OO Oakley

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934

Filed by the Registrant x
Filed by a Party other than the Registrant ¨
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¨ Preliminary Proxy Statement

¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x Definitive Proxy Statement

¨ Definitive Additional Materials

¨ Soliciting Material Pursuant to §240.14a-12

OAKLEY, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

¨ No fee required.

x Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)

Title of each class of securities to which transaction applies: Common stock, par value $0.01 per share, of Oakley, Inc.

OAKLEY, INC.
One Icon
Foothill Ranch, California 92610

 

October 17, 2007

 

Dear Shareholder:

 

You are cordially invited to attend a special meeting of shareholders of Oakley, Inc. (the “Company” or “Oakley”) to be held at Oakley’s headquarters at One Icon, Foothill Ranch, California 92610, on November 7, 2007, at 10:00 a.m. Pacific Standard Time. At the special meeting, you will be asked to consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of June 20, 2007, by and among Luxottica Group S.p.A., an Italian corporation (“Luxottica”), Norma Acquisition Corp., a Washington corporation and an indirect wholly owned subsidiary of Luxottica (“Luxottica’s Merger Vehicle”), and Oakley.

 

The merger agreement contemplates the merger of Luxottica’s Merger Vehicle with and into Oakley, with Oakley continuing as the surviving corporation and becoming an indirect wholly owned subsidiary of Luxottica. At the effective time of the merger, each issued and outstanding share of Oakley common stock, par value $0.01 per share, other than shares owned by any shareholders who are entitled to and who properly preserve dissenters’ rights under Washington law, will be cancelled and will be automatically converted into the right to receive $29.30 in cash, without interest. Under the merger agreement, Oakley has the right to declare, on or after February 29, 2008, a single cash dividend, in an amount up to $0.16 for each share of our common stock outstanding on the record date set for shareholders entitled to receive such dividend, that is payable on the earlier of a date in March 2008 specified by the Board of Directors or one business day prior to the effective time of the merger. If the Board of Directors declares such dividend on or after February 29, 2008, it will set a record date for the dividend that will be different and later than the record date for shareholders entitled to vote on the merger. Such a dividend, if declared, is not part of the $29.30 per share cash merger consideration and would only be payable, if declared, to shareholders of record at that future time. If you sell your shares prior to the record date for such dividend, you will not be entitled to receive such dividend.

 

Jim Jannard, Oakley’s Chairman of the Board and the holder of approximately 63.8% of the outstanding shares of Oakley’s common stock, has entered into a voting agreement agreeing to vote his shares in favor of approval of the merger and the merger agreement. The voting agreement will terminate upon the earliest to occur of the termination of the merger agreement in accordance with its terms, the first day immediately following the date on which our shareholders have approved the merger agreement, the amendment of or waiver of any provision of the merger agreement in a manner that reduces the consideration payable to Mr. Jannard in the merger or is materially adverse to Mr. Jannard, Luxottica’s Merger Vehicle’s or Luxottica’s material violation of the terms of the voting agreement, and Oakley’s Board of Directors changing its recommendation that you approve the merger and the merger agreement. The merger agreement will terminate in accordance with its terms if the merger has not been consummated by March 20, 2008, subject to certain exceptions.

 

On June 20, 2007, the merger agreement was adopted by both (i) the members of Oakley’s Board of Directors other than Mr. Jannard and Scott Olivet, Oakley’s Chief Executive Officer, and (ii) by Oakley’s entire Board of Directors by unanimous vote. Oakley’s Board of Directors recommends that you vote “FOR” the approval of the merger and the merger agreement.

 

The accompanying proxy statement provides you with information about the proposed merger and the special meeting. We encourage you to read the entire proxy statement carefully. The proxy statement is dated October 17, 2007, and is first being mailed to shareholders on or about October 17, 2007.

 

We cannot complete the merger unless holders of two-thirds of all outstanding shares of our common stock entitled to vote on the matter vote to approve the merger and the merger agreement.

 

PLEASE VOTE YOUR SHARES. Whether or not you plan to attend the special meeting in person, please sign and return the enclosed proxy in the envelope provided. If you attend the special meeting and desire to vote in person, you may do so even though you have previously sent a proxy. The failure to vote will have exactly the same effect as voting against the approval of the merger and the merger agreement.

 

If your shares are held in “street name” by your broker, your broker will be unable to vote your shares without instructions from you. You should instruct your broker to vote your shares, following the procedures provided by your broker. Failure to instruct your broker to vote your shares will have exactly the same effect as voting against the approval of the merger and the merger agreement.

 

Sincerely,

 

Scott Olivet

Chief Executive Officer

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

OAKLEY, INC.
One Icon
Foothill Ranch, California 92610

 

 

Oakley’s Board of Directors has fixed the close of business on October 15, 2007, as the record date for the purpose of determining shareholders entitled to receive notice of, and to vote at, the special meeting or any adjournment or postponement thereof.

 

The accompanying proxy statement provides you with information about the proposed merger and the special meeting.

 

Under Washington law, Oakley shareholders who do not vote in favor of approval of the merger and the merger agreement are or may be entitled to assert dissenters’ rights. To assert your dissenters’ rights, you must strictly follow the procedures prescribed by Washington law. See “Dissenters’ Rights” beginning on page 61 of the accompanying proxy statement and Annex B to the proxy statement.

 

We cannot complete the merger unless holders of two-thirds of all outstanding shares of Oakley’s common stock entitled to vote on the matter vote to approve the merger and the merger agreement. As a condition to the execution of the merger agreement, Mr. Jannard executed a voting agreement pursuant to which he agreed to vote in favor of approval of the merger and the merger agreement and against any proposal made in opposition to, or in competition with, the consummation of the merger, subject to certain exceptions. Mr. Jannard holds 44,426,400 shares, or approximately 63.8%, of Oakley’s outstanding shares of common stock. The voting agreement will terminate upon the earliest to occur of the termination of the merger agreement in accordance with its terms, the first day immediately following the date on which Oakley’s shareholders have approved the merger agreement, the amendment of or waiver of any provision of the merger agreement in a manner that reduces the consideration payable to Mr. Jannard in the merger or is materially adverse to Mr. Jannard, Luxottica’s Merger Vehicle’s or Luxottica’s material violation of the terms of the voting agreement, and Oakley’s Board of Directors changing its recommendation that you approve the merger and the merger agreement. The merger agreement will terminate in accordance with its terms if the merger has not been consummated by March 20, 2008, subject to certain exceptions.

 

If your shares are held in “street name” by your broker, your broker will be unable to vote your shares without instructions from you. You should instruct your broker to vote your shares, following the procedures provided by your broker. Failure to instruct your broker to vote your shares will have exactly the same effect as voting against the approval of the merger and the merger agreement.

 

By Order of the Board of Directors,

 

Scott Olivet

Chief Executive Officer

 

Foothill Ranch, California

 

October 17, 2007

 

 

 

TABLE OF CONTENTS

 

 

SUMMARY TERM SHEET

 

This Summary Term Sheet highlights selected information from this proxy statement and may not contain all of the information that is important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to or incorporated by reference in this proxy statement. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions in the section entitled “Where You Can Find More Information.” In this proxy statement, the terms “we,” “us,” “our,” “Oakley” and “the Company” refer to Oakley, Inc. and its subsidiaries. We refer to Luxottica Group S.p.A. as “Luxottica” and Norma Acquisition Corp. as “Luxottica’s Merger Vehicle.”

 

 

Luxottica is a global leader in the design, manufacture and distribution of eyewear, with over 5,800 optical and sun retail stores in North America, Asia-Pacific, China and Europe and a strong brand portfolio that includes the license brands Bvlgari, Burberry, Chanel, Dolce & Gabbana, Donna Karan, Polo Ralph Lauren, Prada and Versace, and the key house brands Arnette, Persol, Ray-Ban, REVO and Vogue. In addition to a global wholesale network across 130 countries, Luxottica manages leading retail brands such as LensCrafters and Pearle Vision in North America, OPSM and Laubman & Pank in Asia-Pacific and Sunglass Hut globally. Luxottica’s manufacturing activities are carried out through six production facilities in Italy and two manufacturing facilities in China.

 

Luxottica’s Merger Vehicle was formed by Luxottica for the sole purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Luxottica’s Merger Vehicle is an indirect wholly owned subsidiary of Luxottica. See “The Parties to the Merger” beginning on page 41.

 

 

 

 

 

The full text of the written opinion of Goldman Sachs, dated June 20, 2007, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. Goldman Sachs provided its opinion for the information and assistance of Oakley’s Board of Directors in connection with its consideration of the transaction contemplated by the merger agreement. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of Oakley common stock should vote with respect to the transaction contemplated by the merger agreement or any other matter. Pursuant to an engagement letter between Oakley and Goldman Sachs, Oakley will pay to Goldman Sachs a transaction fee of 0.85% of the aggregate consideration paid in the transaction contemplated by the merger agreement, or approximately $19.0 million. All of the transaction fee is payable upon consummation of the transaction contemplated by the merger agreement. See “Special Factors — Opinion of Our Financial Advisor” beginning on page 21 and Annex C.

 

 

 

 

 

 

 

 

 

 

 

 

two-thirds of our outstanding common stock. See “— Conditions to the Completion of the Merger” beginning on page 54.

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SPECIAL FACTORS

 

Background of the Merger

 

Our management and Board of Directors regularly evaluate our strategies, operations, key initiatives and expectations for our business. We regularly investigate and consider different strategies for improving our competitive position and enhancing shareholder value. As part of these evaluations, we have, from time to time, considered strategic initiatives that include acquisitions, joint ventures, partnerships, and other business combinations. In 2006 and 2007, Oakley acquired a number of businesses, including Bright Eyes Group, Eye Safety Systems, Inc., Oliver Peoples, Inc. and OSA Holding, Inc. and its wholly owned subsidiary, The Optical Shop of Aspen.

 

During past years, we have maintained a commercial relationship with Luxottica. Luxottica, with its affiliates, has been our largest single customer, accounting for approximately 6.2 percent, 7.0 percent, 7.6 percent and 8.9 percent of our total net sales in 2006, 2005, 2004 and 2003, respectively. In December 2004, we entered into a one-year commercial agreement with Luxottica that established the commercial terms between the two companies for the 2005 calendar year. In July 2006, we entered into a three-year commercial agreement with Luxottica that established the commercial terms retroactively from January 1, 2006 and through December 31, 2008.

 

On or about April 13, 2006, a representative of Rothschild Inc. and Rothschild S.p.A. (collectively, “Rothschild”), Luxottica’s financial advisors, called Mr. Jannard to inform him of Luxottica’s potential interest in holding discussions with Oakley and to discuss setting up a meeting.

 

On May 5, 2006, a representative of Rothschild called Mr. Olivet to reiterate Luxottica’s interest in discussions with Oakley and to suggest a meeting between Messrs. Jannard and Olivet and Rothschild, and, if Oakley were interested in exploring Luxottica’s interest further, to suggest a subsequent meeting among Messrs. Jannard and Olivet, Leonardo Del Vecchio, Chairman of the Board of Directors and majority shareholder of Luxottica, Andrea Guerra, Luxottica’s Chief Executive Officer and director, and Enrico Cavatorta, Luxottica’s Chief Financial Officer and director.

 

On May 12, 2006, a representative of Rothschild sent an e-mail communication to Messrs. Jannard and Olivet to set up a meeting for May 19, 2006 and to explore dates for a potential second meeting in July 2006 to discuss Luxottica’s potential interest in Oakley. Also on May 12, 2006, during an annual Board of Directors retreat to discuss the Company’s strategic plans, Mr. Jannard made reference to the scheduled May 19, 2006 meeting with a representative of Rothschild regarding Luxottica’s potential interest in Oakley.

 

On May 19, 2006, Messrs. Jannard and Olivet met with a representative of Rothschild at Oakley’s headquarters in Foothill Ranch, California to discuss Luxottica’s potential interest in Oakley.

 

On June 1, 2006, representatives of Goldman Sachs met with Messrs. Jannard and Olivet at Oakley’s headquarters in Foothill Ranch, California to discuss Luxottica’s interest. The discussion included an overview of Luxottica’s business provided by Goldman Sachs. The possibility of Goldman Sachs representing the Company as its financial advisor, under Oakley’s existing engagement letter with Goldman Sachs, in connection with a possible transaction with Luxottica, was also discussed.

 

On June 6, 2006, Messrs. Jannard and Olivet met Messrs. Guerra, Cavatorta and a representative of Rothschild in Henderson, Nevada to discuss Luxottica’s interest in an expanded business relationship with Oakley, including, possibly, a merger. Mr. Jannard indicated that, for discussion of any such expanded relationship to proceed, he would like first to meet Mr. Del Vecchio personally.

 

On June 7, 2006, a representative of Oakley contacted a representative of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), outside counsel to Oakley, and advised Skadden that the Company wished to engage Skadden in connection with a possible transaction with Luxottica.

 

At the Board of Directors’ regular meeting on June 9, 2006, the Board of Directors discussed the plan to have two meetings, one in Milan, Italy to meet Mr. Del Vecchio and another in July 2006 with Luxottica executives. The Board of Directors noted the possibility that Luxottica would express interest in an acquisition

of Oakley in addition to a number of other possibilities. The Board of Directors also evaluated the potential for Goldman Sachs to advise Oakley in connection with such discussions with Luxottica and was informed that Goldman Sachs (and its affiliates) had, in the past, acted as financial advisor to Luxottica (and its affiliates), including having acted as financial advisor to Luxottica in connection with its acquisition of Cole National Corporation in October 2004 and its divestiture of Things Remembered, Inc. in September 2006. The Board of Directors discussed the advantages and disadvantages of having Goldman Sachs act as our financial advisor in connection with a possible transaction with Luxottica, including the benefits of having Goldman Sachs, Oakley’s long-standing investment bank, bring its familiarity with Oakley to bear in connection with a possible transaction with Luxottica. After such discussion, the Board of Directors unanimously concluded that there existed no conflict of interest between Goldman Sachs and us, and that Goldman Sachs’ prior work with Luxottica did not impair Goldman Sachs’ ability to act as financial advisor to Oakley. The Board determined that it was in the best interests of Oakley for Goldman Sachs to act as our financial advisor in a possible transaction with Luxottica. Because we already had in effect an engagement letter with Goldman Sachs that covered the potential transaction, no further action was necessary. During the meeting, Goldman Sachs presented to the Board of Directors a then-current view of the markets, analyst views of Oakley and the industry and selected financial analyses.

 

On June 26, 2006, Messrs. Jannard and Olivet met with Messrs. Del Vecchio, Guerra and Cavatorta, in Milan, Italy to discuss informally the historical relationship between the two companies.

 

On July 5, 2006, Messrs. Guerra and Cavatorta and Paolo Venturi, Luxottica’s Group Business Development Director, visited Oakley headquarters in Foothill Ranch and took part in a customer visit that consisted of a tour of the Company’s headquarters, manufacturing facility, and lobby store as well as a meeting with members of Oakley’s management team. During this meeting with Oakley’s management team, which included Link Newcomb, Senior Advisor to the Chief Executive Officer, Cliff Neill, Vice President of U.S. Sales, and Ted Li, Director of International Sales, Messrs. Guerra, Cavatorta and Venturi reviewed Oakley’s current business around the world. Also at this meeting, Luxottica and Oakley entered into a new three-year commercial agreement between the two companies that had been previously negotiated.

 

Later on July 5 and again on July 6, 2006, Messrs. Jannard and Olivet and representatives from Goldman Sachs met with Messrs. Guerra, Cavatorta, Venturi and a representative of Rothschild in Newport Beach, California. The discussion centered on how the companies might work together more closely, including the possibility of joint ventures, distribution agreements or a merger. The conversations focused on each company’s respective culture and business approaches and practices as well as what type of value could be created through some type of broader relationship.

 

On July 13, 2006, Mr. Cavatorta sent an e-mail communication to Mr. Olivet requesting from Oakley certain non-public information about Oakley’s operations and organizational structure as well as a financial forecast for Oakley for the years from 2006 to 2008.

 

On July 25, 2006, Luxottica entered into a confidentiality agreement with Oakley whereby Luxottica agreed to maintain the confidentiality of any information about us obtained during the course of discussions between the two companies. The confidentiality agreement also included a standstill provision that, subject to certain exceptions, prohibited Luxottica for a period of 18 months from acquiring any of our securities or assets or otherwise seeking to influence or control our management or polices, and a non-solicitation provision that prohibited Luxottica from soliciting our employees for employment for a period of two years.

 

In August 2006, we provided to Luxottica selected non-public information about our operations and organizational structure in response to Mr. Cavatorta’s request made on July 13, 2006.

 

On September 8, 2006, Mr. Olivet met Messrs. Guerra and Cavatorta in Long Beach, California to discuss the status of due diligence requests and Oakley’s general level of interest in continuing the dialogue between the two companies.

 

During a regular meeting of our Board of Directors on September 21, 2006, our Board of Directors met with representatives of Goldman Sachs and Skadden to discuss a potential expanded relationship with Luxottica. Our Board of Directors instructed Goldman Sachs, as our financial advisor, to contact and hold

discussions with Luxottica and its advisors to obtain additional information from Luxottica, so that the Board of Directors could give consideration to the matter at its dinner meeting and regular meeting scheduled for December 6 and 7, 2006, respectively.

 

On October 12, 2006, we entered into confidentiality agreements with Luxottica whereby we agreed to maintain the confidentiality of any information about Luxottica obtained during the course of discussions about an expanded relationship between the two companies.

 

In October 2006, we provided to Luxottica a financial forecast for Oakley for the years from 2006 to 2011 in response to Mr. Cavatorta’s request made on July 13, 2006.

 

On October 27, 2006, Mr. Olivet met with Messrs. Guerra and Cavatorta in Paris, France while each was there for an industry trade show to discuss questions related to the non-public information that Oakley had provided to Luxottica and to further discuss areas of potential revenue enhancement and expense savings opportunities should a transaction be pursued.

 

On November 6, 2006 and November 13, 2006, Goldman Sachs held discussions with Rothschild, during which Rothschild indicated that Luxottica preferred to present a proposal to Oakley in person.

 

On November 27, 2006, Messrs. Jannard and Olivet, met with Messrs. Guerra and Cavatorta in New York to discuss Luxottica’s interest. During the meeting, Messrs. Guerra and Cavatorta informed Messrs. Jannard and Olivet that Luxottica was considering a proposal to acquire all of the outstanding shares of Oakley’s common stock for consideration consisting of 50% cash and 50% in Luxottica stock, but that Luxottica’s specific proposal was to be delivered in writing to Oakley after Luxottica’s upcoming Board of Directors meeting.

 

On November 28, 2006, Mr. Olivet sent an e-mail communication to Oakley’s Board of Directors to briefly discuss the oral indication of interest received from Luxottica and to state that the December 6, 2006 Board of Directors dinner meeting would focus on a discussion of the proposal that Oakley expected to receive.

 

On December 5, 2006, Oakley received a written non-binding indication of interest from Luxottica, in which Luxottica proposed to acquire all of Oakley’s outstanding shares in exchange for a cash component (equal to 50% to 60% of the merger consideration) of $12.20 to $15.60 per share of our common stock and a stock component (equal to the remaining 50% to 40% of the merger consideration) at an exchange ratio of 0.660 of a Luxottica share for each share of our common stock, resulting in an implied consideration per share of $10.14 to $8.11 based on the closing price of Luxottica’s American Depositary Shares of $30.72 on December 4, 2006. This implied an aggregate consideration of $22.34 to $23.71 per share for our common stock.

 

At the Board of Directors’ dinner meeting on December 6, 2006, the Board of Directors discussed Luxottica’s proposal with certain members of Oakley’s management and Oakley’s legal and financial advisors. During the dinner meeting, representatives of Goldman Sachs reviewed with the Board of Directors Luxottica’s unsolicited proposal that had previously been distributed to the directors. Representatives of Skadden also advised the directors of their fiduciary duties and the applicable standards of conduct when faced with an unsolicited proposal, including how the Board of Directors should organize itself in light of the current unsolicited proposal. After a lengthy discussion, the Board of Directors determined that it was in the best interests of Oakley and its shareholders to respond to Luxottica in writing, indicating that the Board of Directors did not believe that the December 5, 2006 indication from Luxottica reflected Oakley’s recent performance and potential or the benefits resulting from recent strategic changes implemented by management. As a result, the Board of Directors suggested that any discussions regarding an acquisition of Oakley by Luxottica be deferred.

 

The following day, the Board of Directors held its regularly scheduled meeting. During a regularly scheduled executive session, the Board of Directors discussed with representatives of Goldman Sachs and Skadden the content of Oakley’s written response to Luxottica and the process for drafting and approving the letter as well as other topics.

 

Pursuant to the determination of the Board of Directors at the dinner meeting held on December 6, 2006, the Board of Directors on December 18, 2006 responded in writing to Luxottica’s written non-binding

indication of interest dated December 5, 2006 proposing that discussions between the two companies be deferred until Oakley’s recent strategic changes and initiatives were more clearly reflected in the financial and operating results of the Company. On the same day, a meeting was held via videoconference among Messrs. Guerra, Cavatorta, Jannard and Olivet during which Messrs. Jannard and Olivet reiterated the message delivered in the December 18, 2006 letter from Oakley’s Board of Directors.

 

On December 22, 2006, Mr. Guerra called Mr. Olivet with respect to Oakley’s December 18, 2006 response to Luxottica’s written non-binding indication of interest. Mr. Guerra communicated that Luxottica was disappointed with the response and would need some time to determine how to respond to Oakley’s letter.

 

On January 9, 2007, Mr. Guerra called Mr. Olivet to inform him that Luxottica would be sending a revised proposal, but did not know when such revised proposal would be made to Oakley.

 

On January 17, 2007, a representative of Rothschild called Mr. Jannard and communicated that Luxottica was revising its proposal to provide for an aggregate merger consideration of approximately $26.10 per share of Oakley common stock, consisting of 60% in cash and the remaining 40% in Luxottica’s American Depositary Shares. On the same day, Messrs. Guerra and Cavatorta communicated the same information to Mr. Olivet.

 

On January 22, 2007, a representative of Rothschild called Mr. Jannard to discuss the status of negotiations.

 

At a special meeting of our Board of Directors on January 23, 2007, Messrs. Jannard and Olivet and representatives of Goldman Sachs informed the Board of Directors of the recent discussions with representatives of Luxottica, including the revised proposal received from Luxottica on January 17, 2007.

 

On January 29, 2007, Mr. Olivet spoke with Messrs. Guerra and Cavatorta, during which Luxottica implied that there might be some potential to negotiate price but that consideration of the price was intertwined with other deal-related issues, that it would be best to discuss all issues at once and that it would be best to do so in a face-to-face meeting with Mr. Olivet, Mr. Jannard, Oakley’s Board representatives, and the companies’ respective advisors. During this discussion or a subsequent discussion between Mr. Davin and a representative of Luxottica, Oakley suggested that a price per share of Oakley stock of $28.75 would be given strong consideration.

 

Over the course of the next several days, the Board of Directors held several conference calls to provide updates on the calls held on or around January 29, 2007 among Messrs. Davin, Olivet, Guerra and Cavatorta.

 

On February 5, 2007, a representative of Skadden contacted a representative of Kirkpatrick & Lockhart Preston Gates Ellis LLP (“K&L Gates”), local Washington counsel to Oakley, and advised K&L Gates that Oakley may engage K&L Gates as its local counsel in a possible transaction with Luxottica and discussed Washington law issues related to such transaction.

 

On February 8, 2007, Goldman Sachs and Rothschild discussed the proposed transaction. Rothschild communicated that Luxottica desired a 50% cash-50% stock deal in which shareholders, other than Mr. Jannard, could elect to be paid the merger consideration in cash or Luxottica stock at their choosing. Mr. Jannard would then receive as merger consideration the remaining mix of cash or Luxottica stock to preserve the 50% cash-50% stock deal contemplated. In addition, Goldman Sachs and Rothschild noted the importance of having a discussion about the treatment of stock options held by our top ten to fifteen employees.

 

On February 9, 2007, a representative of Skadden contacted a representative of Chiomenti Studio Legale (“Chiomenti”) and advised Chiomenti that Oakley may engage such firm as its Italian counsel in connection with a possible transaction with Luxottica and discussed Italian law issues related to such transaction.

 

Pursuant to the January 29, 2007 call and recognizing that the proposed transaction with Luxottica was progressing, on February 12, 2007, our Board of Directors commenced the process of forming a Negotiation Committee (the “Negotiation Committee”) consisting of directors Mr. Davin, Mary George and Greg Trojan for the purpose of assisting the Board of Directors in the consideration and negotiation of a possible transaction with Luxottica and any alternative acquisition proposal.

 

From February 14 through February 16, 2007, Mr. Davin, as the representative of the Negotiation Committee, along with Messrs. Jannard and Olivet and representatives of Skadden and Goldman Sachs, met with Messrs. Guerra

and Cavatorta and representatives of Rothschild and Winston & Strawn LLP (“Winston”), Luxottica’s legal advisors, at Winston’s offices in New York to further discuss the Luxottica proposal, with Mr. Davin acting as the primary spokesperson for Oakley. During the meeting, a number of issues related to the transaction were discussed, including the mix of cash and Luxottica stock in the consideration, deal protections such as termination fees, a voting agreement with Mr. Jannard, the purchase price, including Luxottica’s last proposal of approximately $26.10 per share of Oakley common stock, and the status of due diligence. During these discussions, representatives of Luxottica indicated that Luxottica was flexible with respect to the mix of consideration. Luxottica’s representatives also noted that Luxottica’s proposal assumed a standard no-shop provision, which would prevent us and Mr. Jannard from soliciting offers from other potential acquirers after reaching a definitive agreement with Luxottica as well as a fiduciary out, allowing us to respond to certain unsolicited offers from other potential acquirers, with a matching right on the part of Luxottica and a standard termination fee. Representatives of Luxottica further indicated that Luxottica was open to a reverse termination fee, payable to us in cash if the transaction did not close due to certain regulatory reasons. As part of the discussion, Luxottica also indicated that Mr. Jannard was expected to enter into a standard voting agreement with Luxottica. Mr. Davin engaged in further discussions with Messrs. Guerra and Cavatorta. Messrs. Guerra and Cavatorta indicated that an all-cash proposal of $27.10 per share of our common stock was the most that Luxottica could offer, together with a requirement that Mr. Jannard invest up to approximately $350.0 million in Luxottica’s stock at the closing.

 

After a call to update our Board of Directors on the progress of the negotiations and to solicit the Board’s input on a potential counterproposal, we proposed that Luxottica pay our shareholders $28.75 of value per share of Oakley common stock. We also expressed flexibility with respect to the mix of consideration, subject to the inclusion of any Luxottica stock as part of the consideration at a fixed price per share. We also indicated that Mr. Jannard had expressed his desire to receive the same consideration per share for his majority position as the other shareholders were to receive and that we expected a fiduciary out and that the termination fee would be on the low end of the customary range.

 

At a special meeting of our Board of Directors on February 17, 2007, Messrs. Davin, Jannard and Olivet updated the Board of Directors regarding the meetings that were held in New York on February 14 through February 16, 2007 with representatives of Luxottica. Representatives of Skadden updated the Board of Directors regarding the status of due diligence and regulatory review and reviewed with the Board of Directors the principal contractual issues that typically arise in the type of transaction contemplated, duties of directors in these situations and the takeover statute under the laws of Washington. The Board of Directors then discussed strategy with representatives of Goldman Sachs and Skadden, including postponing further discussions regarding price until more due diligence and regulatory work had been performed.

 

Two days later, on February 19, 2007, Mr. Davin held a conference call with Messrs. Guerra and Cavatorta during which Luxottica increased its proposal to $27.60 per share of our common stock in cash and we made a counterproposal at $28.00 per share. The parties agreed to leave further discussions of price until other matters, including due diligence, discussion of the terms of a merger agreement and preliminary regulatory review, had progressed further. At a special meeting of the Negotiation Committee held on the same day, at which representatives of Skadden and a representative of Goldman Sachs were also present, Mr. Davin updated the Negotiation Committee on the status of discussions he had with Messrs. Guerra and Cavatorta, including Luxottica’s revised proposal of an all-cash purchase price for our shares of common stock of $27.60 per share and a desire for Mr. Jannard to purchase up to $350.0 million of Luxottica’s stock concurrently with the closing. The Negotiation Committee determined to delay further discussions of price until after other matters, including due diligence, discussion of the terms of a merger agreement and preliminary regulatory review, had further progressed. Mr. Davin also indicated that he had communicated Mr. Jannard’s desire to meet Mr. Del Vecchio in person in order to discuss the benefits of a potential transaction and to discuss the importance of maintaining the Company’s culture.

 

Throughout the months of March, April, May and the first weeks of June 2007, various calls took place among Oakley, Oakley’s advisors, Luxottica and Luxottica’s advisors.

On March 1, 2007, Mr. Jannard met with Mr. Del Vecchio in London, England to confirm Mr. Del Vecchio’s understanding of Oakley’s culture and of Mr. Jannard’s desire to preserve Oakley’s culture even after any potential acquisition of Oakley.

 

On March 7, 2007, the Board of Directors held a regularly scheduled meeting. During the meeting, a representative of Goldman Sachs updated the Board of Directors regarding the status of discussions with Luxottica. Mr. Olivet also updated the Board of Directors regarding the meeting that took place on March 1, 2007 in London, England between Messrs. Jannard and Del Vecchio. Following Mr. Olivet’s update, representatives of Skadden informed the Board of Directors as to some of the issues that were discussed during the meetings and calls that took place from February 14 through February 16, 2007. Representatives of Skadden also discussed with the Board of Directors some issues that were likely to arise in future discussions with Luxottica, including deal protection, fiduciary duties of the directors and mechanisms to enable the directors to fulfill their fiduciary obligations such as incorporating a “fiduciary out” into the merger agreement, the Washington anti-takeover statue, conditions to closing and other relevant issues. Representatives of Skadden also discussed the likely schedule over the course of the next month, including the expectation that Oakley would receive a draft of the merger agreement, the continuation of due diligence and regulatory review, the timing of executing definitive documents and the timeline of events to occur following the announcement of a transaction, if an agreement could be reached.

 

On March 9, 2007, Skadden received from Winston the initial draft of the merger agreement, voting agreement and stock purchase agreement pertaining to Mr. Jannard’s contemplated investment in Luxottica at closing.

 

Between March 10, 2007 and June 2007, Mr. Olivet, Richard Shields, Oakley’s Chief Financial Officer, Chris Donnelly, Oakley’s Director of Strategic Planning, Link Newcomb, Oakley’s Senior Advisor to the Chief Executive Officer, Cos Lykos, Oakley’s Vice President of Business Development and Corporate Secretary, and certain advisors to Oakley had various calls with representatives of Luxottica and Luxottica’s advisors to discuss due diligence questions and to discuss updates on the progress of the merger agreement. On May 3, 2007, Mr. Olivet met with Messrs. Guerra and Cavatorta in Milan, Italy to provide an update on the due diligence process and to discuss the terms of Mr. Jannard’s stock purchase and non-compete agreements.

 

In May 2007, in connection with the negotiation of the capital expenditures covenant in the merger agreement, we provided to Luxottica updates to the October 2006 projected financial information regarding capital expenditures. No other financial information was updated and no other financial projections were provided.

 

On May 12, 2007, Mr. Davin, representatives of Goldman Sachs and a representative of Skadden participated in a conference call to discuss timing and terms of the proposed transaction.

 

On May 15, 2007, Mr. Olivet had a telephone conference call with Messrs. Guerra and Cavatorta regarding the timing of the transaction. Mr. Olivet communicated that, given the workload associated with the second quarter, which is the Company’s busiest quarter of the year, we could not complete the remaining due diligence and the necessary communication planning in order to announce a transaction, if the parties were to reach agreement, at the end of May as previously discussed. Mr. Olivet indicated that it would likely take us into the third or fourth week of June 2007 to be in a position to complete negotiations and announce the transaction, assuming all outstanding issues with respect to the definitive agreement were resolved.

 

On May 21, 2007, at a special meeting of the Board of Directors, Mr. Olivet updated the Board of Directors on the status of due diligence and on a meeting that was held in Milan, Italy on May 3, 2007 with representatives of Luxottica and with respect to the new timeline that was discussed with Luxottica on May 15, 2007. Following Mr. Olivet’s presentation, a representative of Skadden updated the Board of Directors on the status of the antitrust review. Representatives of Goldman Sachs then discussed with the Board of Directors their preliminary financial analysis of the proposed transaction. The Board of Directors agreed that Mr. Davin and the Negotiation Committee would solicit feedback from the remaining members of the Board of Directors regarding the proposed transaction with Luxottica. A representative of Skadden indicated to the Board of Directors that it

would be appropriate for the Board of Directors to consider the possible effect on the business relationship between Luxottica and Oakley in the event that a transaction with Luxottica were not consummated.

 

In a June 1, 2007 special meeting of the Board of Directors, representatives of Skadden reviewed with the Board of Directors its fiduciary duties in relation to consideration of a potential sale of Oakley and updated the Board of Directors on the status of the negotiations of the merger agreement and other related documents. Mr. Olivet then discussed Oakley’s performance since February 2007 and, with the assistance of a representative of Goldman Sachs, the relative performance of Oakley’s and Luxottica’s stock prices. A representative of Goldman Sachs discussed its updated financial analyses of the proposed transaction, including an analysis of how Oakley may be viewed by potential financial buyers. After a full discussion of these matters, Mr. Olivet then discussed with the Board of Directors the benefits and challenges of the proposed merger as well as the possible risks to Oakley’s business if Oakley were not to be sold to Luxottica. Mr. Jannard agreed with the views expressed by other members of the Board of Directors that Oakley should seek an increase in price and also shared his views on the other unresolved issues. The Board of Directors determined that Messrs. Davin, Jannard and Olivet should arrange a meeting with representatives of Luxottica to discuss price considerations. The Board of Directors, outside the presence of Messrs. Olivet and Shields and the representative of Goldman Sachs, further discussed these issues.

 

Between June 4 and June 7, 2007, Messrs. Jannard, Olivet and Davin took part in telephone conversations with Messrs. Guerra and Cavatorta in which Messrs. Jannard, Olivet and Davin indicated that the prior agreed-upon range of $27.60 to $28.00 was no longer appropriate in light of the Company’s recent performance and trajectory, driven by the successful execution of the Company’s strategic initiatives in the first five months of the year.

 

On June 5, 2007, we filed a Current Report on Form 8-K with the SEC disclosing that our Compensation and Stock Option Committee had amended the Amended and Restated Oakley, Inc. Officer Severance Plan and the Amended and Restated Oakley, Inc. Executive Severance Plan to add to such plans the treatment of awards made under the Long-Term Incentive Plan to Oakley officers who are participants in such plans in the event of certain terminations of employment. Our Compensation and Stock Option Committee also agreed to amend our employment agreement with Mr. Olivet by adding to Mr. Olivet’s employment agreement comparable severance provisions with respect to such plans for awards granted Mr. Olivet under the Long-Term Incentive Plan. These actions by our Compensation and Stock Option Committee were taken in the course of its regular review of the severance plans and were not related to the proposed transaction. Moreover, the changes made were a direct result of the fact that the severance plans did not contemplate the complexity of the Company’s Long-Term Incentive Plan, as the Company’s first-ever bonus plan with a multi-year measurement period. We also disclosed in this Current Report on Form 8-K that our Board of Directors amended the Oakley, Inc. 1995 Stock Incentive Plan to state that dividends declared on our common stock do not accrue and will not be paid with respect to the shares covered by a deferred stock award (which would include the performance units granted under the Long-Term Incentive Plan) and other issuance procedures with respect to an award of stock. Additionally, our Compensation and Stock Option Committee also amended the Officer Severance Plan such that 90 days after being named a Section 16 Officer, as defined by Rule 16a-1(f) under the Securities Exchange Act 1934, as amended (the “Exchange Act”), of the Company by the Board of Directors, such officer is automatically enrolled as an “Eligible Employee” in the Officer Severance Plan unless otherwise stated by the Committee within the first ninety (90) days after such officer is named a Section 16 Officer, as defined.

 

On June 8, 2007, we received a written non-binding indication of interest from Luxottica indicating an implied blended value of approximately $28.00 per share based on bifurcated consideration consisting of $27.60 per share in cash for Mr. Jannard’s approximately 65% stake in Oakley and of $28.70 per share in cash to all other shareholders. The indication from Luxottica also proposed a termination fee payable to Luxottica of not less than 4% of the aggregate merger consideration and a reverse termination fee payable to us of $60.0 million to cover all damages and expenses in the event that the transaction were not to close due to certain regulatory reasons.

 

During the weekend of June 9 and June 10, 2007, multiple discussions were held among Messrs. Davin, Jannard and Olivet, other members of the Negotiation Committee and representatives of Skadden and Goldman Sachs related to the June 8, 2007 letter received from Luxottica. Mr. Jannard reiterated his desire to receive the same consideration per share for his majority position as the other shareholders were to receive.

 

On June 11, 2007, our Board of Directors sent a letter to Luxottica in response to Luxottica’s June 8, 2007 written non-binding indication of interest indicating pricing guidance from the Board of Directors of $29.50 per share for all shareholders, a termination fee payable to Luxottica of 2.5% of the aggregate merger consideration and a reverse termination fee of 6% of the aggregate merger consideration plus Oakley’s fees and expenses.

 

Between June 11 and June 15, 2007, Mr. Guerra indicated to Mr. Olivet in a telephone conversation that the previously discussed investment by Mr. Jannard in Luxottica was desirable but not necessary.

 

On June 16, 2007, Mr. Olivet met with Messrs. Guerra and Cavatorta in Los Angeles, California to discuss preliminary communication plans in the event a transaction with Luxottica was completed. This included communication with Oakley and Luxottica employees, investors, business partners and others.

 

On June 18 and June 19, 2007, representatives of Oakley, Skadden and Goldman Sachs, on the one hand, and representatives of Luxottica, Winston and Rothschild, on the other, met in the offices of Skadden in Los Angeles, California to negotiate the terms of a definitive merger agreement. At these meetings, Oakley and Luxottica agreed to a purchase price of $29.30 per share in cash and, in the event that the merger is not completed by February 29, 2008, the right of Oakley’s Board of Directors to declare a one-time cash dividend of $0.16 per share. The representatives also negotiated a $69.0 million termination fee and an $80.0 million reverse termination fee and finalized the form of the merger agreement at these meetings. In addition, these representatives, together with Mr. Jannard and representatives of O’Melveny & Myers LLP, counsel to Mr. Jannard, negotiated and finalized the voting agreement, the non-competition agreement and the other agreements with Mr. Jannard referred to in the non-competition agreement.

 

Following these meetings, on June 20, 2007, the Board of Directors held a special meeting to review the status of the negotiations with Luxottica with respect to the merger agreement, including the proposed price per share, the potential payment of a one-time cash dividend of $0.16 per share in the event that the merger was not completed by February 29, 2008, the termination fee and the reverse termination fee. The voting agreement, the non-competition agreement and the other agreements with Mr. Jannard referred to in the non-competition agreement were also discussed. During this meeting, representatives of Goldman Sachs discussed with the Board of Directors an analysis of the financial terms of the proposed transaction. Goldman Sachs then delivered its opinion to the Board of Directors (which was subsequently confirmed in writing by delivery of its written opinion of that same date) that, as of June 20, 2007 and based upon and subject to the factors and assumptions as described in its written opinion (a copy of which is attached to this proxy statement as Annex C), the $29.30 in cash per outstanding share of our common stock to be received by the holders of such shares pursuant to the merger agreement was fair from a financial point of view to such holders. Representatives of Skadden and K&L Gates also advised Oakley’s Board of Directors with respect to the merger agreement, the voting agreement and the non-competition agreement. The Board of Directors was aware of management’s views as to potential synergies to be realized by Luxottica from the proposed transaction. After discussion and following deliberations among the directors regarding the factors discussed under “— Fairness of the Merger; Recommendation of Our Board of Directors” on page 19, both the Board of Directors other than Messrs. Jannard and Olivet and the entire Board of Directors unanimously adopted the merger agreement and the transactions contemplated thereby, including the merger, approved other agreements and resolved to recommend that our shareholders approve the merger and the merger agreement at a special meeting of shareholders. During this meeting, the Board of Directors approved the payment to Goldman Sachs of a transaction fee equal to 0.85% of the aggregate consideration paid in the transaction contemplated by the merger agreement, which was within the compensation range contemplated in Goldman Sachs’ engagement letter with Oakley. Following the meeting of our Board of Directors, the merger agreement, the voting agreement and the non-competition agreement were executed. Messrs. Jannard, Olivet, Guerra and Cavatorta then announced the proposed merger with Luxottica to senior management and, subsequently, to Oakley employees after the stock market closed. On the same day, Luxottica

and Oakley issued a joint press release announcing the merger agreement and Mr. Jannard’s entry into the voting agreement and the non-competition agreement.

 

On June 22, 2007, we filed a Current Report on Form 8-K with the SEC disclosing the merger transaction and attaching as exhibits a copy of the definitive merger agreement, the voting agreement, the non-competition agreement and the joint press release issued on June 20, 2007.

 

Fairness of the Merger; Recommendation of Our Board of Directors

 

In this section, we refer to our Board of Directors as the “Board.” The Board believes that the merger is substantively and procedurally fair to and in the best interests of Oakley and our shareholders. On June 20, 2007, the Board adopted the merger agreement, authorized the transactions contemplated by the merger agreement, including the merger, and resolved to recommend that our shareholders approve the merger and the merger agreement. In reaching these conclusions, the Board consulted with senior management, the Negotiation Committee and Oakley’s financial and legal advisors regarding a number of factors, including the following:

 

 

 

 

 

The Board also determined that the process by which we entered into the merger agreement with Luxottica and Luxottica’s Merger Vehicle was fair, and in reaching that determination the Board took into account, in addition to the factors noted above, the following:

 

 

 

 

The Board was aware of and also considered the following adverse factors associated with the merger, among others:

 

 

The above discussion is not intended to be exhaustive, but the Company believes it addresses the material information and factors considered by its Board in the Board’s consideration of the merger agreement and the transactions contemplated thereby, including the merger. In view of the variety of factors and the quality and amount of information considered as well as the complexity of these matters, the Board did not find it practicable to, and did not attempt to, make specific assessments of, quantify, rank or otherwise assign relative weights to the specific factors considered in reaching its determination. The Board conducted an overall review of the factors described above, as well as others, including thorough discussion with Company management and the Company’s financial and legal advisors, and considered the benefits of the merger to outweigh the risks and the factors overall to be favorable to, and to support, its determination. The Board did not undertake to make any specific determination as to whether any particular factor, or any aspect of any factor, was favorable or unfavorable to its ultimate determination. Individual members of the Board may have given different weight to different factors.

Opinion of Our Financial Advisor

 

Goldman Sachs rendered its opinion to Oakley’s Board of Directors that, as of June 20, 2007 and based upon and subject to the factors and assumptions set forth therein, the $29.30 in cash per outstanding share of common stock of Oakley to be received by the holders of such shares pursuant to the merger agreement was fair from a financial point of view to such holders.

 

The full text of the written opinion of Goldman Sachs, dated June 20, 2007, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. Goldman Sachs provided its opinion for the information and assistance of Oakley’s Board of Directors in connection with its consideration of the transaction contemplated by the merger agreement. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of Oakley common stock should vote with respect to the transaction contemplated by the merger agreement or any other matter.

 

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

 

Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company, including the risks and uncertainties of achieving the forecasts for the Company prepared by the management of the Company. In addition, Goldman Sachs reviewed the reported price and trading activity for the shares of common stock of the Company, compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the branded consumer goods and optical industries specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as it considered appropriate.

 

Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, accounting, legal, tax and other information provided to, discussed with or reviewed by it. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries, nor was any such evaluation or appraisal furnished to Goldman Sachs. Goldman Sachs’ opinion does not address any legal, regulatory or tax matters. Goldman Sachs’ opinion does not address the underlying business decision of the Company to engage in the transaction contemplated by the merger agreement or the relative merits of the transaction contemplated by the merger agreement as compared to any strategic alternatives that may be available to the Company. Goldman Sachs was not requested to solicit, and did not solicit, interest from other parties with respect to an acquisition of or other business combination with the Company. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, the date of the opinion and Goldman Sachs assumes no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion.

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Board of Directors of the Company in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before June 18, 2007 and is not necessarily indicative of current market conditions.

 

Historical Stock Trading Analysis.   Goldman Sachs reviewed the historical trading prices and volumes for the Company’s common stock for the five-year period ended June 18, 2007. In addition, Goldman Sachs compared the consideration to be received by holders of the Company’s common stock pursuant to the merger agreement in relation to certain closing prices and average closing prices of the Company’s common stock during the one-year period ended June 18, 2007.

 

This analysis indicated that the $29.30 in cash per share of common stock of the Company to be received by holders of such shares pursuant to the merger agreement represented:

 

 

In addition, Goldman Sachs reviewed the consideration paid in M&A transactions involving aggregate consideration between $1.5 billion and $2.5 billion during the three years ended June 18, 2007. Goldman Sachs calculated the median of the premiums that the consideration paid in each such transaction represented over the average closing price of the target’s common stock during the four-week period prior to the announcement of such transaction. Goldman Sachs calculated a median premium of 19.3% for the precedent transactions in the last twelve months through June 18, 2007 (consisting of 97 transactions) and a median premium of 17.3% for the precedent transactions in the last three years through June 18, 2007 (consisting of 219 transactions).

 

Selected Companies Analysis.   Goldman Sachs reviewed and compared certain financial information for the Company to corresponding financial information, ratios and public market multiples for the following U.S. and international publicly traded corporations in the branded apparel, eyewear, footwear and luxury retail industries:

 

 

 

Although none of the selected companies is directly comparable to the Company, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of the Company.

 

Goldman Sachs also calculated and compared various financial multiples and ratios for the selected companies and the Company. The financial multiples and ratios for the selected companies were calculated using the market closing price on June 18, 2007, recent financial data Goldman Sachs obtained from SEC filings and IBES estimates. The financial multiples and ratios for the Company were calculated using the market closing price on June 18, 2007 and the $29.30 in cash per share of common stock of the Company to be received by the holders of such shares pursuant to the merger agreement, financial data provided by the Company’s management, projections provided by the Company’s management dated October 2006 and IBES estimates. With respect to the selected companies, Goldman Sachs calculated the following and compared them to the results for the Company:

 

 

The results of these analyses are summarized as follows:

 

 

 

 

Goldman Sachs also reviewed the market value per share of common stock as of June 18, 2007 and calculated the average market value per share of common stock over the one-year, three-year and five-year periods ended June 18, 2007 and over the trailing twelve month (TTM) periods ended June 18, 2007, June 18, 2006, June 18, 2005, June 18, 2004 and June 18, 2003, in each case as a multiple of the IBES estimated EPS

for the respective next twelve months (the Forward P/E Multiple) for the Company, for a selected branded composite of corporations (including Coach, Inc., Polo Ralph Lauren Corporation, Columbia Sportswear Company, The Timberland Company, Quiksilver, Inc., VF Corporation and Nike, Inc.) and for the S&P 500 Index, and compared them to the implied Forward P/E Multiple for the Company determined on the basis of the $29.30 in cash per share of common stock of the Company to be received by holders of such shares pursuant to the merger agreement. The following tables show the results of the analysis:

 

 

Finally, Goldman Sachs calculated the enterprise value as of June 18, 2007 and the average enterprise value over the one-year, three-year and five-year periods ended June 18, 2007 and over the trailing twelve month (TTM) periods ended June 18, 2007, June 18, 2006, June 18, 2005, June 18, 2004 and June 18, 2003 as a multiple of the EBITDA for the respective latest twelve months (Enterprise Value/LTM EBITDA Multiples) for the Company and for the same selected branded composite of corporations described above, and compared them to the implied Enterprise Value/LTM EBITDA Multiple for the Company determined on the basis of the $29.30 in cash per share of common stock of the Company to be received by holders of such shares pursuant to the merger agreement. The following tables show the results of the analysis:

 

 

Selected Transaction Analysis.   Goldman Sachs reviewed certain public information relating to certain selected transactions in the optics industry since June 28, 1999. In particular, Goldman Sachs considered the following optics transactions:

 

Goldman Sachs also reviewed certain public information relating to certain selected transactions in the branded goods industry since July 2002. In particular, Goldman Sachs considered the following branded goods transactions:

 

 

For the transaction contemplated by the merger agreement and each of the selected transactions, Goldman Sachs calculated and compared:

 

 

While none of the companies that participated in the selected transactions are directly comparable to the Company, the companies that participated in the selected transactions are companies with operations that, for the purposes of analysis, may be considered similar to certain of the Company’s operations.

 

The following table presents the results of this analysis:

 

 

Present Value of Future Stock Price Analysis.   Goldman Sachs performed an illustrative analysis of the implied present value of the future stock price of the Company, which is designed to provide an indication of the present value of a theoretical future stock price as a function of the Company’s estimated future earnings per share and its assumed price to future earnings multiple. For this analysis, Goldman Sachs used the financial forecasts for the Company prepared by management for each of the fiscal years 2007 to 2011 and sensitivities to such forecasts. Such sensitivities included an illustrative range of compounded annual sales growth rates for 2007 to 2011 of 8.5% to 12.5% and illustrative target EBITDA margins of 15.4% to 17.4% in 2011. Finally, Goldman Sachs also analyzed the present value of future share prices implied by IBES median

EPS estimates from 2007 to 2009 and the EPS implied by the IBES long-term EPS growth rate of 15% for 2009 to 2011.

 

Goldman Sachs first calculated the implied per share values for the Company’s common stock for each of the fiscal years 2007 to 2011, by applying price to forward earnings multiples of 18.0x to 25.0x to EPS estimates for each of the fiscal years 2007 to 2011 and then discounted these implied future stock prices in 2008, 2009, 2010 and 2011 values back one, two, three and four years, respectively, using an equity discount rate of 12.1%. This analysis resulted in the following ranges of implied present values per share of the common stock of the Company:

 

 

Discounted Cash Flow Analysis.   Goldman Sachs performed an illustrative discounted cash flow analysis to determine a range of implied present values per share of the Company’s common stock. All cash flows were discounted to June 30, 2007 and terminal values were based upon EBITDA multiples of estimated EBITDA for 2011. Forecasted financial information used in this analysis was based on the projections for the Company provided by the Company’s management. In performing this analysis, Goldman Sachs applied discount rates ranging from 9.3% to 13.3% reflecting estimates of the weighted average cost of capital of the Company, and terminal EBITDA multiples ranging from 9.0x to 13.0x. This analysis resulted in a range of implied present values per share of the Company’s common stock of $25.72 to $41.91.

 

Using the same projections provided by the Company’s management, Goldman Sachs also performed a sensitivity analysis to analyze the effect of changes in annual sales growth and EBITDA margins from 2007 to 2011. The analysis utilized (1) a range of operational sensitivities such that the target EBITDA margin that is achieved on a straight-line basis to 2011 ranges from 15.4% to 19.4%, (2) a range of compounded annual sales growth rates of 8.5% to 14.5% from 2007 to 2011, (3) a terminal EBITDA multiple of 11.0x and (4) a discount rate of 11.3% discounted to June 30, 2007. This analysis resulted in a range of implied present values per share of the Company’s common stock of $21.03 to $33.20.

 

In conducting the illustrative discounted cash flow analyses, Goldman Sachs used a range of discount rates derived by utilizing a weighted average cost of capital analysis. The applied discount rates were based upon Goldman Sachs’ judgment of an illustrative range based upon the above analysis. In order to calculate terminal values, Goldman Sachs selected exit multiples based on a review of the Company’s historical latest twelve month EBITDA multiples and the latest twelve month EBITDA multiples of selected companies which exhibited similar business characteristics to the Company or one of its business units.

 

Leveraged Buyout Analysis.   Goldman Sachs performed an illustrative leveraged buyout analysis using projections provided by the Company’s management. In performing the illustrative leveraged buyout analysis, Goldman Sachs assumed an illustrative internal rate of equity return to a hypothetical financial buyer of 20.0% and an exit at the end of 2011 at an EBITDA multiple of 11.0x. Based on (1) a range of operational sensitivities such that the target EBITDA margin that is achieved on a straight-line basis to 2011 ranges from 15.4% to 19.4%, and (2) a range of compounded annual sales growth rates of 8.5% to 14.5% from 2007 to 2011, the analysis resulted in illustrative implied prices of $24.97 to $34.19 per share at which a hypothetical financial buyer could acquire the Company and achieve the assumed illustrative internal rate of equity return of 20.0%.

 

Illustrative Recapitalization Analysis.   Goldman Sachs performed an illustrative recapitalization analysis to illustrate to the Board the implied effect on the Company’s 2008 and 2009 earnings per share resulting from a debt-financed repurchase by Oakley of a portion of its outstanding common stock at a price of $29.30 per share reflecting the same cash consideration that would be delivered to Oakley’s shareholders in the merger. In the illustrative recapitalization analysis, Goldman Sachs assumed that the Company used net proceeds from new debt financings of $200 million and $400 million to fund a share repurchase at a price of $29.30 per share of Company common stock. Goldman Sachs used projections for the Company provided by the Company’s management and IBES estimates and assumed the transactions occurred before the end of fiscal year 2007. The results of the analysis are summarized in the following table:

 

 

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or the transaction contemplated by the merger agreement.

 

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Company’s board of directors as to fairness from a financial point of view to the holders of shares of common stock of the Company of the $29.30 in cash per share of common stock to be received by the holders of such shares pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

 

The merger consideration was determined through arms’-length negotiations between the Company and Luxottica and was approved by the Company’s board of directors. Goldman Sachs participated in certain of the negotiations leading to the transaction contemplated by the merger agreement. Goldman Sachs did not, however, recommend any specific amount of consideration to the Company or its board of directors or that any specific amount of consideration constituted the only appropriate consideration for the transaction contemplated by the merger agreement.

 

As described above, Goldman Sachs’ opinion to the Company’s Board of Directors was one of many factors taken into consideration by the Company’s Board of Directors in making its determination to adopt the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex C.

 

Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and

acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes. Goldman Sachs acted as financial advisor to the Company in connection with, and participated in certain of the negotiations leading to, the transaction contemplated by the merger agreement. In addition, Goldman Sachs and its affiliates from time to time have provided certain investment banking and other financial services to Luxottica and its affiliates, including having acted as financial advisor to Luxottica in connection with its acquisition of Cole National Corporation in October 2004 and its sale of Things Remembered Inc. in September 2006. Goldman Sachs and its affiliates also may provide investment banking and other financial services to the Company, Luxottica and their respective affiliates in the future. In connection with the above-described investment banking and other financial services, Goldman Sachs has received, and may receive, compensation.

 

Goldman Sachs and its affiliates engage for their own accounts or the accounts of third parties in securities trading, investment management, principal investment, financial planning and benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services. In the ordinary course of these activities and services, Goldman Sachs and its affiliates may provide such services to the Company, Luxottica and their respective affiliates, and may at any time hold long or short positions, and actively trade or effect transactions in, the equity, debt or other securities and financial instruments (including bank loans and other obligations) of the Company and Luxottica.

 

The Board of Directors of Oakley selected Goldman Sachs as Oakley’s financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transaction contemplated by the merger agreement. Pursuant to a letter agreement, dated September 11, 2000, Oakley engaged Goldman Sachs to act as its financial advisor in connection with the transaction contemplated by the merger agreement. Pursuant to the terms of this engagement letter, Oakley will pay to Goldman Sachs a transaction fee of 0.85% of the aggregate consideration paid in the transaction contemplated by the merger agreement, or approximately $19.0 million. All of the transaction fee is payable upon consummation of the transaction contemplated by the merger agreement. In addition, Oakley has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including the fees and disbursements of Goldman Sachs’ outside attorneys, and to indemnify Goldman Sachs and related persons against certain liabilities arising out of its engagement. The investment banking division of Goldman Sachs has not had any material engagements with Oakley or any of its affiliates within the past two years for which it has received fees for services.

 

Our Financial Projections and Underlying Assumptions

 

The following is a summary of selected key assumptions underlying the projected financial information referenced in this proxy statement and provided (on a confidential basis) by us to Luxottica and Goldman Sachs in October 2006. These assumptions do not give effect to the merger. None of our independent auditors or any other independent accountants or financial advisors have compiled, examined or performed any procedures with respect to the projected financial information, nor have they expressed any opinion or given any form of assurance on the reasonableness of the assumptions. Projected financial information constitutes forward-looking statements. For information on factors that may cause our future financial results to vary materially, see “Forward-Looking Statements” beginning on page 66.

 

In preparing the forecast that was provided to Luxottica and Goldman Sachs, our management applied projected growth rates for net sales between 11.5% and 27.4% annually from 2007 to 2011. Operating and administrative expenses in 2007 to 2011 varied in relation to projected sales as well as product and channel mix, but, in all cases, the Company would experience selling, general and administrative (“SG&A”) expense leverage from slower growth in SG&A expense relative to sales and execute a shift of SG&A expense toward demand creation spending, which would directly support the Company’s growth.

 

Projected operating income margins in 2007 to 2011 ranged from 12.4% to 16.0%. The assumptions underlying these financial projections were different from the assumptions reflected in the guidance that we have provided to the public, which was generally more conservative. Further, given the past and expected

growth in our business, including through acquisitions, we used wider ranges in our estimates than we would have applied at lower growth rates.

 

Additional key assumptions we made when preparing the financial projections included that:

 

 

This is not a complete list of assumptions nor is the order of the assumptions noted above necessarily reflective of their relative importance to our financial projections. We believe the assumptions that our management used as a basis for the projected financial information were reasonable at the time this projected financial information was prepared, given the information our management had at the time. However, the projected financial information:

 

 

We cannot assure you that the projected financial information referred to in the proxy statement will be realized or that future financial results will not materially vary from such projections. We have not prepared any updated projections nor do we intend to update or revise assumptions or the related projected financial information.

 

As described above and subject to the limitations and assumptions set forth above, in October 2006 we provided financial projections to Luxottica and Goldman Sachs as summarized below:

 

(in thousands, except per share amounts and net new store count)

 

 

The projections regarding capital expenditures included in this table reflect updates to the October 2006 projected financial information and were provided to Luxottica in May 2007, in connection with the negotiation of the capital expenditures covenant in the merger agreement and prior to the execution of the merger agreement. No other financial information was updated and no other financial projections were provided.

 

Certain Effects of the Merger

 

If the merger is completed, all of our equity interests will be owned by Luxottica. None of our current shareholders will have any ownership interest in, or be a shareholder of, Luxottica or the Company after the completion of the merger. As a result, our current shareholders will no longer benefit from any increase in our value, nor will they bear the risk of any decrease in our value. Following the merger, Luxottica will benefit from any increase in our value and also will bear the risk of any decrease in our value.

 

Upon completion of the merger, each of our shareholders (other than those who properly assert their dissenters’ rights under Washington law) will be entitled to receive $29.30 in cash, without interest, for each share of our common stock held.

 

Each holder of options outstanding at the closing of the merger, whether or not vested, will be entitled to receive, upon the completion of the merger, a cash payment equal to the amount by which $29.30 exceeds the per share exercise price of the option, multiplied by the number of shares of our common stock underlying the option, without interest. At the effective time of the merger, all options to acquire shares of our common stock will be cancelled. In addition, each share of Company restricted stock that is outstanding prior to the merger will be treated as having been fully vested at the effective time of the merger and will be converted into the right to receive $29.30 per share in cash, without interest. All dividend equivalents, if any, credited to the account of each holder of restricted stock as of the effective time of the merger will be distributed to the holder at the effective time of the merger, without interest. See “— Interests of Certain Persons in the Merger” beginning on page 31.

 

The merger agreement provides that all performance units under the LTIP will be cancelled in connection with the merger and cease to exist, and, in its place, the LTIP will be modified by the Company prior to, but effective as of, the effective time of the merger. It is expected that the modified LTIP awards will take the following form: Immediately prior to the consummation of the merger, the Compensation and Stock Option Committee will determine the applicable Performance Percentages of current dollar and performance-unit targets that will be used in determining the award payouts under the LTIP, based on the outstanding awards at that time. Each participant’s Total Award will be payable in cash and equal to the sum of (i) the applicable Performance Percentage multiplied by the participant’s target cash award and (ii) the applicable Performance Percentage multiplied by the value of the participant’s target performance unit award. Payment of the Total Award will be made in two equal installments, generally at the closing of the merger and on the first anniversary of the closing (but not later than March 31, 2009), each subject to continued employment with Oakley on the applicable payment date.

 

Our common stock is registered as a class of equity security under the Exchange Act. Luxottica intends to terminate the registration of our common stock under the Exchange Act upon the Company’s application to the SEC as soon as practicable following the effective time of the merger. Termination of registration of our common stock under the Exchange Act will eliminate the Company’s obligation to furnish information to its shareholders and the SEC, and would make certain provisions of the Exchange Act, such as the short-swing trading provisions of Section 16(b) of the Exchange Act and the requirement to furnish a proxy statement in connection with a shareholders’ meeting pursuant to Section 14(a) of the Exchange Act, no longer applicable to the Company.

 

Plans for Oakley after the Merger

 

Upon consummation of the merger, Oakley’s common stock will cease to be publicly traded. Following the consummation of the merger, the registration of Oakley’s common stock and Oakley’s reporting obligations under the Exchange Act with respect to our common stock will be terminated upon application to the SEC. In

addition, upon consummation of the merger, our common stock will no longer be listed on any exchange or quotation system, including the New York Stock Exchange, and price quotations will no longer be available.

 

Conduct of Our Business if the Merger is Not Completed

 

In the event that the merger and the merger agreement are not approved by our shareholders or if the merger is not completed for any other reason, our shareholders would not receive any payment for their shares of our common stock. Instead, we would remain a stand-alone public company, our common stock would continue to be listed and traded on the New York Stock Exchange and our shareholders would continue to be subject to the same risks and opportunities as they currently are with respect to their ownership of our common stock. If the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of our shares, including the risk that the market price of our common stock may decline as the current market price of our stock may reflect a market assumption that the merger will be completed. From time to time, our Board of Directors would evaluate and review our business operations, properties, dividend policy and capitalization, and, among other things, make such changes as are deemed appropriate. In addition, our Board of Directors might seek to identify strategic alternatives to maximize shareholder value. If the merger and the merger agreement are not approved by our shareholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us would be offered or that our business, prospects or results of operations would not be adversely impacted.

 

Pursuant to the merger agreement, under certain circumstances, we are permitted to terminate the merger agreement and recommend an alternative transaction. See “The Merger Agreement — Termination of Merger Agreement” beginning on page 55.

 

Under certain circumstances, if the merger is not completed, we will be obligated to pay Luxottica a termination fee of $69.0 million. Under other sets of circumstances where there has been a failure to obtain certain antitrust regulatory clearances, Luxottica’s Merger Vehicle will be obligated to pay us a termination fee of $80.0 million (unconditionally guaranteed by Luxottica). See “The Merger Agreement — Termination Fees” beginning on page 57.

 

Financing for the Merger; Source and Amount of Funds

 

The merger is not subject to a financing contingency. Luxottica intends to fund the merger with cash on hand, available lines of credit and credit facilities to be available at the closing.

 

Interests of Certain Persons in the Merger

 

In considering the recommendation of the Board of Directors with respect to the merger, you should be aware that certain officers and directors of Oakley may have interests in the transaction that are different from, and/or in addition to, the interests of Oakley’s other shareholders. Our Board of Directors was aware of such interests and considered them, among other matters, in adopting the merger agreement and the transactions contemplated thereby, including the merger, and recommending that Oakley’s shareholders vote in favor of approving the merger and the merger agreement.

 

Continuation of Employment

 

Luxottica has indicated its intent to continue to employ members of Oakley’s management following the merger. In connection with their anticipated continued employment with Oakley, certain members of our management may be granted incentive equity in Luxottica and/or one or more of its subsidiaries following the effective time of the merger.

 

Directors’ and Officers’ Indemnification and Insurance

 

The merger agreement provides, for a period of six years following the effective time of the merger, for continuation of indemnification for individuals who were directors, officers, employees or agents of the

Company at or prior to the effective time of the merger and the maintenance by the Company (as the surviving corporation) of the Company’s current policies of directors’ and officers’ liability insurance or comparable policies including a “tail” policy for such six-year period.

 

The indemnification and insurance provisions of the merger agreement are more fully described under “The Merger Agreement — Indemnification of Directors and Officers; Insurance.”

 

Long-Term Incentive Plan

 

Each of the Company’s executive officers and other key employees participates in the Company’s Long-Term Incentive Plan. The performance measures set forth in the current LTIP relate principally to the Company’s financial performance in 2008. The merger agreement provides that all performance units under the LTIP will be cancelled in connection with the merger and cease to exist, and, in its place, the LTIP will be modified by the Company prior to, but effective as of, the effective time of the merger. It is expected that the modified LTIP awards will take the following form: Immediately prior to the consummation of the merger, the Compensation and Stock Option Committee will determine the applicable Performance Percentages of current dollar and performance-unit targets that will be used in determining the award payouts under the LTIP, based on the outstanding awards at that time. The Compensation and Stock Option Committee, in determining the Performance Percentages, will consider the Company’s financial performance through the date of such determination, together with projections for the Company’s business after consummation of the merger and other relevant factors. Each participant’s Total Award will be payable in cash and equal to the sum of (i) the applicable Performance Percentage multiplied by the participant’s target cash award and (ii) the applicable Performance Percentage multiplied by the value of the participant’s target performance unit award. Payment of the Total Award will be made in two equal installments, generally at the closing of the merger and on the first anniversary of the closing (but not later than March 31, 2009), each subject to continued employment with Oakley on the applicable payment date.

 

Continuation of Employee Benefits

 

Under the merger agreement, Luxottica has agreed to cause Luxottica’s Merger Vehicle to maintain certain compensation and benefits of employees for a limited period after the effective time of the merger. See “The Merger Agreement — Employees and Employee Benefits” beginning on page 53.

 

Treatment of Existing Stock Options and Restricted Stock

 

The merger agreement provides that each holder of an outstanding option to purchase the Company’s common stock (whether vested or unvested) will, at the effective time of the merger, be entitled to receive a cash payment in an amount equal to $29.30 minus the per share exercise price of the option, multiplied by the number of shares available for purchase under the option. In addition, each share of Company restricted stock that is outstanding prior to the merger will be treated as having been fully vested at the effective time of the merger and will be converted into the right to receive $29.30 per share in cash, without interest. All dividend equivalents, if any, credited to the account of each holder of restricted stock as of the effective time of the merger will be distributed to the holder at the effective time of the merger, without interest. See “The Merger Agreement — Treatment of Stock Options and Other Stock Rights” for a more complete description of the treatment of the relevant plans under which such stock options and other stock-based awards were issued.

 

The table below sets forth, as of August 20, 2007, for each of our directors, executive officers, and for such persons as a group:

 

 

 

 

 

 

Receipt of Certain Benefits by Mr. Jannard from Luxottica in Connection With the Non-Competition Agreement

 

As part of the non-competition agreement, Luxottica agreed that Mr. Jannard will continue to be entitled, during his lifetime, to full company-paid medical and health insurance for himself and his immediate family at a level no less favorable than that in effect for the benefit of the Company’s senior executive officers.

 

Additionally, in connection with the non-competition agreement and upon consummation of the merger, Luxottica will enter into certain agreements with Mr. Jannard or entities owned by Mr. Jannard continuing to grant him, among other things, the right to remove from the Company’s premises any and all materials containing the history of the Company as a business entity, including discontinued advertising and other marketing materials and product samples produced prior to May 1998, extending the term to the second anniversary of the effective time of the merger of a trademark licensing agreement benefiting Mr. Jannard indirectly through an entity owned by Mr. Jannard as well as extending the term to January 31, 2009 of the lease agreement and the time sharing agreements relating to the plane owned by Mr. Jannard (described below).

 

In 2003, the Company leased an aircraft from N2T, Inc. (“N2T”), an Oregon corporation owned by Mr. Jannard, under which the Company was to make aggregate annual lease payments of $90,000 as well as bear all costs and expenses of operating and maintaining the aircraft. Due to operational issues, Mr. Jannard returned the plane to the manufacturer in late 2003 and received a loaned plane to be used until a new plane was received. The Company subsequently terminated the lease agreement and, in December 2003, entered into

a new aircraft lease agreement (the “December 2003 Lease Agreement”) under which the Company is responsible only for the costs and expenses of operating and maintaining the loaned plane and is not responsible for making any lease payments for its use of the aircraft. In September 2005, the Company entered into the First Amendment to Aircraft Lease (the “First Amendment”) with N2T wherein, effective June 1, 2005, the Company was to make aggregate annual rent and maintenance payments of approximately $0.2 million to N2T. It was agreed that at such time that N2T received a new plane from the manufacturer, the First Amendment would automatically terminate and the provisions of the December 2003 Lease Agreement would govern. In January 2006, N2T received a new plane from the manufacturer, which triggered the termination of the First Amendment and the reversion to the December 2003 Lease Agreement. The Company subsequently entered into time sharing agreements with each of Mr. Jannard and certain entities owned or controlled by him in order for Mr. Jannard or those entities owned or controlled by him to share in the use of the new plane.

 

In November 2006, the Company and N2T terminated, by mutual agreement effective as of January 30, 2006, the December 2003 Lease Agreement and entered into a new aircraft lease agreement (the “Lease Agreement”), effective January 30, 2006, under which the Company pays to N2T to lease the aircraft a base annual rent of $90,000 per year and an additional rent of up to $7,955 per month. The Company also pays all property taxes, tolls, license fees or assessments and landing fees that may be levied or assessed by any government against the aircraft or use of the aircraft, in each case to the extent attributable to the period of the term of the Lease Agreement, and any rental, sales or use tax that may be imposed on or with respect to the amount of the rent to be paid under the Lease Agreement. The Lease Agreement has a one-year initial term and, unless terminated by either party, renews automatically for successive one-year terms. The Company paid approximately $0.2 million in 2006 and $0.1 million in 2005 to N2T for the rental and maintenance fees on such aircraft; the Company made no lease or rental payments to N2T during 2004. The Company incurred approximately $0.8 million in 2006, $0.9 million in 2005 and $1.8 million in 2004 in costs and expenses associated with the aircraft, net of amounts reimbursed by Mr. Jannard and his affiliates of approximately $1.3 million in 2006, $1.4 million in 2005 and $0.1 million in 2004 for operating costs related to use of the aircraft unrelated to the Company’s business.

 

Severance Arrangements under Mr. Olivet’s Employment Agreement, Mr. Newcomb’s Severance Agreement, Our Severance Plans, Our LTIP Award Agreements and Our Deferred Compensation Plans

 

Mr. Olivet’s employment agreement provides that if Mr. Olivet is terminated without cause or if Mr. Olivet terminates employment for good reason and in consideration for a unilateral release of all known or unknown claims against Oakley as of the severance date, Mr. Olivet will receive: (i) 18 months of base compensation; (ii) the accrued but unpaid bonus attributable to the calendar year ended immediately prior to the calendar year in which the termination occurred; (iii) the pro rata portion of the bonus payable for the calendar year in which termination occurred, based on actual results through the calendar quarter ended immediately prior to the date of termination (the “Stub Period”) compared to the fiscal target related to such bonus period; (iv) the target bonus divided by 12 and multiplied by 18 minus the number of months in the Stub Period; (v) the accelerated vesting for that portion of option shares and restricted stock that are outstanding as of the date of termination, if any, which would have vested within 12 months after the date of termination; and (vi) payment of continuation of certain benefit premiums for coverage under Oakley’s medical or dental plans for up to 18 months following termination of employment. If such termination occurs within 24 months following a change in control, all unvested option shares and restricted stock will become immediately vested and exercisable. Any payments made to Mr. Olivet following or in connection with a change in control will be grossed-up as necessary to adjust for the imposition of excise taxes under Section 280G of the Internal Revenue Code. Mr. Olivet’s agreement also contains non-solicitation provisions effective through the term of the agreement and for a period of eighteen months thereafter.

 

Additionally, if Mr. Olivet is terminated without cause or if Mr. Olivet terminates his employment for good reason after July 1 of any fiscal year and Mr. Olivet is granted restricted stock that is subject to pre-established performance goals that would trigger accelerated vesting of the restricted stock, which the plan administrator concludes were met at the end of such fiscal year, then those shares of restricted stock that are

subject to the performance acceleration for such fiscal year will become vested on the date the plan administrator determines the performance acceleration criteria were met, with the exact number of restricted shares vesting being based pro rata on the number of days such participant was employed by the Company in such fiscal year.

 

On May 31, 2007, in connection with its regular review of the Company’s severance arrangements and unrelated to the proposed transaction, the Compensation and Stock Option Committee approved an amendment to Mr. Olivet’s employment agreement which provides that in the event Mr. Olivet is terminated without cause or terminates his employment for good reason absent a change in control that occurs prior to the certification of the LTIP awards, to be eligible for any payment of awards under the LTIP, Mr. Olivet must be employed for at least two-thirds (2/3) of the performance period underlying the awards. If so employed, all equity (performance unit) and cash awards under the LTIP granted to Mr. Olivet would be paid out, if earned based on meeting the Company performance measures as set forth in the award grant, at fifty percent (50%) of the pro rated amount that is calculated based on the percentage of time employed during the performance period for such awards. Such awards would be paid out in full on the first date that any payment is made on a similar award, based on the same performance criteria and performance period, to any other officer of the Company who is still employed by the Company through such payment date. In the event Mr. Olivet is terminated without cause or terminates his employment for good reason in connection with, or within twenty-four (24) months following, a change in control that occurs prior to the certification of the LTIP awards, the provisions above apply with three exceptions. First, Mr. Olivet need not be employed for at least two-thirds (2/3) of the performance period underlying the awards to be eligible for any payment of awards under the LTIP. Second, cash awards would be paid out at one hundred percent (100%) of the pro rated amount payable rather than fifty percent (50%). Third, performance unit awards would be paid out at the greater of (x) one hundred percent (100%) of the pro rated amount payable rather than fifty percent (50%) and (y) one hundred percent (100%) of the shares payable upon immediate vesting of the target shares. In the event Mr. Olivet is terminated without cause or terminates his employment for good reason following certification of the LTIP awards, one hundred percent (100%) of his then-unvested cash and performance unit awards would become immediately vested as of the termination date. Such awards would be paid out in full within 10 business days following the effective date of a release of claims against the Company. Notwithstanding the foregoing, in the event Mr. Olivet is terminated without cause or terminates his employment for good reason following the consummation of the merger, he would be entitled to immediate payment of the remaining 50% of his modified LTIP awards that would otherwise be payable on the anniversary of the consummation of the merger.

 

Assuming the merger is completed on December 1, 2007 and that thereafter Mr. Olivet is terminated without cause or terminates his employment for good reason in connection therewith, the estimated cost of the severance benefits payable to Mr. Olivet would be $5,639,504. This amount is in addition to the LTIP awards payable on the first anniversary of the closing as set forth on page 33.

 

Mr. Newcomb is party to a severance agreement with the Company that provides for certain severance payments to Mr. Newcomb if (i) Mr. Newcomb is terminated without cause or if he terminates his employment for good reason following a change in control and (ii) he executes a release releasing Oakley of all actual and potential claims and disputes Mr. Newcomb may have relating to his employment or termination. If Mr. Newcomb is so terminated and he executes such a release, he will be entitled to an amount equal to his pro rata share of the bonus otherwise payable under the Company’s executive officer performance bonus plan plus the acceleration of vesting of that portion of his options to purchase Company common stock outstanding as of the date of such termination that would have become vested during the nine-month period immediately following such date of termination had he remained continuously employed during the period.

 

The Company maintains two severance plans, the Executive Severance Plan and the Officer Severance Plan, each of which was amended and restated as of June 3, 2004, and further amended and restated as of May 31, 2007. Mr. Olivet is not a party to either severance plan.

 

The Executive Severance Plan provides that, in the event a participant is terminated by the Company other than for cause, death or disability, or the participant terminates employment for good reason within twelve (12) months of a change in control in the Company (each, a “Severance”), subject to the participant

entering into a release of claims, the participant will be entitled to (i) the sum of (x) the participant’s annual base salary and (y) the aggregate amount of commissions paid to the participant in the immediately preceding 12 months, (ii) a pro-rata portion of the bonus which would have been payable to the participant for the year in which the termination occurs, as determined by the plan administrator, (iii) payment by the Company of the participant’s group health insurance premiums for a period of ninety (90) days and (iv) if approved by the plan administrator, extension of the post-termination option exercise period. If the Severance is not in connection with a change in control, the participant would also be entitled to the acceleration of vesting of that portion of the participant’s outstanding equity based awards that would have become vested based solely on the passage of time during the nine-month period immediately following the severance date had the participant remained continuously employed during such period. If the Severance is in connection with a change in control of the Company, the participant would also be entitled to immediate vesting of 100% of the participant’s granted equity based awards.

 

Additionally, if the participant’s employment was terminated after July 1 of any fiscal year and the participant was granted restricted stock that is subject to pre-established performance goals that would trigger accelerated vesting of the restricted stock, which the plan administrator concluded were met at the end of such fiscal year, then those shares of restricted stock that are subject to the performance acceleration for such fiscal year would become vested on the date the plan administrator determines the performance acceleration criteria were met, with the exact number of restricted shares vesting being based pro rata on the number of days such participant was employed by the Company in such fiscal year.

 

On May 31, 2007, in connection with its regular review of the Executive Severance Plan and unrelated to the proposed transaction, the Compensation and Stock Option Committee amended the Executive Severance Plan to provide additionally that in the event of a Severance absent a change in control that occurs prior to the certification of the LTIP awards, to be eligible for any payment of awards under the LTIP, the participant must be employed for at least two-thirds (2/3) of the performance period underlying the awards. If so employed, all equity (performance unit) and cash awards under the LTIP granted to the participant would be paid out, if earned based on meeting the Company performance measures as set forth in the award grant, at fifty percent (50%) of the pro rated amount that is calculated based on the percentage of time employed during the performance period for such awards. Such awards would be paid out in full on the first date that any payment is made on a similar award, based on the same performance criteria and performance period, to any other officer of the Company who is still employed by the Company through such payment date. In the event of a Severance following a change in control that occurs prior to the certification of the LTIP awards, the provisions above apply with three exceptions. First, the participant need not be employed for at least two-thirds (2/3) of the performance period underlying the awards to be eligible for any payment of awards under the LTIP. Second, cash awards would be paid out at one hundred percent (100%) of the pro rated amount payable rather than fifty percent (50%). Third, performance unit awards would be paid out at the greater of (x) one hundred percent (100%) of the pro rated amount payable rather than fifty percent (50%) and (y) one hundred percent (100%) of the shares payable upon immediate vesting of the target shares. In the event of a Severance that occurs following certification of the LTIP awards, one hundred percent (100%) of the participant’s then unvested cash and performance unit awards would become immediately vested as of the termination date. Such awards would be paid out in full within 10 business days following the effective date of a release of claims against the Company. Notwithstanding the foregoing, in the event a participant is terminated without cause or terminates for good reason following the consummation of the merger, with respect to his modified LTIP awards, he would be entitled to immediate payment of remaining 50% of his LTIP award that would otherwise be paid on the anniversary of the consummation of the merger.

 

Mr. Baden has been designated as an eligible employee under the Executive Severance Plan.

 

Assuming the merger is completed on December 1, 2007 and that thereafter Mr. Baden is terminated without cause or terminates his employment for good reason in connection therewith, the estimated cost of the severance benefits payable to Mr. Baden would be $586,768. This amount is in addition to the LTIP awards payable on the first anniversary of the closing as set forth on page 33.

The Officer Severance Plan provides that, in the event a participant is terminated by the Company other than for cause, death or disability, or the participant terminates employment for good reason within 12 months of a change in control of the Company (each a “Severance”), subject to the participant entering into a release of claims, the participant will be entitled to (i) the sum of (x) fifty percent (50%) of the participant’s annual base salary, (y) one additional month’s base salary for each completed year of employment with the Company in excess of five years (not to exceed six months) and (z) the aggregate amount of commissions paid to the participant in the immediately preceding six months, (ii) a pro-rata portion of the bonus which would have been payable to the participant for the year in which the termination occurs, as determined by the plan administrator, (iii) payment by the Company of the participant’s group health insurance premiums for a period of ninety (90) days and (iv) if approved by the plan administrator, extension of the post-termination option exercise period. If the Severance is not in connection with a change in control, the participant would also be entitled to the acceleration of vesting of that portion of the participant’s outstanding equity based awards that would have become vested based solely on the passage of time during the six-month period immediately following the severance date had the participant remained continuously employed during such period. If the Severance is in connection with a change in control of the Company, the participant would also be entitled to immediate vesting of 100% of the participant’s granted equity-based awards.

 

Additionally, if the participant’s employment was terminated after July 1 of any fiscal year and the participant was granted restricted stock that is subject to pre-established performance goals that would trigger accelerated vesting of the restricted stock, which the plan administrator concluded were met at the end of such fiscal year, then those shares of restricted stock that are subject to the performance acceleration for such fiscal year will become vested on the date the plan administrator determines the performance acceleration criteria were met, with the exact number of restricted shares vesting being based pro rata on the number of days such participant was employed by the Company in such fiscal year.

 

On May 31, 2007, in connection with its regular review of the Officer Severance Plan and unrelated to the proposed transaction, the Compensation and Stock Option Committee amended the Officer Severance Plan to provide additionally that in the event of a Severance absent a change in control that occurs prior to the certification of the LTIP awards, to be eligible for any payment of awards under the LTIP, the participant must be employed for at least two-thirds (2/3) of the performance period underlying the awards. If so employed, all equity (performance unit) and cash awards under the LTIP granted to the participant would be paid out, if earned based on meeting the Company performance measures as set forth in the award grant, at fifty percent (50%) of the pro rated amount that is calculated based on the percentage of time employed during the performance period for such awards. Such awards would be paid out in full on the first date that any payment is made on a similar award, based on the same performance criteria and performance period, to any other officer of the Company who is still employed by the Company through such payment date. In the event of a Severance following a change in control that occurs prior to the certification of the LTIP awards, the provisions above apply with three exceptions. First, the participant need not be employed for at least two-thirds (2/3) of the performance period underlying the awards to be eligible for any payment of awards under the LTIP. Second, cash awards would be paid out at one hundred percent (100%) of the pro rated amount payable rather than fifty percent (50%). Third, performance unit awards would be paid out at the greater of (x) one hundred percent (100%) of the pro rated amount payable rather than fifty percent (50%) and (y) one hundred percent (100%) of the shares payable upon immediate vesting of the target shares. In the event of a Severance that occurs following certification of the LTIP awards, one hundred percent (100%) of the participant’s then unvested cash and performance unit awards would become immediately vested as of the termination date. Such awards would be paid out in full within 10 business days following the effective date of a release of claims against the Company. Notwithstanding the foregoing, in the event a participant is terminated without cause or terminates for good reason following the consummation of the merger, with respect to his modified LTIP awards, he would be entitled to immediate payment of the remaining 50% of his LTIP award that would otherwise be paid on the anniversary of the consummation of the merger.

 

Messrs. Shields, Krause, Lane, Bowers, Gordon and Lykos have been designated as eligible employees under the Officer Severance Plan.

Assuming the merger is completed on December 1, 2007 and that thereafter the participants under the Officer Severance Plan are terminated without cause or terminate their respective employments for good reason in connection therewith, the estimated cost of the severance benefits payable to the participants would be: Richard Shields, $277,175; Jon Krause, $419,786; Kent Lane, $418,757; Scott Bowers, $339,001; Donna Gordon, $229,422; and Cos Lykos, $269,896. These amounts are in addition to the LTIP awards payable on the first anniversary of the closing as set forth on page 33.

 

Change in Control Provisions under Our Deferred Compensation Plans

 

Both our Deferred Compensation Plan and our 2005 Deferred Compensation Plan provide that in the event of a change in control, the plan would be terminated as of the effective date of such event and the account balance of each participant (which is fully vested) would then be paid, in a lump sum, within 30 days following the date of the change of control unless Luxottica agrees in writing to continue the plan on terms at least as favorable to participants as in effect immediately prior to the change in control.

 

In the event that Luxottica does not agree to continue the plan, the estimated amount of benefits payable to the participants would be: Scott Olivet, $43,933; Colin Baden, $153,757; Jon Krause, $360,762; and Kent Lane, $281,162.

 

Material United States Federal Income Tax Consequences of the Merger

 

General.   The following is a summary of the anticipated material United States federal income tax consequences of the merger to our shareholders. This summary is based upon existing United States federal income tax law which is subject to change or differing interpretations, possibly with retroactive effect. This discussion is limited to United States persons who hold their shares of our common stock as “capital assets” for United States federal income tax purposes (generally, assets held for investment). This discussion does not address all aspects of United States federal income taxation that may be relevant to a particular shareholder in light of that shareholder’s particular circumstances, or to those shareholders that may be subject to special treatment under United States federal income tax law (for example, life insurance companies, tax-exempt organizations, financial institutions, taxpayers that are not U.S. persons, dealers or brokers in securities or currencies, partnerships and their partners or shareholders who hold shares of our common stock as part of a hedging, “straddle,” conversion, constructive sale or other integrated transaction for United States federal income tax purposes or who acquired their shares of our common stock through the exercise of director or employee stock options or other compensation arrangements). In addition, the discussion does not address any aspect of foreign, state or local taxation or estate and gift taxation that may be applicable to our shareholders. Shareholders are urged to consult their tax advisors regarding the United States federal, state, local and foreign tax considerations of the merger.

 

Consequences of the Merger to Our Shareholders.   The receipt of cash in exchange for shares of our common stock pursuant to the merger will be a taxable transaction for United States federal income tax purposes. In general, a shareholder who surrenders shares of our common stock in exchange for cash pursuant to the merger will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the amount of cash received and such shareholder’s adjusted tax basis in the shares surrendered. Gain or loss will be calculated separately for each block of shares surrendered in the merger. Such capital gain or loss will generally be long-term gain or loss provided that a shareholder has held such shares for more than one year as of the closing date of the merger. The deductibility of capital loss is subject to limitations.

 

Litigation

 

On June 26, 2007, Pipefitters Local No. 636 Defined Benefit Plan filed a purported class action complaint, Case No. 07CC01306, in the Superior Court of California, County of Orange, on behalf of itself and all other shareholders of Oakley except those named as defendants and any person, firm, trust, corporation or other entity related to or affiliated with any defendant, against Scott Olivet, Jim Jannard, Tom Davin, Mary

George, Jeff Moorad, Frits van Paasschen, Michael J. Puntoriero and Greg Trojan, who are all of our directors, and Oakley (“Defendants”).

 

The complaint alleges, among other things, that Defendants violated their fiduciary duties to shareholders by approving a transaction with Luxottica and claims that the price per share fixed by the merger agreement is inadequate and unfair. The complaint seeks, among other things, (1) class action status; (2) to enjoin the Defendants from consummating the proposed merger; (3) to declare that the merger agreement was entered into in breach of Defendants’ fiduciary duties; (4) to rescind, to the extent already implemented, the proposed merger; and (5) to award plaintiffs the costs and disbursements of the action, including reasonable attorneys’ and experts’ fees.

 

On July 30 and July 31, 2007, Defendants filed demurrers to the complaint. On August 30, 2007, the Court sustained Defendants’ demurrers and granted plaintiff 15 days’ leave to amend.

 

On September 14, 2007, the plaintiff filed an amended complaint, seeking the same relief as the original complaint. The amended complaint contains similar allegations as the original complaint and also adds allegations for breach of fiduciary duty based on a purported failure to disclose certain information in the Company’s preliminary proxy statement filed with the SEC on September 7, 2007 in connection with the merger.

 

On October 9, 2007, Defendants filed a demurrer to the amended complaint, which is currently scheduled to be heard by the Superior Court on November 1, 2007.

 

The Company believes that the allegations are without merit.

 

Governmental and Regulatory Clearances

 

HSR Review

 

Transactions such as the merger are reviewed by the United States Department of Justice and the United States Federal Trade Commission to determine whether they comply with applicable antitrust laws. Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”), the merger may not be completed until the expiration or termination of a waiting period following the filing of notification reports with the Department of Justice and the Federal Trade Commission by Luxottica and the Company. Luxottica and the Company filed notification reports with the Department of Justice and the Federal Trade Commission under the HSR Act on July 25, 2007. Early termination of the applicable waiting period under the HSR Act was granted on August 24, 2007.

 

The Department of Justice and the Federal Trade Commission frequently scrutinize the legality under the antitrust laws of transactions such as the merger. At any time before or after the merger, either the Department of Justice or the Federal Trade Commission could take action under the antitrust laws as it deems necessary or desirable in the public interest, including by seeking to enjoin the merger or by seeking the divestiture of substantial assets of Luxottica and the Company or their subsidiaries. Private parties and state attorneys general may also bring actions under the antitrust laws under certain circumstances. While the parties believe that the proposed merger does not violate the antitrust laws, there can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if a challenge is made, of the result.

 

Foreign Regulatory Approvals

 

Clearance was obtained in Germany on August 28, 2007, in the United Kingdom on October 12, 2007 and in Australia on October 15, 2007. The proposed transaction is still subject to regulatory approval in South Africa.

 

Exon-Florio Review

 

The 1988 Exon-Florio provision of the Defense Production Act of 1950, as amended, empowers the President of the United States to prohibit or suspend an acquisition of, or investment in, a U.S. company by a

“foreign person” if the President, after investigation, finds credible evidence that the foreign person might take action that threatens to impair the national security of the United States and that other provisions of existing law do not provide adequate and appropriate authority to protect the national security. By a 1988 executive order, the President delegated to the Committee on Foreign Investment in the United States, or CFIUS, the authority to receive notices of proposed transactions, determine when an investigation is warranted, conduct investigations and submit recommendations to the President to suspend or prohibit the completion of transactions or to require divestitures of completed transactions.

 

A party or parties to a transaction may, but are not required to, submit to CFIUS a voluntary notice of the transaction. CFIUS has 30 calendar days from the date of acceptance of the submission to decide whether to initiate a formal investigation. If CFIUS declines to investigate, it sends a “no action” letter, and the review process is complete. If CFIUS decides to investigate, it has 45 calendar days in which to prepare a recommendation to the President of the United States, who must then decide within 15 calendar days whether to block the transaction. If the parties to a transaction do not make a voluntary CFIUS filing, CFIUS may initiate a review of the transaction post-closing, with the risk that a Presidential order may be issued to unwind the transaction.

 

Together with Luxottica, we submitted a notice of the merger to CFIUS, in accordance with the regulations implementing the Exon-Florio provision, on August 16, 2007 and received approval from CFIUS on September 17, 2007.

 

 

These expenses will not reduce the merger consideration to be received by our shareholders.

 

Dissenters’ Rights

 

Shareholders who do not vote in favor of approval of the merger agreement and the transactions contemplated thereby, including the merger, and who otherwise comply with the procedures for preserving dissenters’ rights under the applicable statutory provisions of the Washington Business Corporation Act, or the WBCA, summarized elsewhere in this proxy statement, may demand payment of the “fair value” of their shares in connection with the consummation of the merger. See “Dissenters’ Rights” beginning on page 61 and Annex B.

 

THE PARTIES TO THE MERGER

 

Oakley

 

We are a Washington corporation with headquarters in Foothill Ranch, California. We are a global leader in sport performance optics including sunglasses, goggles, prescription eyewear and electronically-enabled eyewear. Headquartered in Southern California, our optics brand portfolio includes Dragon, Eye Safety Systems, Mosley Tribes, Oakley and Oliver Peoples, along with Fox Racing and Paul Smith Spectacles under licenses. In addition to our global wholesale business, we operate retail chains including Oakley Stores, Sunglass Icon, The Optical Shop of Aspen, Oliver Peoples and Bright Eyes. We also offer an array of Oakley-branded apparel, footwear, watches and accessories. Our principal executive offices are located at One Icon, Foothill Ranch, California 92610. Our telephone number is (949) 951-0991. For more information about us, please visit our website at www.oakley.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference. Our common stock is publicly traded on the New York Stock Exchange under the symbol “OO.”

 

Luxottica

 

Luxottica is an Italian corporation with its headquarters in Milan, Italy. Luxottica is a global leader in the design, manufacture and distribution of eyewear, with over 5,800 optical and sun retail stores in North America, Asia-Pacific, China and Europe and a strong brand portfolio that includes the license brands Bvlgari, Burberry, Chanel, Dolce & Gabbana, Donna Karan, Polo Ralph Lauren, Prada and Versace, and the key house brands Arnette, Persol, Ray-Ban, REVO and Vogue. In addition to a global wholesale network across 130 countries, Luxottica manages leading retail brands such as LensCrafters and Pearle Vision in North America, OPSM and Laubman & Pank in Asia-Pacific and Sunglass Hut globally. Luxottica’s manufacturing activities are carried out through six production facilities in Italy and two manufacturing facilities in China. The principal office address of Luxottica is Via C. Cantù 2, Milan 20123, Italy. The telephone number at the principal office is (011) 39-02-863341. For more information about Luxottica, please visit its website at www.luxottica.com. Luxottica’s website address is provided as an inactive textual reference only. The information provided on its website is not part of this proxy statement, and therefore is not incorporated by reference. Luxottica’s American Depositary Shares are listed on the New York Stock Exchange and its ordinary shares are listed on the Mercato Telematico Azionario della Borsa Italiana S.p.A., the Italian Stock Exchange, in each case under the symbol “LUX.”

 

Luxottica’s Merger Vehicle

 

Luxottica’s Merger Vehicle is a Washington corporation that was formed by Luxottica on June 15, 2007 solely for the purpose of completing the proposed merger. Upon the completion of the merger, Luxottica’s Merger Vehicle will cease to exist and Oakley will continue as the surviving corporation. Luxottica’s Merger Vehicle is indirectly wholly owned by Luxottica and has not engaged in any business except as contemplated by the merger agreement. The principal office address of Luxottica’s Merger Vehicle is c/o Corporation Service Company, 6500 Harbour Heights Parkway, Suite 400, Mukilteo, Washington 98275.

 

THE SPECIAL MEETING

 

Date, Time and Place of the Special Meeting

 

The special meeting will be held at Oakley’s headquarters at One Icon, Foothill Ranch, California 92610, on November 7, 2007 at 10:00 a.m. Pacific Standard Time.

 

The Purpose

 

This proxy statement is being furnished to our shareholders as part of the solicitation of proxies by our Board of Directors (consisting of Jim Jannard, Scott Olivet, Tom Davin, Mary George, Jeff Moorad, Frits van Paasschen, Michael J. Puntoriero and Greg Trojan) for use at a special meeting of shareholders. At the special meeting, Oakley shareholders will be asked:

 

 

A copy of the merger agreement is attached to this proxy statement as Annex A. This proxy statement and the enclosed form of proxy are first being mailed to our shareholders on or about October 17, 2007.

 

On June 20, 2007, the merger agreement was approved by both (i) the members of our Board of Directors other than Mr. Jannard, our Chairman of the Board and holder of approximately 63.8% of the outstanding shares of our common stock, and Mr. Olivet, our Chief Executive Officer, and (ii) by our entire Board of Directors by unanimous vote. Our Board of Directors recommends that you vote “FOR” the approval of the merger and the merger agreement.

 

Our Board of Directors knows of no other matter that will be presented for consideration at the special meeting. If any other matter properly comes before the special meeting, including any postponement or adjournment of the special meeting, the persons named in the enclosed form of proxy or their substitutes will vote in accordance with their best judgment on such matters.

 

Record Date; Quorum and Voting

 

The holders of record of our common stock, par value $0.01 per share, as of the close of business on October 15, 2007, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. On the record date, there were 69,698,034 shares of our common stock outstanding, with each share entitled to one vote.

 

The holders of a majority of the outstanding shares of our common stock on the record date, represented in person or by proxy, will constitute a quorum for purposes of the special meeting. A quorum is necessary to hold the special meeting. Any shares of our common stock held in treasury by the Company or held by any of our subsidiaries are not considered to be outstanding for purposes of determining a quorum. Abstentions and broker non-votes will be counted as shares present and entitled to vote for the purposes of determining a quorum. “Broker non-votes” result when brokers are precluded from exercising their voting discretion with respect to the approval of non-routine matters such as the merger proposal, and, thus, absent specific instructions from the beneficial owner of those shares, brokers are not empowered to vote the shares with respect to the approval of those proposals.

 

The approval of the merger and the merger agreement requires the affirmative vote of holders representing two-thirds of the outstanding shares of our common stock on October 15, 2007, the record date for the special meeting. Shares that are present but not voted, either by abstention or non-vote (including broker non-vote), will be counted for purposes of establishing a quorum.

 

As of October 15, 2007, the record date for shareholders entitled to vote at the special meeting, our directors and current executive officers owned, in the aggregate, 44,595,951 shares of our common stock, or collectively approximately 64.9% of the outstanding shares of our common stock.

 

As a condition to the execution of the merger agreement, Mr. Jannard executed a voting agreement pursuant to which he agreed to vote in favor of the approval of the merger and the merger agreement and against any proposal made in opposition to, or in competition with, the consummation of the merger, subject to certain exceptions. Mr. Jannard holds 44,426,400 shares, or approximately 63.8%, of our outstanding common stock. The voting agreement will terminate upon the earliest to occur of the termination of the merger agreement in accordance with its terms, the first day immediately following the date on which our shareholders have approved the merger and the merger agreement, the amendment of or waiver of any provision of the merger agreement in a manner that reduces the consideration payable to Mr. Jannard in the merger or is materially adverse to Mr. Jannard, Luxottica’s Merger Vehicle’s or Luxottica’s material violation of the terms of the voting agreement, and our Board of Directors changing its recommendation that you approve the merger and the merger agreement. The merger agreement will terminate in accordance with its terms if the merger has not been consummated by March 20, 2008, subject to certain exceptions. See “The Merger Agreement — Voting Agreement” beginning on page 58.

 

The approval of any proposal to postpone or adjourn the special meeting, if necessary, in the event that, among other reasons, we determine that failure to postpone or adjourn the special meeting would result in a violation of our Board of Directors’ fiduciary duties under Washington law or a violation of United States federal securities laws, requires the affirmative vote of a majority of those shares represented in person or by proxy at the special meeting. The persons named as proxies may propose and vote for one or more postponements or adjournments of the special meeting.

 

Under Washington law, holders of shares of our common stock are entitled to dissenters’ rights in connection with the merger. In order to assert dissenters’ rights, you must comply with all applicable requirements of Washington law. See “Dissenters’ Rights” beginning on page 61 and Annex B for information on the requirements of Washington law regarding dissenters’ rights.

 

How You Can Vote

 

Holders of each share of our common stock outstanding on October 15, 2007, the record date for shareholders entitled to vote at the special meeting, are entitled to vote at the special meeting. Approval of the merger and the merger agreement requires the affirmative vote of holders representing two-thirds of the outstanding shares of our common stock as of the record date. Because approval of the merger and the merger agreement requires the approval of holders representing two-thirds of the outstanding shares of our common stock, failure to vote your shares (including if you hold your shares through a broker or other nominee) will have exactly the same effect as a vote “against” the approval of the merger and the merger agreement.

 

If you hold your shares in record name, you may vote your shares as follows:

 

Voting by Mail.   You can vote your proxy by mail. If you choose to vote by mail, simply mark your proxy, date and sign it, and return it in the enclosed envelope.

 

Voting in Person.   You can vote by appearing and voting in person at the special meeting.

 

If you vote your shares of our common stock by submitting a proxy, your shares will be voted at the special meeting as you indicated on your proxy card. If no instructions are indicated on your signed proxy card with regard to a proposal, all of your shares of our common stock will be voted “FOR” any such proposal. You should return a proxy by mail even if you plan to attend the special meeting in person.

If you hold your shares in “street name,” meaning that they are registered in the name of a broker, nominee, fiduciary or other custodian, only that broker, nominee, fiduciary or other custodian can execute a proxy and vote your shares, and that broker, nominee, fiduciary or other custodian can do so only after receiving your specific instructions. Your broker, nominee, fiduciary or other custodian should provide you with a voting instruction form for your use to provide them with instructions as to how to vote your shares at the special meeting. If your shares are held of record in “street name” by a broker, nominee, fiduciary or other custodian and you wish to vote in person at the special meeting, you must obtain from the record holder a “legal proxy” issued in your name.

 

Stock Ownership and Interests of Certain Persons

 

Certain members of our management and Board of Directors have interests that may be different from and/or in addition to those of shareholders generally. Luxottica has indicated its intent to continue to employ certain members of Oakley’s management following the merger. Please read “Special Factors — Interests of Certain Persons in the Merger” beginning on page 31.

 

How You May Revoke or Change Your Vote

 

You can revoke your proxy at any time before it is voted at the special meeting by:

 

 

If your shares are held in street name through a broker or other agent, you must follow instructions received from such broker or agent which were provided with this proxy statement in order to revoke your vote or to vote at the special meeting.

 

Proxy Solicitation

 

We will pay the costs of soliciting proxies for the special meeting. Further solicitation of proxies may be made by telephone, telegraph, fax or personal interview by the directors, officers and employees of the Company and its affiliates, who will not receive additional compensation for the solicitation. The Company will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to shareholders.

 

Adjournments

 

Although it is not expected, the special meeting may be postponed or adjourned in the event that, among other reasons, we determine that failure to postpone or adjourn the special meeting would result in a violation of our Board of Directors’ fiduciary duties under Washington law or a violation of United States federal securities laws. In the event of such postponement, we will hold or resume the special meeting on the earliest date that would not violate our Board of Directors’ fiduciary duties under Washington law or United States federal securities laws. If the special meeting is postponed or adjourned, shareholders who have already sent in their proxies will be able to revoke them at any time prior to their use. The persons named as proxies may propose and vote for one or more postponements or adjournments of the special meeting.

 

If the special meeting is adjourned or postponed to a different date, time or place, the Company does not need to give notice of the new date, time or place if the new date, time or place is announced at the special meeting before adjournment or postponement. However, if a new record date is or must be set in accordance with Washington law for the adjourned or postponed meeting, notice of the adjourned or postponed meeting must be given to the persons who are shareholders as of the new record date.

 

THE MERGER AGREEMENT

 

The following summary of the material terms of the merger agreement is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A. The merger agreement has been attached to this proxy statement to provide shareholders with information regarding its terms. It is not intended to provide any other factual, business or operational information about the Company, Luxottica or Luxottica’s Merger Vehicle. In particular, the Company’s representations and warranties contained in the merger agreement are qualified by information in the disclosure schedule provided by the Company to Luxottica and Luxottica’s Merger Vehicle in connection with the signing of the merger agreement. The disclosure schedule contains information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the merger agreement. Moreover, certain representations and warranties in the merger agreement were made as of a specified date, may be subject to a contractual standard of materiality different from those generally applicable under federal securities laws, may be modified in important part by the underlying disclosure schedule which is not filed publicly, or may have been used for the purpose of allocating risk between the Company, Luxottica and Luxottica’s Merger Vehicle rather than establishing matters as facts. Accordingly, you should not rely on the representations and warranties in the merger agreement as characterizations of the actual state of facts about the Company, Luxottica or Luxottica’s Merger Vehicle.

 

This summary may not contain all of the information about the merger agreement that is important to you. You should carefully read the merger agreement in its entirety, as it is the legal document that contains the terms and conditions of the merger.

 

The Merger

 

The merger agreement provides that, upon the terms and subject to the conditions of the merger agreement and the Washington Business Corporation Act (the “WBCA”), Luxottica’s Merger Vehicle will be merged with and into the Company, the separate corporate existence of Luxottica’s Merger Vehicle will cease, and the Company will continue as the surviving corporation and become an indirect wholly owned subsidiary of Luxottica. The surviving corporation in the merger is sometimes referred to in this proxy as the surviving corporation.

 

Closing of the Merger

 

The closing of the merger will take place on the fifth business day following the date of the satisfaction or waiver of the conditions set forth in the merger agreement or at such other time as Luxottica and the Company may agree. The merger will become effective upon the filing of an articles of merger with the Secretary of State of the State of Washington or such later time as is specified in the articles of merger as agreed to in writing by Luxottica and the Company. The date and time at which the merger becomes effective are referred to in this proxy statement as the effective time of the merger.

 

Corporate Governance Matters

 

Articles of Incorporation and Bylaws of the Surviving Corporation

 

The Company’s articles of incorporation, as in effect immediately prior to the effective time of the merger, will at the effective time be amended and restated to read as set forth in Exhibit A to the merger agreement until thereafter amended in accordance with applicable law. The bylaws of the Company, as in effect immediately prior to the effective time of the merger, will be amended and restated to read as set forth in Exhibit B to the merger agreement until thereafter amended in accordance with applicable law.

 

Directors and Officers of the Surviving Corporation

 

The directors of Luxottica’s Merger Vehicle immediately prior to the effective time of the merger will be the initial directors of the surviving corporation. Subject to certain exceptions, the individuals specified by

Luxottica in writing to the Company at least two business days prior to the closing date of the merger agreement will be the initial officers of the surviving corporation.

 

Consideration to be Received by Our Shareholders in the Merger

 

At the effective time of the merger, each share issued and outstanding (including each restricted share of our common stock) immediately prior to the effective time (other than shares held by shareholders properly asserting dissenters’ rights pursuant to Chapter 23B.13 of the WBCA who have not effectively withdrawn, waived or lost their dissenters’ rights) automatically will, by virtue of the merger and without any action by the holder thereof, be converted into the right to receive $29.30 in cash. This amount is referred to in this proxy statement as the merger consideration. All shares of our common stock held by Luxottica, Luxottica’s Merger Vehicle or any of their respective wholly owned subsidiaries, in the treasury of the Company or by any of the Company’s wholly owned subsidiaries will be cancelled and cease to exist and no payment will be made in respect of those shares.

 

Pursuant to the WBCA, holders of shares of our common stock will have the right to dissent from the merger and receive the fair value of their shares. For a complete description of the procedures that must be followed to dissent from the merger, see “Dissenters’ Rights” beginning on page 61 and Annex B.

 

Treatment of Stock Options and Other Stock Rights

 

At the effective time of the merger, each outstanding option to purchase shares of our common stock, whether or not vested, will become fully vested and be cancelled and the holder will be entitled to receive an amount in cash, without interest, equal to the product of (i) the excess, if any, of $29.30 over the exercise price per share of such option and (ii) the number of shares subject to such option. In addition, each share of Company restricted stock that is outstanding immediately prior to the merger will be treated as having been fully vested at the effective time of the merger and will be converted into the right to receive $29.30 per share in cash, without interest. All dividend equivalents, if any, credited to the account of each holder of restricted stock as of the effective time of the merger will be distributed to the holder at the effective time of the merger, without interest.

 

The merger agreement provides that all performance units under the LTIP will be cancelled in connection with the merger and cease to exist, and, in its place, the LTIP will be modified by the Company prior to, but effective as of, the effective time of the merger. It is expected that the modified LTIP awards will take the following form: Immediately prior to the consummation of the merger, the Compensation and Stock Option Committee will determine the applicable Performance Percentages of current dollar and performance-unit targets that will be used in determining the award payouts under the LTIP, based on the outstanding awards at that time. Each participant’s Total Award will be payable in cash and equal to the sum of (i) the applicable Performance Percentage multiplied by the participant’s target cash award and (ii) the applicable Performance Percentage multiplied by the value of the participant’s target performance unit award. Payment of the Total Award will be made in two equal installments, generally at the closing of the merger and on the first anniversary of the closing (but not later than March 31, 2009), each subject to continued employment with Oakley on the applicable payment date.

 

Paying Agent and Paying Procedures

 

Prior to the effective time of the merger, Luxottica will enter into a paying agent agreement, in form and substance reasonably acceptable to the Company, with such paying agent to act as agent for the payment of the merger consideration. At or prior to the effective time of the merger, Luxottica or Luxottica’s Merger Vehicle will deposit, or cause to be deposited, in trust with the paying agent the aggregate merger consideration. Promptly after the effective time of the merger, the paying agent will, and Luxottica will cause the paying agent to, mail to each shareholder of record a letter of transmittal specifying that delivery will be effected, and risk of loss and title will pass, only upon proper delivery of stock certificates (or affidavits of loss) to the paying agent and instructions for use in surrendering such stock certificates (or affidavits of loss) and receiving the merger consideration. Upon the proper surrender of a stock certificate to the paying agent,

together with a properly completed letter of transmittal, duly executed, and such other documents as may reasonably be requested by the paying agent, the holder of such certificate will be paid $29.30 multiplied by the number of shares of common stock formerly represented by such certificate.

 

Representations and Warranties

 

Our Representations and Warranties.   In the merger agreement, we make certain representations and warranties to Luxottica and Luxottica’s Merger Vehicle with respect to the Company and our subsidiaries. These representations and warranties relate to, among other things:

 

 

Many of our representations and warranties are qualified by the absence of a “Material Adverse Effect,” which means, for purposes of the merger agreement, any change or effect that is or could reasonably be expected to be materially adverse to the business, assets, results of operations or financial condition of the Company and its subsidiaries, taken as a whole, except for any such change or effect arising out of or relating to (i) the announcement of the transactions contemplated by the merger agreement or actions by Luxottica, Luxottica’s Merger Vehicle or the Company required to be taken pursuant to this Agreement or the failure to take any actions that are prohibited by this Agreement, (ii) changes in general economic, regulatory or political

conditions or changes affecting the economy or the securities or financial markets in general, except to the extent that any such change or effect disproportionately affects the Company when compared to other members of the Company’s industry, (iii) changes in laws, rules, regulations or orders of any governmental entity or interpretations thereof by any governmental entity or changes in accounting rules, except to the extent that any such change or effect disproportionately affects the Company when compared to other members of the Company’s industry, (iv) changes affecting generally the industry in which the Company conducts business, except to the extent that any such change or effect disproportionately affects the Company when compared to other members of the Company’s industry, (v) a material worsening of current conditions caused by an act of terrorism or war (whether declared or not declared) occurring after the date of this Agreement or any natural disasters or any national or international calamity affecting the United States or (vi) any change in the market price or trading volume of the Company’s securities, including as a result of the failure of the Company to meet analysts’ expectations, provided that the exception in this clause (vi) will not prevent or otherwise affect a determination that any cause underlying such change has resulted in or contributed to the occurrence of a Material Adverse Effect as defined without reference to this clause (vi).

 

Luxottica’s and Luxottica’s Merger Vehicle’s Representations and Warranties .  In the merger agreement, Luxottica and Luxottica’s Merger Vehicle make certain representations and warranties to us. These include representations and warranties related to, among other things:

 

 

Conduct of Business Pending the Merger

 

From June 20, 2007 to the earlier of the termination of the merger agreement under certain circumstances and the effective time of the merger, except as contemplated by the merger agreement, as required by law or with the prior written consent of Luxottica, we will, and will cause our subsidiaries to, conduct our operations only in the ordinary course of business, use our commercially reasonable efforts to preserve intact the business or organization of the Company and its subsidiaries, taken as a whole, and to keep available the services of our and their present officers and key employees, generally, and use our commercially reasonable efforts to preserve the goodwill of those having material business relationships with us.

 

In addition, we have agreed, during the same period, not to take, and to cause our subsidiaries not to take, any of the following specific actions without the prior written consent of Luxottica, except as contemplated by the merger agreement:

 

 

 

Actions to be Taken to Complete the Merger

 

Reasonable Best Efforts.   Each of the parties agreed to use its reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, in the case of the Company, consistent with the fiduciary duties of the Board of Directors with the advice of the Company’s outside legal counsel, and to assist and cooperate with the other parties to the merger agreement in doing, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the merger agreement. The parties agreed to use their respective reasonable best efforts to obtain as promptly as practicable all material consents from any governmental entity or any other person required in connection with, and waivers of any material breaches or material violations of any material contracts, permits, licenses or other material agreements that may be caused by, the consummation of the transactions contemplated by the merger agreement, including, making appropriate filings pursuant to the HSR Act and any applicable foreign merger control laws, and obtaining all consents or waivers from third parties necessary or advisable in connection with the merger. The parties have agreed to cooperate and consult with each other in connection with the making of any filings and other material actions necessary to obtain the applicable approvals.

 

Calling of Special Meeting and Certain Filings.   We agreed to prepare and file this proxy statement and convene a special meeting of our shareholders as promptly as reasonably practicable in order for our shareholders to consider and vote upon the approval of the merger and the merger agreement. Luxottica and Luxottica’s Merger Vehicle agreed to cooperate with us in connection with the preparation of this proxy statement, and we agreed to provide Luxottica and its counsel the opportunity to review the proxy statement and all responses to requests for additional information by, and replies to comments of, the SEC before their being filed with, or sent to the SEC. We agreed that our Board of Directors would recommend that our shareholders vote in favor of approval of the merger and the merger agreement, subject to our Board of Directors’ right to change its recommendation in the event that our Board of Directors determines in its good faith judgment, following consultation with legal counsel, that the change in its recommendation is necessary in order for the Board of Directors to comply with its fiduciary duties to our shareholders; however, if such change is in response to a takeover proposal, our Board of Directors may change its recommendation only if it determines in its good faith judgment, following consultation with legal counsel and independent financial advisors, that the proposal is a superior proposal and that the failure to change its recommendation would be inconsistent with its fiduciary duties to our shareholders, and provides Luxottica with written notice that includes, among other things, the material terms and conditions of the superior proposal, and after having taken into account any revised proposal from Luxottica received within five business days, our Board of Directors again determines in good faith after consultation with its outside legal counsel and independent financial advisors that the proposal remains a superior proposal. See “— No Solicitation” beginning on page 52.

 

Notice of Certain Matters.   Luxottica and the Company agreed to use their reasonable best efforts to promptly notify each other of: (a) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by the merger agreement if such consent would be material to the transactions; (b) any material notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated by the merger agreement or regarding any violation, or alleged violation, of law; (c) any actions, suits, claims, investigations or proceedings in connection with the transactions contemplated by the merger agreement commenced or, to the best of its knowledge, threatened against or involving or otherwise affecting the Company or any of its subsidiaries; or (d) the occurrence or non-occurrence of any fact or event which would be reasonably likely to cause any condition to the consummation of the merger not to be satisfied.

 

Access to Information.   Subject to applicable law, the reasonable restrictions imposed from time to time after consultation with our counsel, the confidentiality agreements with Luxottica and other confidentiality provisions, and upon reasonable notice, we agreed to provide Luxottica, Luxottica’s Merger Vehicle and their representatives with reasonable access during business hours to our offices, properties, books and records until the effective time of the merger. In addition, without giving Luxottica or Luxottica’s Merger Vehicle the right to control or direct our operations prior to the effective time of the merger, to the extent reasonably available and subject to our written policies with respect to the protection of employee privacy and protection of

attorney-client privilege and attorney work product, we agreed to use our reasonable efforts to cause our representatives and our subsidiaries to provide Luxottica, Luxottica’s Merger Vehicle and Luxottica’s representatives with financial and operating data and other information with respect to our business and operations as Luxottica and Luxottica’s Merger Vehicle may reasonably request from time to time.

 

Public Announcements.   Other than in connection with reasonable responses to questions in quarterly earnings conference calls, the parties agree to consult with each other before issuing any press release or making any public statement with respect to the transactions contemplated by the merger agreement and, unless required by applicable law or any listing agreement with a securities exchange, will not issue any such press release or make any such public statement prior to such consultation and review.

 

Voting Agreement.   Concurrently with the execution of the merger agreement, as a condition and inducement to Luxottica’s and Luxottica’s Merger Vehicle’s willingness to enter into the merger agreement, Luxottica, Luxottica’s Merger Vehicle and Mr. Jannard entered into a voting agreement, pursuant to which Mr. Jannard has agreed to vote his shares in favor of approval of the merger and the merger agreement. See “ — Voting Agreement” beginning on page 58.

 

Guarantee.   Concurrently with the execution of the merger agreement, Luxottica delivered to us its guarantee pursuant to which Luxottica agreed to guarantee the payment obligations of Luxottica’s Merger Vehicle in respect of any termination fee payable to us under the merger agreement. See “— Termination Fees” beginning on page 57.

 

Shareholder Litigation.   The Company agreed to give Luxottica the opportunity to participate in the defense of any shareholder litigation against the Company and/or its officers or directors relating to the transactions contemplated by the merger agreement.

 

Compliance with Export, Embargo and Defense Controls.   The Company agreed to take all actions as may be reasonably necessary to ensure that, from and after the effective time of the merger, the operation and governance of the Company and its subsidiaries will comply with and be permissible under the Export Administration Regulations, Executive Orders of the President and implementing regulations regarding embargoes administered by the United States Office of Foreign Assets Control and the International Traffic in Arms Regulations.

 

CFIUS Notice.   The parties agreed to use their reasonable best efforts to obtain as promptly as reasonably practicable a written notification issued by the Committee on Foreign Investment in the United States, or CFIUS, that CFIUS has concluded a review of a notification voluntarily filed jointly by Luxottica and the Company pursuant to the requirements of the 1988 Exon-Florio provision of the Defense Production Act of 1950, as amended, and has determined not to conduct a full investigation or, if a full investigation is deemed to be required, notification that the United States government will not take action to prevent the consummation of the transactions contemplated by the merger agreement.

 

Indemnification and Insurance

 

Unless otherwise required by applicable law, Luxottica agreed that all rights to indemnification and advancement of expenses now existing in favor of any individual who at or prior to the effective time of the merger was a director, officer, employee or agent of the Company or any of its subsidiaries or who, at the request of the Company or any of its subsidiaries, served as a director, officer, member, trustee or fiduciary of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or enterprise as provided by applicable law and/or in the articles of incorporation and bylaws of the Company and its subsidiaries existing and in effect on June 20, 2007 and/or indemnification agreements existing and in effect on June 20, 2007, and will continue in full force and effect for a period six years from the effective time of the merger (or, with respect to any indemnification agreement, the term of such indemnification agreement, if such term is less than six years).

 

Luxottica also agreed that, for a period of six years from the effective time of the merger, the surviving corporation will cause to be maintained the current policies of directors’ and officers’ liability insurance maintained by the Company or obtain substitute equivalent coverage, including a “tail” policy for the full six-

year term. The merger agreement further provides that the surviving corporation will not be required to pay an annual premium in excess of 250% of the last annual premium paid by the Company prior to June 20, 2007.

 

No Solicitation

 

The merger agreement provides that, prior to the effective time of the merger, neither we nor any of our subsidiaries nor any of our representatives or directors may, directly or indirectly:

 

 

In addition, the merger agreement provides that, unless our Board of Directors has received a Superior Acquisition Proposal (as described below) and has determined that its failure to terminate the merger agreement or withdraw, modify or change its recommendation to our shareholders to approve the merger and the merger agreement would be inconsistent with its fiduciary duties and the Company has provided written notice to Luxottica of all of the terms and conditions of the Superior Acquisition Proposal and of its intent to take such action, has taken into account any revised proposal made by Luxottica to the Company and has determined in good faith after consultation with its outside legal counsel and independent financial advisors that such Acquisition Proposal remains a Superior Acquisition Proposal, our Board of Directors may not:

 

 

For purposes of the merger agreement, “Acquisition Proposal” means any offer or proposal (whether or not in writing and whether or not delivered to the Company’s shareholders generally) from any person to acquire, in a single transaction or series of transactions, by merger, tender offer, stock acquisition, asset acquisition, consolidation, liquidation, business combination or otherwise (i) at least 50% of any class of equity securities of the Company, or (ii) assets of the Company and/or one or more of its subsidiaries which in the aggregate constitutes 35% or more of the net revenues, net income or assets of the Company and its subsidiaries, taken as a whole, other than the transactions contemplated by the merger agreement.

 

For purposes of the merger agreement, “Superior Acquisition Proposal” means any bona fide unsolicited written Acquisition Proposal on terms more favorable to the shareholders than the transactions contemplated by the merger agreement, taking into account all of the terms and conditions of such proposal and the merger agreement (including any proposal by Luxottica to amend the terms of the transactions contemplated by the merger agreement), as well as the anticipated timing, conditions and prospects for completion of such Acquisition Proposal. In addition, if any negotiations with a third party related to an Acquisition Proposal that

are not initiated, solicited or knowingly encouraged in violation of the merger agreement result in a revised bona fide Acquisition Proposal from such third party being made to the Company, then such revised Acquisition Proposal will also be considered a bona fide Acquisition Proposal not initiated, solicited or knowingly encouraged in violation of the merger agreement.

 

We ceased and terminated all activities, discussions and negotiations with respect to any Acquisition Proposal as of June 20, 2007.

 

In circumstances not involving an Acquisition Proposal, our Board of Directors may change its recommendation to our shareholders to approve the merger agreement to the extent that our Board of Directors determines in good faith (after consultation with outside legal counsel) that such action is necessary under applicable law in order for the directors to comply with their fiduciary duties to the Company’s shareholders. The Company is required to give Luxottica and Luxottica’s Merger Vehicle written notice of any such action taken by the Board no later than the business day next succeeding the day on which such action is taken. The written notice must set forth in reasonable detail the action taken and the basis underlying such action.

 

We may also take and disclose to our shareholders a position with regard to any tender or exchange offer pursuant to Rules 14d-9 and 14e-2(a) under the Exchange Act, and may make any disclosure to our shareholders if the Board of Directors, after consultation with its outside counsel determines in its good faith judgment that failure to disclose such information would be inconsistent with its fiduciary duties under applicable law or such disclosure would be necessary to comply with our obligations under federal securities laws or the rules of the New York Stock Exchange. However, any disclosure other than a “stop-look-and-listen” letter or similar communication to the Company’s shareholders of the nature contemplated by Rule 14d-9(f) under the Exchange Act will be deemed to be a change of our Board of Directors’ recommendation to our shareholders to approve the merger and the merger agreement unless the Board of Directors expressly reaffirms its recommendation that our shareholders approve the merger and the merger agreement in such disclosure.

 

Employees and Employee Benefits

 

The merger agreement provides that, for a period beginning on the closing date and ending on December 31, 2008, Luxottica will provide our and our subsidiaries’ employees and former employees who work or worked in the United States with compensation and benefits that are no less favorable in the aggregate, determined on an individual basis, than those provided under our collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, savings, welfare, deferred compensation, employment, termination, severance or other employee benefit plan, agreement, trust, fund, policy or arrangement (“Employee Benefit Arrangements”) for the benefit or welfare of any former, existing or new director, officer or employee (excluding benefits related to the equity securities of the Company) for employees and former employees who work or worked in the United States and in effect at the effective time of the merger.

 

In addition, during the same period, Luxottica will provide our and our subsidiaries’ employees and former employees who work or worked outside the United States with compensation and benefits that are no less favorable in the aggregate, determined, with respect to each separate country, on a group basis rather than on an individual basis, than the less favorable of (i) those provided under our Employee Benefit Arrangements (excluding benefits related to the equity securities of the Company) for employees and former employees who work or worked outside the United States in such country and in effect at the effective time of the merger; or (ii) those provided under our Employee Benefit Arrangements (excluding benefits related to the equity securities of the Company) for employees and former employees who work or worked in the United States and in effect at the effective time of the merger.

 

Luxottica and its affiliates (including the surviving corporation) have also agreed to honor our Employee Benefit Arrangements in accordance with their terms as in effect immediately prior to the effective time of the merger.

For all purposes under the employee benefit plans of Luxottica and its affiliates providing benefits to any employees after the effective time of the merger, each such employee will be credited with his or her years of service with the Company and its subsidiaries prior to the effective time of the merger (including predecessor or acquired entities or any other entities for which the Company and its subsidiaries have given credit for prior service), to the same extent as such employee was entitled, as at the effective time of the merger, to credit for such service under any similar or comparable plans (except to the extent such credit would result in a duplication of accrual of benefits in whole or in part). In addition, each employee immediately will be eligible to participate, without any waiting time, in any and all new plans and for purposes of certain new plans providing health and welfare benefits to any employee, subject to certain exceptions, Luxottica will cause all pre-existing condition exclusions and actively-at-work requirements of such new plans to be waived for such employee and his or her covered dependents, and Luxottica will cause certain eligible expenses incurred by such employee to be taken into account under such new plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements, as well as all maximums or caps with respect to number of visits or annual or lifetime dollar limitations, applicable to such employee and his or her covered dependents for the applicable plan year as if such amounts had been paid or such visits occurred in accordance with such new plan.

 

The Company has agreed to modify the LTIP prior to, but effective as of, the effective time of the merger. It is expected that the modified LTIP awards will take the following form: Immediately prior to the consummation of the merger, the Compensation and Stock Option Committee will determine the applicable Performance Percentages of current dollar and performance-unit targets that will be used in determining the award payouts under the LTIP, based on the outstanding awards at that time. Each participant’s Total Award will be payable in cash and equal to the sum of (i) the applicable Performance Percentage multiplied by the participant’s target cash award and (ii) the applicable Performance Percentage multiplied by the value of the participant’s target performance unit award. Payment of the Total Award will be made in two equal installments, generally at the closing of the merger and on the first anniversary of the closing (but not later than March 31, 2009), each subject to continued employment with Oakley on the applicable payment date.

 

Further Assurances

 

The parties agreed that if any time after the effective time of the merger any further action is necessary or desirable to carry out the purposes of the merger agreement, including the execution of additional instruments, the proper officers and directors of each party to the merger agreement will take all such necessary or desirable action as is reasonable under the circumstances. In addition, the parties agreed to cooperate with each other in taking, or causing to take, at Luxottica’s direction, all actions necessary to delist shares of our common stock from the New York Stock Exchange and deregister the shares under the Exchange Act as soon as practicable following the effective time of the merger.

 

Conditions to the Completion of the Merger

 

The respective obligations of the Company, Luxottica and Luxottica’s Merger Vehicle to consummate the merger are subject to the satisfaction or waiver of the following conditions:

 

 

The obligations of Luxottica and Luxottica’s Merger Vehicle to consummate the merger are further subject to the satisfaction or waiver by Luxottica of the following further conditions:

 

 

Our obligation to consummate the merger is subject to satisfaction or waiver by us of the following further conditions:

 

 

Termination of Merger Agreement

 

The merger agreement may be terminated and the merger contemplated by that agreement may be abandoned at any time prior to the effective time of the merger, even if our shareholders have approved it, by mutual written consent of Luxottica and us.

The merger agreement may be terminated and the merger contemplated by that agreement may be abandoned by either Luxottica or us at any time prior to the effective time of the merger, even if our shareholders have approved it,:

 

 

Luxottica may terminate the merger agreement and abandon the merger contemplated by that agreement at any time prior to the effective time of the merger, even if our shareholders have approved it, if:

 

 

We may terminate the merger agreement and abandon the merger contemplated by that agreement at any time prior to the effective time of the merger, even if our shareholders have approved it, if:

 

 

 

Termination Fees

 

Termination Fee Payable by Us.   The merger agreement provides that we will be obligated to pay Luxottica a termination fee of $69.0 million if the Company or any of its subsidiaries, directly or indirectly, enters into a definitive agreement for an “Acquisition Proposal” with a third party that has made an Acquisition Proposal between June 20, 2007 and the termination date, or consummates a transaction with respect to an Acquisition Proposal with any third party, and any of the following occurs:

 

 

Termination Fee Payable by Luxottica’s Merger Vehicle.   The merger agreement also provides that Luxottica’s Merger Vehicle will be obligated to pay us a termination fee of $80.0 million if:

 

 

The termination fee payable by Luxottica’s Merger Vehicle is unconditionally guaranteed by Luxottica.

 

Amendment and Waiver of the Merger Agreement

 

Amendment.   The merger agreement may be amended by the Company, Luxottica and Luxottica’s Merger Vehicle at any time prior to the effective time of the merger, whether before or after shareholder approval is obtained, but, after any such approval, no amendment may be made which decreases the merger consideration of $29.30 per share of our common stock or which adversely affects the rights of our shareholders without the approval of such shareholders.

 

Extension and Waiver.   At any time prior to the effective time of the merger, Luxottica, on the one hand, and the Company, on the other hand, may (i) extend the time for the performance of any of the obligations or other acts of any other party, (ii) waive any inaccuracies in the representations and warranties contained in the merger agreement by any other party or in any document, certificate or writing delivered pursuant to the merger agreement by any other party or (iii) unless prohibited by applicable laws, waive compliance with any of the covenants or conditions contained in the merger agreement.

 

Voting Agreement

 

This section describes the voting agreement among Luxottica, Luxottica’s Merger Vehicle and Mr. Jannard. The description is not complete, and you should read the voting agreement for a more complete understanding of its terms. The complete text of the voting agreement is attached to this proxy statement as Annex D and is incorporated by reference into this proxy statement.

 

Concurrently with the execution of the merger agreement, Mr. Jannard entered into a voting agreement with Luxottica and Luxottica’s Merger Vehicle. Mr. Jannard has agreed, among other things and subject to certain exceptions, to vote all of his shares of our common stock:

 

 

In addition, Mr. Jannard has granted an irrevocable proxy appointing Luxottica’s Merger Vehicle as his attorney-in-fact and proxy, to vote or otherwise to act on behalf of Mr. Jannard with respect to all of his shares of our common stock in connection with the voting obligations described immediately above.

 

Subject to certain exceptions, from and after June 20, 2007 and continuing until the termination date of the voting agreement, Mr. Jannard has agreed not to, directly or indirectly, without the consent of Luxottica and Luxottica’s Merger Vehicle in respect of any “Acquisition Proposal”:

 

 

 

At all times during the term of the voting agreement, all of the shares of our common stock held by Mr. Jannard, by a nominee or custodian for the direct or indirect benefit of Mr. Jannard, or by a family member or affiliate of Mr. Jannard, must be free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances, except for any liens, claims, understandings or arrangements that do not limit or impair Mr. Jannard’s ability to perform his obligations under the voting agreement.

 

Prior to the termination date of the voting agreement, Mr. Jannard may not:

 

 

Notwithstanding the foregoing, the voting agreement does not limit or affect the ability of Mr. Jannard from taking any actions otherwise prohibited by the voting agreement if such action is related to an Acquisition Proposal to the extent that we are permitted to engage in discussions or negotiations with any person under the merger agreement and that we are not in violation of our non-solicitation obligations pursuant to the merger agreement. See “The Merger Agreement — No Solicitation.”

 

If Mr. Jannard receives an unsolicited proposal or offer concerning an Acquisition Proposal, he will notify the Company of such proposal or offer so that the Company may comply with its obligations under the merger agreement.

 

On June 20, 2007, Mr. Jannard and his representatives ceased any existing activities, discussions or negotiations with respect to any Acquisition Proposal, other than with respect to the merger.

 

The voting agreement will terminate upon the earliest of:

 

 

Pursuant to the voting agreement, Mr. Jannard agreed not to assert his dissenters’ rights under the WBCA. See “Dissenters’ Rights.”

 

For a more complete description of the voting agreement, you should refer to the voting agreement attached as Annex D to this proxy statement.

 

Non-Competition Agreement

 

This section describes the non-competition agreement among Luxottica, Luxottica’s Merger Vehicle, the Company and Mr. Jannard. The description is not complete, and you should read the non-competition

agreement for a more complete understanding of its terms. The complete text of the non-competition agreement is attached to this proxy statement as Annex E and is incorporated by reference into this proxy statement.

 

Concurrently with the execution of the merger agreement, Mr. Jannard entered into a non-competition agreement with Luxottica, Luxottica’s Merger Vehicle and the Company. For a period of five years from the closing date, Mr. Jannard has agreed, among other things and subject to certain exceptions, not to, any place in the world, directly or indirectly, own, manage, operate, join, control, participate in, or be connected with (as a stockholder, partner, member, investor, lender, guarantor, or credit enhancer), or provide consultative services or otherwise provide services to, any competitor to the Company.

 

Subject to certain exceptions, during the same five-year period, Mr. Jannard may not, directly or indirectly, solicit, recruit, request, cause, induce or encourage to leave the employment of the Company or any of its subsidiaries any person who is employed by the Company, except with respect to Mr. Jannard’s son who is currently employed by us and up to six other employees of the Company and its subsidiaries who receive a base salary of less than $100,000 per year. In addition, during this five-year period, Mr. Jannard may not, directly or indirectly, solicit, recruit, request, cause, induce or knowingly encourage any customer, vendor, supplier, distributor, partner or other person or entity currently under contract with the Company or currently doing business with the Company to terminate, or materially and adversely reduce or alter, its business with the Company as it pertains to the Company’s current business of designing, manufacturing, marketing, selling, and distributing eyewear and optical products.

 

As part of the non-competition agreement, Luxottica agreed that Mr. Jannard will continue to be entitled, during his lifetime, to full company-paid medical and health insurance for himself and his immediate family at a level no less favorable than that in effect for the benefit of the Company’s senior executive officers.

 

Additionally, in connection with the non-competition agreement and upon consummation of the merger, Luxottica will enter into certain agreements with Mr. Jannard or entities owned by Mr. Jannard continuing to grant him, among other things, the right to remove from the Company’s premises any and all materials containing the history of the Company as a business entity, including discontinued advertising and other marketing materials and product samples produced prior to May 1998, extending the term to the second anniversary of the effective time of the merger of a trademark licensing agreement benefiting Mr. Jannard indirectly through an entity owned by Mr. Jannard as well as extending the term to January 31, 2009 of the lease agreement and the time sharing agreements relating to the plane owned by Mr. Jannard. See “Special Factors — Interests of Certain Persons in the Merger.”

 

DISSENTERS’ RIGHTS

 

General

 

Under Chapter 23B.13 of the WBCA (“Chapter 23B.13”), holders of Oakley common stock are entitled to dissent from, and obtain payment of the fair value of their shares in the event of, the consummation of the merger instead of receiving the $29.30 per share merger consideration, without interest and less any applicable withholding tax. The following summarizes the material rights of holders of Oakley common stock under Chapter 23B.13. The summary below is qualified in its entirety by reference to Chapter 23B.13.

 

Pursuant to Chapter 23B.13, when a proposed merger is to be submitted to a vote at a meeting of shareholders, as in the case of this special meeting, the meeting notice must state that shareholders are or may be entitled to assert dissenters’ rights and must be accompanied by a copy of Chapter 23B.13, a copy of which is attached to this proxy statement as Annex B. The notice of special meeting included with this proxy statement constitutes notice to the holders of Oakley common stock, and a copy of Chapter 23B.13 is attached to this proxy statement as Annex B.

 

If you are contemplating the possibility of asserting your dissenters’ rights in connection with the merger, you should carefully review the text of Chapter 23B.13. You are also encouraged to consult your legal counsel, at your expense, before attempting to assert your dissenters’ rights. If you do not fully and precisely satisfy the procedural requirements of the WBCA, you will lose your dissenters’ rights. If any holder of shares of Oakley common stock who asserts dissenters’ rights under the WBCA withdraws or loses (through failure to preserve or otherwise) the right to obtain payment for such holder’s shares under Chapter 23B.13, then such shareholder’s shares will be converted into the right to receive the merger consideration of $29.30 per share of Oakley common stock, without interest, at the effective time of the merger. We will not provide you with any notice regarding your dissenters’ rights other than as described in this proxy statement and the notice of special meeting included with this proxy statement.

 

Requirements for Asserting Dissenters’ Rights

 

To preserve your right to assert your statutory dissenters’ rights, you must:

 

 

Unless you satisfy all of the requirements of Chapter 23B.13, you may not assert dissenters’ rights under Chapter 23B.13 and, if the merger agreement is approved by the Company’s shareholders and the merger occurs, your shares of Oakley common stock will be converted into the right to receive the merger consideration of $29.30 per share, without interest.

 

Notice

 

Written notice of your intent to assert dissenters’ rights must be delivered to Oakley at:

 

Oakley, Inc.

One Icon

Foothill Ranch, California 92610

Attention: Corporate Secretary

Telephone: (949) 951-0991

 

Such written notice must be delivered before the vote on the merger agreement is taken at the special meeting. Your written notice to demand payment should specify your name and mailing address, the number

of shares of Oakley common stock you own, and that you intend to demand payment of the “fair value” of your shares of Oakley common stock if the merger agreement is approved.

 

Vote

 

If you wish to assert dissenters’ rights, you must not vote your shares in favor of approving the merger and the merger agreement. Submitting a properly signed proxy card that is received prior to the vote at the special meeting that does not direct how the shares of Oakley common stock represented by that proxy are to be voted will constitute a vote in favor of approving the merger and the merger agreement and you will thus lose your statutory dissenters’ rights.

 

Termination of Dissenters’ Rights

 

Your right to obtain payment of the fair value of your shares of Oakley common stock under Chapter 23B.13 of the WBCA will terminate if:

 

 

Appraisal Procedures

 

If the merger agreement is approved by the Company’s shareholders, within ten days after the effective date of the merger, the Company will send written notice regarding the proper procedures for dissenting to all shareholders who have given written notice under Chapter 23B.13 and have not voted in favor of approving the merger and the merger agreement. The notice will contain:

 

 

If you wish to assert dissenters’ rights, you must demand payment, certify that you acquired beneficial ownership of your shares before June 20, 2007, and deposit your Oakley share certificates in accordance with the terms of the notice. If you do not demand payment and deposit your share certificates where required, by the date set in the notice, you will lose the right to obtain payment for your shares under Chapter 23B.13.

 

If the Company does not consummate the merger within 60 days after the date set for demanding payment and depositing share certificates, the Company will return all deposited certificates and release any transfer restrictions imposed on uncertificated shares. If after returning the deposited certificates and releasing transfer restrictions, the Company wishes to consummate the merger, the Company must send a new dissenters’ notice and repeat the payment demand procedure. If the Company does not effect the merger and does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date which it had set for demanding payment, you may deliver notice to Oakley in writing of your estimate of the fair value of your common stock plus the amount of interest due and demand

payment of your estimated amount, less any amount already paid by Oakley for the shares under Chapter 23B.13.

 

Except as provided below, within 30 days after the later of the effective date of the merger or the date the payment demand is received, the Company will pay each dissenting shareholder who complied with the payment demand requirements of Chapter 23B.13 the amount the Company estimates to be the fair value of the shareholder’s shares, plus accrued interest. The payment will be accompanied by:

 

 

For dissenting shareholders who were not the beneficial owners of their shares of Oakley common stock before June 20, 2007, the Company may elect to withhold payment under Chapter 23B.13. To the extent that the Company so elects, after consummating the merger, the Company will estimate the fair value of the shares, plus accrued interest, and will pay this amount to each dissenter who agrees to accept it in full satisfaction of the dissenter’s demand. The Company will send with its offer an explanation of how it estimated the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter’s right to demand payment of the dissenter’s own estimate of the dissenter’s shares and the amount of interest due if such dissenter believes that the amount offered is less than the fair value of the shares or under certain other circumstances enumerated in the statute and described below.

 

If you believe that the amount paid or offered by the Company is less than the fair value of your shares or believe that the interest due is incorrectly calculated, or if the Company fails to make payment for your shares within 60 days after the date set for demanding payment or does not effect the merger and does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment, you may, within 30 days of the payment or offer for payment, deliver notice to the Company in writing informing the Company of your own estimate of the fair value of your shares and the amount of interest due, and demand payment of this estimate, less any amount the Company has already paid under Chapter 23B.13. If any dissenting shareholder’s demand for payment of the dissenter’s own estimate of the fair value of the shares is not settled within 60 days after receipt by the Company of such shareholder’s demand for payment of its own estimate, Chapter 23B.13 requires that the Company commence a proceeding in King County Superior Court and petition the court to determine the fair value of the shares and accrued interest, naming all the dissenting shareholders whose demands remain unsettled as parties to the proceeding. If the Company does not commence the proceeding within the 60-day period, the Company will pay each dissenter whose demand remains unsettled the amount demanded.

 

For purposes of Chapter 23B.13, fair value with respect to dissenters’ shares means the value of the shares of Oakley common stock immediately before the effective date of the merger, excluding any appreciation or depreciation in anticipation of the merger, unless that exclusion would be inequitable.

 

The jurisdiction of the court in which the proceeding is commenced will be plenary and exclusive. The court may appoint one or more appraisers to receive evidence and recommend decision on the question of fair value. The appraisers will have the powers described in the order appointing them, or in any amendment to it. The fair value of the shares as determined by the court will be binding on all dissenting shareholders and may be less than, equal to or greater than the value of the merger consideration to be issued to non-dissenting shareholders for Oakley common stock under the terms of the merger agreement if the merger is consummated. Shareholders should be aware that investment banking opinions as to the fairness, from a financial

point of view, of the consideration payable in a merger are not opinions as to fair value under Chapter 23B.13. Each dissenter made a party to the proceeding is entitled to a judgment (a) for the amount, if any, by which the court finds the fair value of the dissenter’s shares, plus interest, exceeds the amount paid by the Company, or (b) for the fair value, plus accrued interest, of the dissenter’s after-acquired shares for which the Company elected to withhold payment pursuant to Chapter 23B.13.

 

The court will also determine the costs and expenses of the court proceeding and assess them against the Company, except that the court may assess the costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously or not in good faith in demanding payment under Chapter 23B.13. If the court finds that the Company did not substantially comply with the relevant provisions of sections 23B.13.200 through 23B.13.280 of the WBCA, the court may also assess against the Company any fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable. The court may also assess those fees and expenses against any party if the court finds that the party has acted arbitrarily, vexatiously or not in good faith with respect to dissenters’ rights. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the Company, the court may award to counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited.

 

A record shareholder may assert dissenters’ rights as to fewer than all of the shares registered in the shareholder’s name only if the shareholder dissents with respect to all shares beneficially owned by any one person and delivers to the Company a notice of the name and address of each person on whose behalf the shareholder asserts dissenters’ rights. The rights of a partially dissenting record shareholder are determined as if the shares as to which the dissenter dissents and the dissenter’s other shares were registered in the names of different shareholders. Beneficial owners of Oakley common stock who desire to assert dissenters’ rights as to shares held on the beneficial owners’ behalf (a) must submit to the Company the record owner’s consent to the dissent not later than the time the beneficial shareholder asserts dissenters’ rights, which consent will be set forth either in a record or, if the Company has designated an address, location, or system to which the consent may be electronically transmitted and the consent is electronically transmitted to the designated address, location, or system, in an electronically transmitted record; and (b) must so assert dissenters’ rights with respect to all shares of which such shareholder is the beneficial shareholder or over which such shareholder has power to direct the vote.

 

Pursuant to Section 23B.13.020 of the WBCA, dissenting shareholders are not entitled to challenge the approval of the merger agreement or the consummation of the merger except if the approval or consummation fails to comply with the procedural requirements of the WBCA, the Company’s articles of incorporation or bylaws, or is fraudulent with respect to that shareholder or the Company.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information available to the Company, as of October 15, 2007, with respect to shares of its Common Stock (i) held by those persons known to the Company to be the beneficial owners (as determined under the rules of the SEC) of more than 5% of such shares, (ii) held by each of the directors, (iii) held by each of the named executive officers (as determined under the rules of the SEC) and (iv) held as a group by the directors and executive officers of the Company.