plaintiff class
and for the selection of lead counsel to the purported plaintiff class.
On January 26, 1998, the District Court granted the plaintiffs' motions for
appointment of lead plaintiffs and for the selection of lead counsel to the
purported plaintiff classes. The District Court further ordered that all of
the Federal Securities Actions be consolidated for pretrial purposes. On
April 3, 1998, plaintiffs filed consolidated amended complaints in the Federal
Securities Actions.
The Company has not yet responded to any of the Federal Securities Actions.
To date, no discovery has been taken in the Federal Securities Actions.
THE CALIFORNIA DERIVATIVE ACTION
The Company has been named as a nominal defendant in a putative derivative
lawsuit against certain of its directors and officers filed in March 1997 in
the Superior Court. The case is captioned MARK BLACKMAN V. JAMES JANNARD,
MIKE PARNELL AND DOES 1 THROUGH 100, Case No. 777098 (filed March 27, 1997)
(the "California Derivative Action").
In the California Derivative Action, the plaintiff, purporting to sue on
behalf of the Company, alleges claims for breach of fiduciary duty,
constructive fraud, unjust enrichment and violations of the insider trading
provisions of the California Corporations Code. Like the California
Securities Actions, the plaintiff's claims in the California Derivative Action
are, among other things, based upon alleged material misstatements and
omissions in certain of the Company's public statements and Securities and
Exchange Commission filings regarding the Company, its operation and future
prospects. The plaintiff seeks to recover damages and other relief on behalf
of the Company. The defendants filed a demurrer to the original complaint in
the California Derivative Action, and the plaintiff subsequently filed an
amended complaint. The defendants filed a demurrer to the amended complaint
in the California Derivative Action, and the Superior Court sustained the
demurrer with leave to amend in September 1997. The plaintiff subsequently
filed a second amended complaint in
15
<PAGE>
the California Derivative Action. The defendants then filed a demurrer to the
second amended complaint in the California Derivative Action and the Superior
Court sustained the demurrer without leave to amend on December 19, 1997. On
February 4, 1998, the Superior Court entered a final order of dismissal of the
California Derivative Action. On April 8, 1998, the plaintiff in the
California Derivative Action filed a notice of appeal in the Superior Court.
Although it is too soon to predict the outcome of any of the litigations
described above with any certainty, based on its current knowledge of the
facts, the Company believes that the plaintiffs' claims are without merit and
intends to defend the actions vigorously.
In addition, 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 these pending legal proceedings, in
the aggregate, will not have a material adverse effect on the operations or
financial position of the Company.
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security-Holders
None
ITEM 5. Other Information
None
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
<TABLE>
<S> <C>
3.1 (1) Articles of Incorporation of the Company
3.2 (1) Bylaws of the Company
3.3 (2) Amendment No. 1 to the Articles of Incorporation as filed
with the Secretary of State of the State of Washington on
September 26, 1996
10.1 Tenth Amendment to Amended and Restated Credit Agreement
dated March 28, 1998 by and among Oakley, Inc., Bank of
America National Trust and Savings Association and Union
Bank of California N.A.
10.2 (3) First Amendment to Standing Loan Agreement, dated January
12, 1998, between Oakley, Inc. and Bank of America
National Trust and Savings Association
27.1 Financial Data Schedule
</TABLE>
(1) Previously filed with the Registration Statement on Form S-1 of Oakley,
Inc. (Registration No. 33-93080)
(2) Previously filed with the Form 10-K of Oakley, Inc. for the year ended
December 31, 1996.
(3) Previously filed with the Form 10-K of Oakley, Inc. for the year ended
December 31, 1997.
The Company did not file any reports on Form 8-K during the three months ended
March 31, 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Oakley, Inc.
/s/ LINK NEWCOMB May 8, 1998
- ----------------------------------
Link Newcomb
Chief Executive Officer
/s/ THOMAS GEORGE May 8, 1998
- ----------------------------------
Thomas George
Chief Financial Officer
18
<PAGE>
OAKLEY, INC.
TENTH AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT
This TENTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is dated as of March 27, 1998 and entered into by and among
OAKLEY, INC., a Washington corporation ("Company"), THE FINANCIAL
INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred
to herein as a "Lender" and collectively as "Lenders" and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as current agent for Lenders (in such
capacity, "Agent") and, for purposes of Section 4, the Consenting Parties (as
defined therein), and is made with reference to that certain Amended and
Restated Credit Agreement dated as of August 15, 1995, as amended by the
First Amendment to Amended and Restated Credit Agreement, dated as of
November 22, 1995, by and among Company, Lenders and Agent, the Second
Amendment to Amended and Restated Credit Agreement, dated as of October 10,
1996, by and among Company, Lenders and Agent, the Third Amendment to Amended
and Restated Credit Agreement, dated as of November 25, 1996, the Fourth
Amendment to Amended and Restated Credit Agreement, dated as of January 29,
1997, by and among Company, Lenders and Agent, the Fifth Amendment to Amended
and Restated Credit Agreement, dated as of March 31, 1997, by and among
Company, Lenders and Agent, and the Sixth Amendment to Amended and Restated
Credit Agreement, dated as of March 31, 1997, the Seventh Amendment to
Amended and Restated Credit Agreement, dated as of May 14, 1997, the Eighth
Amendment to Amended and Restated Credit Agreement, dated as of June 27,
1997, and the Ninth Amendment to Amended and Restated Credit Agreement, dated
as of September 30, 1997, each by and among Company, Lenders and Agent (as
amended, the "Credit Agreement"). Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Credit
Agreement.
RECITALS
A. Company and Lenders desire to further amend the Credit
Agreement as herein provided.
B. Lenders have agreed to consent to certain activities of
Company, as provided herein.
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto
agree as follows:
SECTION 1. MODIFICATION AND WAIVER.
Section 1.1 AMENDMENT TO CREDIT AGREEMENT.
(a) Section 7.3 of the Credit Agreement is hereby amended by
deleting the entirety of clause (xiii) of such section and inserting the
following in replacement therefor:
"(xiii) Company and its Subsidiaries may make Investments in
Bazooka, Inc. for the purpose of financing the development of
business of the type described in those
1
<PAGE>
certain resolutions of the Company's board of directors dated June
19, 1997, copies of which have previously been distributed to the
Lenders; provided that the aggregate amount of (a) such Investments
described in this clause (xiii) that may be made prior to June 30,
1998, (b) accounts receivable of Company generated from Bazooka,
Inc. prior to June 30, 1998, and (c) Contingent Obligations of
Company incurred with respect to obligations of Bazooka, Inc. shall
not exceed $13,000,000."
Section 1.2 WAIVER OF SECTION 7.7.
Requisite Lenders hereby waive the provisions of Section 7.7 of the
Credit Agreement to the extent necessary (without regard to any exception or
basket which may be provided for therein) to permit the Company to enter into
and consummate the acquisition of its Canadian distributor from Outdoor Gear
substantially pursuant to the draft Asset Purchase Agreement heretofore
delivered to Lenders (the "Acquisition Transaction"); PROVIDED that nothing
in this subsection 1.2 shall be deemed to amend or waive any Section of the
Credit Agreement after giving effect to the Acquisition Transaction other
than to permit the entry into and consummation of the Acquisition Transaction.
SECTION 2. EFFECTIVENESS
Section 1 of this Amendment shall become effective as of March 27,
1998; provided that (a) Company shall deliver to Lenders (or to Agent for
Lenders with sufficient originally executed copies, where appropriate, for
each Lender) copies of this Amendment executed by Company and each Consenting
Party; and (b) Agent, on behalf of Lenders shall have received a counterpart
of this Amendment duly executed by the Requisite Lenders; notwithstanding the
foregoing, the effectiveness of Section 1.2 of this Amendment may be revoked
by the Lenders if the Agent for the benefit of the Lenders has not received,
on or prior to April 30, 1998, 65% of the stock of the new acquired Canadian
distributor as security for the Obligations upon such terms and conditions as
Agent may deem appropriate.
SECTION 3. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to
amend the Credit Agreement in the manner provided herein, Company represents
and warrants to each Lender, as of the date hereof that the following
statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Company has all requisite
corporate power and authority to enter into this Amendment and to carry out
the transactions contemplated by, and perform its obligations under, the
Credit Agreement as amended by this Amendment (the "Amended Agreement").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of Company and each
Consenting Party.
C. NO CONFLICT. The execution, delivery and performance by
Company and each Consenting party of this Amendment do not and will not (i)
violate the Certificate or Articles of Incorporation or Bylaws of Company or
any of its Subsidiaries, (ii) violate any provision of any law or any
governmental rule or regulation applicable to Company or any of its
Subsidiaries or any order, judgment or decree of any court or other agency of
government binding on Company or any of its Subsidiaries, which violation
could reasonably be expected to have a Material Adverse Effect, (iii)
2
<PAGE>
conflict with, result in a breach of or constitute (with due notice or lapse
of time or both) a default under any Contractual Obligation of Company or any
of its Subsidiaries in a manner that could reasonably be expected to have a
Material Adverse Effect, (iv) result in or require the creation or imposition
of any Lien upon any of the properties or assets of Company or any of its
Subsidiaries (other than any Liens created under any of the Loan Documents in
favor of Agent on behalf of Lenders), or (v) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of Company or any of its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution, delivery and
performance by Company and each Consenting Party of this Amendment do not and
will not require any registration with, consent or approval of, or notice to,
or other action to, with or by, any federal, state or other governmental
authority or regulatory body.
E. BINDING OBLIGATION. This Amendment has been duly executed and
delivered by Company and each Consenting Party, as applicable, and is the
legally valid and binding obligation of Company and each Consenting Party,
enforceable against each such Person in accordance with its respective terms,
except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability.
F. ABSENCE OF DEFAULT. Upon giving effect to this Amendment, no
event has occurred and is continuing or will result from the consummation of
the transactions contemplated by this Amendment that would constitute an
Event of Default or a Potential Event of Default.
SECTION 4. ACKNOWLEDGEMENT AND CONSENT
Repeat Incorporated, an Arizona corporation ("Repeat"), and Barter
Optical, Inc., a Washington corporation ("Barter"), are parties to the
Guaranty, pursuant to which Repeat and Barter have guarantied the Obligations
of Company under the Credit Agreement. Repeat and Barter are collectively
referred to herein as the "Consenting Parties".
Each Consenting Party hereby acknowledges that it has reviewed the
terms and provisions of the Credit Agreement and this Amendment and consents
to the amendment of the Credit Agreement effected pursuant to this Amendment.
Each Consenting Party hereby confirms that the Guaranty will continue to
guaranty to the fullest extent possible the payment and performance of all
"Guarantied Obligations" (as such term is defined in the Guaranty), including
without limitation the payment and performance of all such Guarantied
Obligations, in respect of the Obligations of Company now or hereafter
existing under or in respect of the Amended Agreement and all Notes.
Each Consenting Party acknowledges and agrees that the Guaranty
shall continue in full force and effect and that all of its obligations
thereunder shall be valid and enforceable and shall not be impaired or
limited by the execution or effectiveness of this Amendment.
Each Consenting Party acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this Amendment,
such Consenting Party is not required by the terms of the Credit Agreement or
any other Loan Document to consent to the amendments to the Credit Agreement
effected pursuant to this Amendment and (ii) nothing in the Credit Agreement,
this Amendment or any other Loan Document shall be deemed to require the
consent of such Consenting Party to any future amendments to the Credit
Agreement.
3
<PAGE>
SECTION 5. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
(i) On and after the date hereof, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import referring to the Credit Agreement,
and each reference in the other Loan Documents to the "Credit
Agreement", "thereunder", "thereof" or words of like import
referring to the Credit Agreement shall mean and be a reference to
the Amended Agreement.
(ii) Except as specifically amended or waived by this
Amendment, the Credit Agreement and the other Loan Documents shall
remain in full force and effect and are hereby ratified and
confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a waiver of
any right, power or remedy of Agent or any Lender under, the Credit
Agreement or any of the other Loan Documents.
B. HEADINGS. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
C. FEES AND EXPENSES. Company acknowledges that all costs, fees
and expenses as described in subsection 10.2 of the Credit Agreement incurred
by Agent and its internal counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of
Company.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment shall become
effective upon the execution of a counterpart hereof by Requisite Lenders and
each of the other parties hereto and receipt by Company and Agent of written
or telephonic notification of such execution and authorization of delivery
thereof.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
OAKLEY, INC., as the Borrower
By:___________________________
Title:__________________________
(signatures continue)
5
<PAGE>
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent
By:___________________________
Title:__________________________
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Lender
By:___________________________
Title:__________________________
UNION BANK OF CALIFORNIA, N.A., (formerly
named Union Bank) as a Lender
By:___________________________
Title:__________________________
ACKNOWLEDGMENT AND CONSENT
BARTER OPTICAL, INC., as a
Consenting Party
By:_____________________________
Title:__________________________
REPEAT INCORPORATED, as a
Consenting Party
By:___________________________
Title:__________________________
6
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,511
<SECURITIES> 0
<RECEIVABLES> 25,460
<ALLOWANCES> 0
<INVENTORY> 26,714
<CURRENT-ASSETS> 65,053
<PP&E> 107,447
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<TOTAL-ASSETS> 187,255
<CURRENT-LIABILITIES> 26,580
<BONDS> 0
0
0
<COMMON> 707
<OTHER-SE> 137,436
<TOTAL-LIABILITY-AND-EQUITY> 187,255
<SALES> 41,000
<TOTAL-REVENUES> 41,000
<CGS> 16,182
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<OTHER-EXPENSES> 22,312
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