<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1996
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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COLE NATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
34-1453189
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
(216) 449-4100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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WAYNE L. MOSLEY
Vice President and Controller
Cole National Corporation
5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
(216) 449-4100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
DAVID P. PORTER, Esq. THOMAS F. MCKEE, Esq.
Jones, Day, Reavis & Pogue Calfee, Halter & Griswold
901 Lakeside Avenue 800 Superior Avenue
Cleveland, Ohio 44114 Cleveland, Ohio 44114
(216) 586-3939 (216) 622-8200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Class A Common Stock, par value $.001 per
share........................................ 1,437,500(2) $20.0625 $28,839,844 $9,944.78
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) Includes 187,500 shares that may be sold to cover over-allotments.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 12, 1996
1,250,000 SHARES
COLE NATIONAL CORPORATION
CLASS A COMMON STOCK
All of the shares of Class A Common Stock, par value $.001 per share,
offered hereby are being offered by Cole National Corporation, a Delaware
corporation (the "Company"). The Class A Common Stock ("Common Stock") is the
only class of common stock outstanding and each share of Common Stock is
entitled to one vote per share. The shares of Common Stock offered hereby are
listed on the New York Stock Exchange under the symbol "CNJ." On June 11, 1996,
the last reported sale price of the Common Stock on the New York Stock Exchange
Composite Tape was $20.625 per share.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THE PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF SHARES
OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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<S> <C> <C> <C>
Per Share............................... $ $ $
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Total(3)................................ $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Does not include expenses payable by the Company estimated at $175,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 187,500 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
receipt and acceptance of the shares by them. The Underwriters reserve the right
to reject any order in whole or in part. It is expected that delivery of the
shares of Common Stock will be made against payment therefor at the offices of
McDonald & Company Securities, Inc. or through the facilities of the Depository
Trust Company on or about , 1996.
MCDONALD & COMPANY SMITH BARNEY INC.
SECURITIES, INC.
The date of this Prospectus is , 1996.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Such reports, proxy statements and other information can
be inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
regional offices located at Seven World Trade Center 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may be obtained at prescribed rates by writing the SEC,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company has filed with the SEC a registration statement (the
"Registration Statement," which term shall include any amendments thereto) on
Form S-3 under the Securities Act of 1933 (the "Securities Act"), with respect
to the shares of Common Stock offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain parts of which are omitted in accordance with the
rules and regulations of the SEC, and to which reference is hereby made. For
further information, reference is hereby made to the Registration Statement and
the exhibits and schedules thereto.
Unless the context otherwise requires, references herein to the "Company"
include the Company and its direct and indirect subsidiaries.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the SEC
pursuant to the Exchange Act are incorporated by reference in this Prospectus
and shall be deemed to be a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended
February 3, 1996 (File No. 1-12814).
2. The description of the Company's Common Stock set forth in the
Company's Registration Statement on Form 8-A filed February 14, 1994, as
amended April 6, 1994.
3. The description of the Company's Stockholders' Rights Plan set
forth in the Company's Registration Statement on Form 8-A filed September
7, 1995.
4. The Company's Quarterly Report on Form 10-Q for the quarterly
period ended May 4, 1996 (File No. 1-12814).
All documents filed by the Company with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from their respective dates
of filing. Any statement contained herein or in any document incorporated or
deemed to be incorporated shall be deemed to be modified or superseded for all
purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any subsequently filed document which also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Certain of the documents incorporated by reference contain forward-looking
statements. All forward-looking statements involve risk and uncertainty. Actual
results may be materially affected by a variety of factors, some of which may be
beyond the control of the Company. See "Risk Factors."
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON WRITTEN OR ORAL REQUEST
OF SUCH PERSON, A COPY OF ANY AND ALL OF THE INFORMATION THAT HAS BEEN
INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS TO THE
INFORMATION THAT ARE INCORPORATED BY REFERENCE UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS PROSPECTUS
INCORPORATES). REQUESTS SHOULD BE DIRECTED TO JOHN F. DOWNIE, SECRETARY, COLE
NATIONAL CORPORATION, AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES, 5915
LANDERBROOK DRIVE, MAYFIELD HEIGHTS, OHIO 44124, TELEPHONE NUMBER (216)
449-4100. PERSONS REQUESTING COPIES OF EXHIBITS TO SUCH DOCUMENTS THAT WERE NOT
SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS WILL BE CHARGED THE
COSTS OF REPRODUCTION AND MAILING.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
THE COMPANY
Cole National Corporation (the "Company") is a leading national specialty
service retailer operating over 2,300 retail locations in 49 states. The
Company's businesses are conducted through two operating units, Cole Vision
Corporation ("Cole Vision") and Cole Gift. The Company differentiates itself
from other specialty retailers by providing value-added services at the point of
sale at all of its retail locations. The Company seeks to ensure a high level of
customer satisfaction by offering a "total satisfaction" guaranty on all its
products and services.
COLE VISION
Cole Vision, which generated approximately 53% of the Company's net sales
in the year ended February 3, 1996 ("fiscal 1995"), is the largest retailer of
eyewear products and optometric services in the United States in terms of number
of locations. As of May 4, 1996, Cole Vision operated 1,022 locations, including
957 leased locations within Sears, Montgomery Ward and other host stores and 63
freestanding stores operated under the name "Sears Optical." Cole Vision also
offers comprehensive eyecare benefits to major employers and health care
providers through its managed vision care program. Cole Vision's product line
includes a broad selection of prescription eyeglasses, contact lenses and
accessories at all of its locations. In 944 Cole Vision locations, a doctor of
optometry provides eye examination services on the premises. Cole Vision strives
to provide its customers with exceptional patient care and value by combining
the personal service typically associated with a private doctor of optometry
with the broad product selection and cost benefits of a large optical chain.
Each of Cole Vision's optical departments is computer linked to Cole Vision's
five centralized manufacturing laboratories, enabling it to provide next day
delivery on most eyewear when requested by its customers. Cole Vision believes
that its central processing laboratories enable it to manufacture products of a
more consistent quality, at a lower per unit cost and with lower capital and
inventory investments, than optical superstores that utilize in-store
laboratories.
COLE GIFT
Cole Gift, which generated approximately 47% of the Company's net sales in
fiscal 1995, is comprised of personalization gift stores, operated by Things
Remembered, Inc. ("Things Remembered") and Cole Gift Centers, Inc. ("CGC"),
offering "while you shop" gift engraving, key duplicating, glass etching and
monogramming, as well as related merchandise. As of May 4, 1996, Things
Remembered operated 782 retail locations in enclosed shopping malls, while CGC
operated 504 leased locations in Sears and other host stores. Cole Gift offers a
successful combination of retail and service formats that no other company is
employing on a national scale. Things Remembered and CGC each offers a wide
assortment of engravable gift items, including Cross and Parker writing
instruments and clocks by Bulova and Seiko, at prices generally ranging from $10
to $75. Cole Gift achieves operational efficiencies and reduces costs through a
computerized carousel system at its central distribution facility and computer
engravers at many of its stores.
OPERATING RESULTS
The Company has operated each of its specialty service retailing businesses
for over 25 years. Over this period, the Company has refined its retailing
formats to produce a strong record of growing sales and operating income. In
fiscal 1995, comparable store sales increased 3.4% and operating income rose
7.0% over prior year levels. During the first quarter ended May 4, 1996,
comparable store sales increased 7.6% and operating income rose 30.0% over the
same period in fiscal 1995. Since 1983, combined sales of Cole Vision and Cole
Gift grew at a compound annual rate of 8.8%, reaching $577.1 million in fiscal
1995. During the same period, operating income grew at a compound annual rate of
13.4%, to $46.0 million in fiscal 1995. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................. 1,250,000 shares(1)
Common Stock to be outstanding after the Offering... 11,747,227 shares (2)
NYSE symbol......................................... CNJ
</TABLE>
(1) Does not include up to 187,500 shares of Common Stock to be sold if the
Underwriters' over-allotment option granted by the Company is exercised in
full. See "Underwriting."
(2) Excludes 1,343,404 shares issuable upon the exercise of stock options and
173,675 shares issuable upon exercise of warrants held by various investors
outstanding as of June 10, 1996.
3
<PAGE> 5
USE OF PROCEEDS
The Company intends to use the net proceeds from the Offering for general
corporate purposes which may include repurchasing 11.25% Senior Notes due 2001
(the "CNG Notes") issued by Cole National Group, Inc., a wholly owned subsidiary
of the Company ("CNG"), or financing acquisitions as they may arise. To the
extent the Company repurchases CNG Notes at a premium, such repurchases would
result in a charge to earnings which, if material, would be accounted for as an
extraordinary charge to earnings.
SELECTED FINANCIAL DATA
Set forth below are selected financial data of the Company for fiscal years
1991 through 1995 which have been derived from the Company's audited
consolidated financial statements for those years. Also set forth below are
selected summary financial data of the Company for the 13 weeks ended April 29,
1995 and May 4, 1996, which have been derived from unaudited financial
statements for those periods. The Company's fiscal year ends on the Saturday
closest to January 31. Fiscal years are identified according to the calendar
year in which they begin. For example, the fiscal year ended February 3, 1996 is
referred to as "fiscal 1995." Fiscal 1995 consisted of a 53-week period; all
other fiscal years presented consisted of 52-week periods. The information
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 13 WEEKS ENDED
---------------------------------------------------------------- ---------------------
FEB. 1, JAN. 30, JAN. 29, JAN. 28, FEB. 3, APRIL 29, MAY 4,
1992 1993 1994 1995 1996 1995 1996
----------- ----------- ---------- ---------- ---------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales......................... $ 426,453 $ 428,066 $472,888 $528,049 $577,091 $125,254 $142,890
Gross profit...................... 305,582 304,012 331,936 363,326 394,157 86,530 98,390
Operating expenses................ 247,562 258,534 281,188 305,470 332,471 77,468 87,352
Depreciation and amortization..... 13,701 13,581 13,516 14,892 15,730 3,827 4,235
----------- ----------- ---------- ---------- ---------- --------- ---------
Income from operations............ 44,319 31,897 37,232 42,964 45,956 5,235 6,803
Interest expense, net............. 52,635 22,262 21,799 23,216 21,388 5,284 5,052
Income tax provision (benefit).... 3,073 4,165 2,361 (4,909) 10,810 (22 ) 771
----------- ----------- ---------- ---------- ---------- --------- ---------
Income (loss) from continuing
operations...................... $ (11,389) $ 5,470 $ 13,072 $ 24,657 $ 13,758 $ (27 ) $ 980
========== ========== ========== ========== ========== ======== ========
Earnings per share (a)............ $ 1.09 $ 2.47 $ 2.62 $ 1.32 $ .00 $ .09
Weighted average shares
outstanding (000's) (a)......... 5,004 5,283 9,395 10,415 10,405 10,435
Supplementary earnings
per share (a)................... $ .55 $ 1.28 $ 2.47 $ 1.32 $ .00 $ .09
NUMBER OF UNITS (AT END OF PERIOD):
Things Remembered................. 697 717 737 760 778 759 782
CGC............................... 598 594 586 589 587 587 504
Cole Vision....................... 751 769 774 938 1,013 903 1,022
----------- ----------- ---------- ---------- ---------- --------- ---------
Total....................... 2,046 2,080 2,097 2,287 2,378 2,249 2,308
========== ========== ========== ========== ========== ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets...................... $ 237,302 $ 225,861 $257,944 $283,319 $301,584 $276,498 $290,672
Long-term debt(b)................. 513,388 255,610 238,299 184,388 181,903 184,442 181,860
Stockholders' equity (deficit).... (420,150) (123,957) (75,070) 3,306 17,133 3,279 18,195
</TABLE>
(a) Earnings per share and weighted average shares outstanding for fiscal 1991
have been omitted due to the significant effects of an exchange of debt for
equity and related modifications of debt and conversions of equity
securities that occurred in 1992. Supplementary earnings per share have been
calculated as if the public offering in fiscal 1993 of CNG Notes and the
initial public offering in fiscal 1994 of the Common Stock ("IPO") had
occurred on February 2, 1992. See the consolidated financial statements and
notes thereto included elsewhere in this Prospectus.
(b) Includes redeemable preferred stock in fiscal 1991.
4
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following contains forward-looking statements. Forward-looking
statements are made based upon management's expectations and beliefs concerning
future events impacting the Company. All forward-looking statements involve risk
and uncertainty. Actual results may be materially affected by a variety of
factors, some of which may be beyond the control of the Company. See "Risk
Factors."
RESULTS OF OPERATIONS
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years are identified according to the calendar year in which they begin.
For example, the fiscal year ended February 3, 1996 is referred to as "fiscal
1995." Fiscal 1995 consisted of a 53-week period. Fiscal 1994 and fiscal 1993
consisted of 52-week periods. The following is a discussion of the results of
the Company's operations for the three fiscal years ended February 3, 1996 and
for the 13 week periods ended May 4, 1996 and April 29, 1995.
13 WEEKS ENDED MAY 4, 1996 COMPARED TO 13 WEEKS ENDED APRIL 29, 1995
Net sales for the first quarter of fiscal 1996 increased 14.1% to $142.9
million from $125.3 million for the same period of fiscal 1995. The increase in
sales was due to a comparable store sales increase of 7.6%, the opening of
additional Cole Gift and Cole Vision units and a shift in the Company's fiscal
calendar. Comparable store sales increased primarily as a result of strong sales
at Cole Vision due to successful eyewear promotions and growth in the managed
vision care program, along with the roll-out of monogrammed softgoods and
introduction of new merchandise at Cole Gift. At May 4, 1996, the Company
operated 2,308 specialty service retail units compared to 2,249 at April 29,
1995. Also, sales increased approximately $3.5 million as Cole Gift benefited
from a week of Mother's Day sales that were shifted into the quarter this year.
Gross profit increased to $98.4 million in the first 13 weeks of fiscal
1996 from $86.5 million for the same period a year ago. First quarter gross
margins in fiscal 1996 and fiscal 1995 were 68.9% and 69.1%, respectively. The
decrease of 0.2% in the first quarter gross margin percentage was due to
clearance sales in connection with the closing of 85 low volume Cole Gift Center
departments at host stores during the first quarter of fiscal 1996 that more
than offset other improvements in gross margin.
Operating expenses increased 12.8% to $87.4 million in the first quarter of
fiscal 1996 from $77.5 million for the first quarter last year due primarily to
higher payroll costs, store occupancy expenses and advertising expenditures.
Payroll costs increased because of more retail units open in 1996 and additional
payroll to support the increased sales. Store occupancy expenses increased
primarily as a result of higher percentage rents caused by increased comparable
store sales, more retail units open in 1996 and the increased number of Things
Remembered personalization superstores. Advertising expenditures for the optical
promotions were increased to encourage continued sales growth above last year's
successful promotions. Depreciation and amortization expense of $4.2 million in
fiscal 1996 was $0.4 million more than fiscal 1995 reflecting an increase in
capital expenditures beginning in the latter part of fiscal 1993.
Income from operations increased 30.0% or $1.6 million to $6.8 million in
the first quarter of fiscal 1996 primarily because of strong sales at Cole
Vision and the reduction of operating expenses as a percentage of sales, due in
part to the performance of Cole Gift which benefited from the aforementioned
shift in Mother's Day sales.
Net interest expense decreased $0.2 million to $5.1 million in the first
quarter of fiscal 1996 primarily because of the retirement of $5.0 million of
CNG Notes in November 1995, the elimination of working capital borrowings and
increased interest income from an increase in temporary cash investments.
An income tax provision or benefit was recorded in the first quarter of
both fiscal 1996 and fiscal 1995 using the Company's estimated annual effective
tax rate of 44%.
5
<PAGE> 7
Net income increased to $1.0 million for the first quarter of fiscal 1996
from approximately break-even for the first quarter of fiscal 1995. The increase
was due to the improvement in income from operations and the decrease in net
interest expense.
The Company's business is seasonal with approximately 30% of its sales and
approximately 50% of its income from operations occurring in the fourth fiscal
quarter because of the importance of gift sales during the Christmas retailing
season. Therefore, results of operations for interim periods are not necessarily
indicative of full year results.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales increased 9.3% to $577.1 million in fiscal 1995 from $528.0
million in fiscal 1994. The increase in consolidated sales was due to a
comparable store sales increase of 3.4%, sales for the 53rd week of
approximately $9.3 million and additional Things Remembered and Cole Vision
units open in fiscal 1995. Comparable store sales increased primarily as a
result of successful eyewear promotions and growth in the managed vision care
program at Cole Vision and expanded gift and softgoods merchandise at Things
Remembered locations. Fourth quarter comparable store sales were even with last
year as the retail industry in general experienced a very difficult Christmas
season and severe weather conditions in many major markets. At February 3, 1996,
the Company operated 2,378 specialty service retail locations versus 2,287 at
the end of the prior year. The net increase in retail units includes the
acquisition by Cole Vision on May 21, 1995, of 59 optical departments located in
BJ's Wholesale Club stores and the sale of the Company's 39 Sunspot fashion
sunglass kiosks as of April 29, 1995.
Gross profit increased to $394.2 million in fiscal 1995 from $363.3 million
in fiscal 1994. Gross margins for fiscal 1995 and fiscal 1994 were 68.3% and
68.8%, respectively. The decrease in gross margin percentage was primarily due
to an increase in the sales of lower margin optical products, including
disposable contact lenses, and a lower mix of higher margin merchandise,
primarily keys, at Cole Gift Centers. Gross margin in the fourth quarter of
fiscal 1995, however, improved to 67.1% from 66.9% in fiscal 1994, benefitting
from fiscal 1994 and 1995 investments aimed at increasing optical laboratory
capacity and production efficiency and from reduced material costs for
spectacles. The Company expects the fourth quarter gross margin trend to
continue into fiscal 1996.
Operating expenses increased 8.8% to $332.5 million in fiscal 1995 from
$305.5 million the prior year. As a percentage of sales, operating expenses
decreased to 57.6% in fiscal 1995 from 57.8% in fiscal 1994. Operating expenses
increased primarily because of higher payroll costs, store occupancy expenses
and advertising expense due, in part, to the 53rd week. The higher payroll costs
were also the result of more retail units in fiscal 1995 and additional payroll
to support the higher level of sales. Partially offsetting the payroll increases
were savings from outsourcing the Company's data processing operations in fiscal
1995. Store occupancy expense increased because of the increased number of
retail units and higher percentage rents due to increased comparable store
sales. Advertising costs increased primarily as a result of additional efforts
to support eyewear promotions. Also included in operating expenses in fiscal
1995 was a $0.2 million provision for the closing of approximately 90 low volume
leased key and gift departments in the first quarter of fiscal 1996. The
closings are expected to improve the Company's operating results during the
first nine months of the fiscal year. Fiscal 1995 depreciation and amortization
expense of $15.7 million was $0.8 million more than fiscal 1994 reflecting an
increase in capital expenditures that began in the latter part of fiscal 1993.
Income from operations increased 7.0% to $46.0 million in fiscal 1995 from
$43.0 million the prior year. The increase was primarily attributable to the
increased sales. The lower gross margin percentage was partially offset by
improved leveraging of operating expenses.
Net interest expense for fiscal 1995 of $21.4 million was $1.8 million less
than that of the prior year. This decrease was primarily due to retirement of
debt in connection with the Company's IPO on April 18, 1994 and the retirement
of $5.0 million of its CNG Notes in November 1995, along with higher interest
income. See "-- Liquidity and Capital Resources" below and Notes 2 and 3 of the
Notes to Consolidated Financial Statements for further discussion of the IPO and
the purchase of the notes.
6
<PAGE> 8
The income tax provision of $10.8 million for fiscal 1995 represents an
effective tax rate of 44.0%. This rate reflects the significant impact of
non-deductible amortization of goodwill. The income tax benefit of $4.9 million
in fiscal 1994 included the effects of utilizing all of the Company's net
operating loss carryforwards and the reversal of a valuation allowance on net
deferred tax assets in the fourth quarter. A more complete discussion of income
taxes is included in Note 7 of Notes to Consolidated Financial Statements.
Net income in fiscal 1994 of $23.7 million included a loss on early
extinguishment of debt of $0.9 million to reflect the payment of premiums, the
write-off of unamortized debt discount and other costs associated with retiring
the debt in connection with the IPO.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales increased 11.7% to $528.0 million in fiscal 1994 from $472.9
million in fiscal 1993. The increase in consolidated sales was due to a
comparable store sales increase of 5.5% and additional Things Remembered and
Cole Vision units opened in fiscal 1994. Comparable store sales increased
primarily as a result of successful eyeglass promotions and growth in managed
vision care sales at Cole Vision, which continued to take advantage of the
general improvement within the optical industry. Comparable store sales gains
from increased gift and greeting card sales at Cole Gift Center locations were
offset for the most part by soft fourth quarter sales at Things Remembered which
experienced the general sales weakness that affected many enclosed mall
retailers during the Christmas selling season. At January 28, 1995, the Company
operated 2,287 specialty service retail locations versus 2,097 at the end of the
prior year. The net increase in retail units includes the acquisition by Cole
Vision of 107 optical departments located in Montgomery Ward stores as of
January 30, 1994.
Gross profit increased to $363.3 million in fiscal 1994 from $331.9 million
in fiscal 1993. Gross margins for fiscal 1994 and fiscal 1993 were 68.8% and
70.2%, respectively. The decrease in gross margin percentage was primarily
attributable to Cole Vision as the optical promotions delivered lower average
retails and encouraged the sale of higher cost products, combined with an
increased mix of lower margin contact lenses.
Operating expenses increased 8.6% to $305.5 million in fiscal 1994 from
$281.2 million the prior year. As a percentage of sales, operating expenses
decreased to 57.8% in fiscal 1994 from 59.5% in fiscal 1993. Operating expenses
increased primarily due to higher payroll costs and store occupancy expenses
partially offset by a reduction in advertising expense. The higher payroll costs
were due to more retail units in fiscal 1994 and additional payroll to support
the higher level of sales, offset in part by lower benefits and incentive
compensation costs. Store occupancy expense increased because of the increased
number of retail units and higher percentage rents caused by increased
comparable store sales. Advertising expenditures were reduced this year
primarily because of a television advertising test at Things Remembered during
the prior year's Christmas retail season and advertising efficiencies at Cole
Vision. Fiscal 1994 depreciation and amortization expense of $14.9 million was
$1.4 million more than fiscal 1993 reflecting an increase in capital
expenditures beginning in the latter part of fiscal 1993 and the acquisition of
the Montgomery Ward optical departments.
Income from operations increased 15.4% to $43.0 million in fiscal 1994 from
$37.2 million the prior year. The increase was primarily attributable to the
increased comparable store sales. The lower gross margin percentage was more
than offset by improved leveraging of operating expenses which resulted from the
lower payroll costs and advertising expenditures as a percentage of sales.
Net interest expense for fiscal 1994 of $23.2 million was $1.4 million more
than that of the prior year. This increase was primarily a result of the higher
effective interest rates on outstanding debt following completion of the
offering of CNG Notes on September 30, 1993. Partially offsetting this was a
reduction in interest expense resulting from the early extinguishment of debt in
connection with the Company's IPO. See "-- Liquidity and Capital Resources"
below and Notes 2 and 3 of the Notes to Consolidated Financial Statements for
further discussion of the IPO and the CNG Note issuance.
The income tax benefit of $4.9 million in fiscal 1994 includes the effects
of utilizing all of the Company's net operating loss carryforwards and the
reversal of a valuation allowance on net deferred tax assets in the fourth
quarter. The income tax provision of $2.4 million for fiscal 1993 consisted of
only state income taxes.
7
<PAGE> 9
Net income in fiscal 1994 included a loss on early extinguishment of debt
of $0.9 million and, in fiscal 1993, included a gain on extinguishment of debt
of $35.8 million related to the issuance of the CNG Notes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is funds provided from operations
of its operating subsidiaries. In addition, CNG's principal operating
subsidiaries have available to them working capital commitments of $50.0 million
under a revolving credit facility with a group of lenders led by Fleet Capital
Corporation (the "Revolving Credit Facility"), reduced by commitments under
letters of credit. There were no working capital borrowings during the first
quarter of fiscal 1996 and the maximum amount outstanding during the first
quarter of fiscal 1995 was $3.5 million. There were no working capital
borrowings outstanding as of February 3, 1996 and the maximum amount outstanding
during fiscal 1995 and fiscal 1994 was $3.5 million and $13.0 million,
respectively. The Revolving Credit Facility contains covenants restricting the
ability of the Company's operating subsidiaries to, among other things, pay
dividends or make other restricted payments to CNG or the Company. The Revolving
Credit Facility permits CNG's subsidiaries to pay dividends to CNG to the extent
necessary to permit it to (i) pay all interest and principal on the CNG Notes
when due, (ii) satisfy its obligations under a tax allocation agreement and to
pay other tax payments, and (iii) meet other direct expenses, provided that the
amount distributed annually to CNG to satisfy such other direct expenses does
not exceed $15.0 million plus .25% of the net annual sales of the borrowers
under the Revolving Credit Facility.
At May 4, 1996, the Company had outstanding $180.9 million of CNG Notes.
The CNG Notes are unsecured and mature October 1, 2001 with no earlier scheduled
redemption or sinking fund payment. The CNG Notes bear interest at a rate of
11.25% per annum, payable semi-annually on each April 1 and October 1. The
indenture pursuant to which the CNG Notes were issued contains certain optional
and mandatory redemption features and other financial covenants, including
restrictions on the ability of CNG to pay dividends or make other restricted
payments to the Company. The indenture permits dividend payments to the Company
of one-half of CNG's consolidated net income, provided that no default or event
of default has occurred under the indenture and that CNG has met a specified
fixed charge coverage ratio test. The indenture also permits payments to the
Company for certain tax obligations and for administrative expenses of the
Company not to exceed .25% of net sales. See Note 3 of Notes to Consolidated
Financial Statements.
On April 18, 1994, the Company completed an initial public offering of five
million shares of its Common Stock at an initial offering price to the public of
$12.00 per share. The net proceeds of $54.5 million were used to extinguish all
$50.0 million of the Company's 13% Senior Notes and $4.0 million of the CNG
Notes.
On November 8, 1995, the Company purchased on the open market and retired
$5.0 million of the CNG Notes. This will result in a reduction of future
interest expense of $0.6 million annually.
The Company has no significant principal payment obligations under any of
its outstanding indebtedness until the CNG Notes mature in 2001. The ability of
the Company and its subsidiaries to satisfy that obligation will be primarily
dependent upon future financial and operating performance of the subsidiaries
and upon the Company's and CNG's ability to renew or refinance borrowings or to
raise additional equity capital.
Operations for the first quarter used cash of $12.6 million in fiscal 1996
compared to $6.1 million of cash usage in fiscal 1995. The increase in cash used
by operations resulted primarily from the timing of inventory disbursements.
Cash balances at February 3, 1996 were $29.3 million compared to $19.7
million at January 28, 1995. Operations generated net cash of $36.5 million in
fiscal 1995, $15.6 million in fiscal 1994 and $33.3 million in fiscal 1993. The
$20.9 million increase in cash provided by operations in fiscal 1995 compared to
fiscal 1994 was primarily due to a $2.5 million reduction in inventory, despite
a 9.3% increase in sales, compared to an $8.7 million increase in inventory the
prior year. Also, income from operations in fiscal 1995 was higher by $3.0
million and interest expense was lower by $1.8 million than in fiscal 1994. The
$17.7 million decrease in cash provided from operations in fiscal 1994 compared
to fiscal 1993 was primarily the result of the following: a $5.7 million
increase in fiscal 1994 income from operations offset by a $4.9 million decrease
in noncash
8
<PAGE> 10
interest expense and a decrease in accrued liabilities in fiscal 1994 compared
to the substantial increase in accrued liabilities that occurred in fiscal 1993
(primarily accrued interest and incentive compensation).
Net capital additions were $3.4 million and $4.6 million for the 13 weeks
of fiscal 1996 and fiscal 1995, respectively, and were $19.8 million, $18.5
million and $13.1 million in fiscal 1995, 1994 and 1993, respectively. In
addition, the Company used $0.8 million for the purchase of the BJ's Wholesale
Club optical departments in fiscal 1995, $4.7 million for the purchase of the
Montgomery Ward optical departments in fiscal 1994 and $3.2 million for the
acquisition of a mail order contact lens business in fiscal 1993. The majority
of the capital additions were for store fixtures, equipment and leasehold
improvements for new stores and the remodeling of existing stores. During part
of fiscal 1993, the Company operated under restrictions on capital expenditures
imposed by its former bank credit agreements, which limited the Company's
ability to expand its operations. Without these limitations, the Company has
increased the level of capital expenditures. For the balance of fiscal 1996, the
Company expects to continue to expand the number of stores as well as remodel
and relocate stores. The Company currently estimates capital expenditures in
fiscal 1996 will exceed $20.0 million. The Company believes that funds provided
from operations along with funds available under the Revolving Credit Facility
will provide adequate sources of long-term liquidity to allow the Company's
operating subsidiaries to continue to expand the number of stores.
9
<PAGE> 11
RISK FACTORS
Prospective investors in the Common Stock should consider carefully the
following factors, in addition to the other information contained in this
Prospectus, prior to making an investment in the Common Stock.
LEVERAGE
The Company owns its operating businesses through CNG, a wholly owned
subsidiary. Although the Company itself has no outstanding indebtedness (other
than capital leases), CNG remains highly leveraged and its debt service
requirements will be substantial. As of May 4, 1996, the Company had
consolidated long-term debt of $181.9 million and stockholders' equity of $18.2
million.
The Company currently expects that CNG and its subsidiaries will be able to
service the principal obligations on their indebtedness out of cash flow from
operations. Excluding $0.5 million of indebtedness outstanding under Industrial
Revenue Bonds and $0.8 million of capital lease obligations, the remainder of
CNG's long-term debt does not require any principal payments until October 1,
2001. The ability of CNG and its subsidiaries to satisfy their obligations will
be primarily dependent upon the future financial and operating performance of
the subsidiaries and upon the Company's and CNG's ability to renew or refinance
borrowings or to raise additional equity capital. Each of these alternatives is
dependent upon financial, business and other general economic factors affecting
the subsidiaries and the retailing business in particular, many of which are
beyond the control of the Company and its subsidiaries. If CNG and its
subsidiaries are unable to generate sufficient cash flow to meet their debt
service obligations, they will have to pursue one or more alternatives, such as
reducing or delaying capital expenditures, refinancing debt, or selling assets.
There can be no assurance that any such alternatives could be accomplished on
satisfactory terms. While the Company believes that cash flow from operations
along with funds available under the Revolving Credit Facility will provide
adequate sources of long-term liquidity, a significant drop in operating cash
flows resulting from economic conditions, competition or other uncertainties
beyond the Company's control would increase the need for refinancing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Upon the occurrence of a "change of control" of the Company, each holder of
the CNG Notes would have the right to require the repurchase of all or any part
of such holder's CNG Notes at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon. A "change of
control" would occur if a single purchaser or purchasers acting together as a
"group" (as defined under the Exchange Act) acquires (through individual market
purchases, negotiated transactions, this Offering or otherwise) 50% or more of
the total voting power of the voting stock of the Company on a fully diluted
basis. If such an event does occur, there can be no assurance that the Company
would have the ability to finance the repurchase of CNG Notes that are tendered
to it.
COMPETITION
The Company operates in highly competitive businesses. Cole Vision competes
with other optical companies and private optometrists and opticians. Cole Gift
competes generally with other retailers that sell gift items. Many of the
Company's competitors have greater financial resources than the Company.
SEASONALITY
The Company's business is seasonal with approximately 30% of the Company's
sales and approximately 50% of its operating earnings occurring in the fourth
fiscal quarter.
RELATIONSHIPS WITH HOST STORES
The CGC and Cole Vision locations are operated under the names of their
respective host stores under leases or licenses, from such host stores, that are
terminable upon 60-90 days' notice. The Company has enjoyed excellent
relationships with its major host stores for over 40 years and has never had a
lease
10
<PAGE> 12
terminated, other than in connection with a store closing, relocation or major
remodeling. Although the Company currently has an excellent relationship with
its major host stores, there can be no assurance that a major host store will
not in the future terminate its relationship with the Company, including the use
of the host store's name, in accordance with the terms and conditions of the
lease or license between such host store and the Company. There would be a
material adverse effect on the Company's financial position and results of
operations if a major host store were to terminate its relationship with the
Company.
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company currently intends to retain earnings to support its growth
strategy and does not anticipate paying dividends in the foreseeable future.
Payment of future dividends, if any, will be at the discretion of the Company's
Board of Directors after taking into account various factors, including the
Company's financial condition, operating results, current and anticipated cash
needs and plans for expansion. The operations of the Company are and are
expected to be conducted through its direct and indirect subsidiaries. The
covenants in certain debt instruments to which CNG or its subsidiaries are a
party restrict the ability of CNG and its subsidiaries to make distributions to
the Company to enable the Company to pay dividends. The amount of dividends that
may be paid under each of these agreements is based in part on the operating
results of the Company's subsidiaries, and there can be no assurance as to the
amount or frequency of dividends that can be paid to the Company in future
years. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
By-Laws and of the Delaware General Corporation Law could have the effect of
deterring hostile takeovers or delaying or preventing changes in control or
management of the Company. In addition, the Company has adopted a stockholders'
rights plan that includes certain provisions which could have similar
anti-takeover effects. Any one of, or a combination of, the above anti-takeover
provisions could discourage a third party from attempting to acquire control of
the Company.
SHARES ELIGIBLE FOR FUTURE SALE
The shares of Common Stock offered hereby will be freely transferable by
persons who are not affiliates of the Company without restriction or further
registration under the Securities Act. Virtually all of the Common Stock, other
than shares held by affiliates of the Company, are freely tradable. Shares of
Common Stock held by affiliates of the Company are subject to limitations on the
volume that may be sold other than sales pursuant to a registration statement
under the Securities Act or an applicable exemption from registration
thereunder, including sales pursuant to Rule 144 promulgated thereunder. The
Company and the executive officers and Directors of the Company have agreed
that, for a period of 120 days after the execution of the Underwriting
Agreement, they will not, without the prior written consent of McDonald &
Company Securities, Inc., offer, sell, contract to sell or otherwise dispose of
any unrestricted shares of Common Stock, other equity securities of the Company
or other securities convertible into or exercisable or exchangeable for any
shares of Common Stock or grant options to purchase any shares of Common Stock,
except in certain limited circumstances. The sale or issuance or the potential
for sale or issuance of such shares could have an adverse impact on the market
price of the Common Stock.
POSSIBLE VOLATILITY OF STOCK PRICE
The public offering price per share of Common Stock has been determined by
negotiations among the Company and representatives of the Underwriters based in
part on the trading price of the Common Stock on the New York Stock Exchange and
may not be indicative of the price at which the Common Stock will trade after
completion of the Offering. In addition, the stock market has from time to time
experienced extreme price and volume volatility. These fluctuations may be
unrelated to the operating performance of particular companies whose shares are
traded. Market fluctuations may adversely affect the market price of the Common
Stock. The market price of the Common Stock could be subject to significant
fluctuations in
11
<PAGE> 13
response to the Company's operating results and other factors, and there can be
no assurance that the market price of the Common Stock will not decline below
the price at which the shares of Common Stock are sold. See "Underwriting."
OTHER FACTORS AFFECTING FUTURE PERFORMANCE
The Company's future liquidity, financial condition and operating results
may be materially affected by a variety of factors, some of which may be beyond
the control of the Company, including the Company's ability to select and stock
merchandise attractive to customers, general economic cycles affecting consumer
spending, weather factors affecting retail operations, its quality controls in
optical manufacturing and engraving, operating factors affecting customer
satisfaction, the mix of goods sold, pricing and other competitive factors, and
the seasonality of the Company's businesses.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the Company's
directors and executive officers, who also hold comparable positions at CNG.
<TABLE>
<CAPTION>
YEARS OF SERVICE
NAME AGE WITH COMPANY POSITION
- ------------------ --- ---------------- ------------------------------------------
<S> <C> <C> <C>
Jeffrey A. Cole 55 27 Chairman, Chief Executive Officer,
Chief Financial Officer and Director
Brian B. Smith 43 14 President, Chief Operating Officer and
Director
Joseph Gaglioti 50 15 Vice President and Treasurer
Wayne L. Mosley 42 10 Vice President and Controller
Timothy F. Finley 52 4 Director
Irwin N. Gold 39 4 Director
Peter V. Handal 52 4 Director
Charles A. Ratner 54 1 Director
</TABLE>
12
<PAGE> 14
UNDERWRITING
In the Underwriting Agreement, the Underwriters, represented by McDonald &
Company Securities, Inc. and Smith Barney Inc. (the "Representatives"), have
agreed, severally, subject to the terms and conditions therein set forth, to
purchase from the Company, and the Company has agreed to sell to them, the
number of shares of Common Stock totalling 1,250,000 shares, set forth opposite
their respective names below. The Underwriters are committed to take and pay for
all shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- -------------------------------------------------------------------------------- ---------
<S> <C>
McDonald & Company Securities, Inc..............................................
Smith Barney Inc................................................................
---------
Total.................................................................... 1,250,000
==========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus. The Underwriters may allow
to certain selected dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") a discount not exceeding $ per share,
and the Underwriters may allow, and such selected dealers may re-allow, a
discount not exceeding $ per share to other dealers who are members of the
NASD. After this Offering, the public offering price and the discount to dealers
may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 187,500 shares of Common Stock at the public offering price, less the
underwriting discount, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such option only to cover over-allotments in the sale
of the Common Stock that the Underwriters have agreed to purchase. To the extent
that the Underwriters exercise such option, each of the Underwriters will have a
firm commitment, subject to certain conditions, to purchase the same percentage
of the option shares as the number of shares to be purchased and offered by that
Underwriter in the table above bears to the total.
The Company has agreed to indemnify the Underwriters against certain
liabilities which may be incurred in connection with the Offering, including
liabilities under the Securities Act of 1933 or to contribute to payments that
the Underwriters may be required to make.
The Company and its directors and executive officers have agreed not to
sell, transfer or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for shares of Common
Stock without the consent of McDonald & Company Securities, Inc. for a period of
120 days from the date of this Prospectus, except for awards of management stock
options or issuances of shares upon the exercise of outstanding warrants or
stock options or pursuant to other employee benefit plans.
13
<PAGE> 15
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio. Certain legal matters
will be passed upon for the Underwriters by Calfee, Halter & Griswold,
Cleveland, Ohio.
EXPERTS
The audited consolidated financial statements and financial statement
schedule included and incorporated by reference in this Prospectus and elsewhere
in the Registration Statement to the extent and for the periods indicated in
their reports have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
14
<PAGE> 16
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at May 4, 1996 and February 3, 1996................... F-2
Consolidated Statements of Income for the 13 weeks ended May 4, 1996 and April 29,
1995........................................................................... F-3
Consolidated Statements of Cash Flows for the 13 weeks ended May 4, 1996 and April
29, 1995....................................................................... F-4
Notes to Consolidated Financial Statements........................................ F-5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.......................................... F-6
Consolidated Balance Sheets at February 3, 1996 and January 28, 1995.............. F-7
Consolidated Statements of Income for the 53 weeks ended February 3, 1996 and 52
weeks ended January 28, 1995 and January 29, 1994.............................. F-8
Consolidated Statements of Stockholders' Equity for the 53 weeks ended February 3,
1996 and 52 weeks ended January 28, 1995 and January 29, 1994.................. F-9
Consolidated Statements of Cash Flows for the 53 weeks ended February 3, 1996 and
52 weeks ended January 28, 1995 and January 29, 1994........................... F-10
Notes to Consolidated Financial Statements........................................ F-11
</TABLE>
F-1
<PAGE> 17
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 4, FEBRUARY 3,
1996 1996
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments............................... $ 12,626 $ 29,260
Accounts receivable............................................... 21,289 18,589
Inventories....................................................... 88,404 84,794
Prepaid expenses and other........................................ 5,057 5,892
Deferred income tax benefits...................................... 10,675 10,675
-------- -----------
Total current assets...................................... 138,051 149,210
Property and equipment, at cost..................................... 158,411 157,050
Less-accumulated depreciation and amortization.................... (92,212) (90,909)
-------- -----------
Total property and equipment, net......................... 66,199 66,141
Other assets........................................................ 5,551 5,070
Cost in excess of net assets of purchased businesses, net........... 80,871 81,163
-------- -----------
Total assets.............................................. $290,672 $ 301,584
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................. $ 712 $ 705
Accounts payable.................................................. 22,493 29,273
Accrued interest.................................................. 1,943 7,050
Accrued liabilities............................................... 57,192 53,933
Accrued income taxes.............................................. 2,698 5,976
-------- -----------
Total current liabilities................................. 85,038 96,937
Long-term debt, net of discount..................................... 181,860 181,903
Deferred income taxes and other..................................... 5,579 5,611
Stockholders' equity:
Common stock...................................................... 10 10
Paid-in capital................................................... 99,942 99,827
Notes receivable -- stock option exercise......................... (1,150) (1,117)
Accumulated deficit............................................... (80,607) (81,587)
-------- -----------
Total stockholders' equity................................ 18,195 17,133
-------- -----------
Total liabilities and stockholders' equity................ $290,672 $ 301,584
======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-2
<PAGE> 18
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
-----------------------
MAY 4, APRIL 29,
1996 1995
-------- ----------
<S> <C> <C>
Net sales............................................................. $142,890 $125,254
Costs and expenses:
Cost of goods sold.................................................. 44,500 38,724
Operating expenses.................................................. 87,352 77,468
Depreciation and amortization....................................... 4,235 3,827
-------- ----------
Total costs and expenses.................................... 136,087 120,019
-------- ----------
Income from operations................................................ 6,803 5,235
Interest expense, net................................................. 5,052 5,284
-------- ----------
Income (loss) before income taxes..................................... 1,751 (49)
Income tax provision (benefit)........................................ 771 (22)
-------- ----------
Net income (loss)..................................................... $ 980 $ (27)
======== ========
Earnings per share.................................................... $ .09 $ .00
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE> 19
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
13 WEEKS ENDED
-----------------------
MAY 4, APRIL 29,
1996 1995
-------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ 980 $ (27)
Adjustments to reconcile net income (loss) to net cash used by
operations:
Depreciation and amortization.................................... 4,235 3,827
Non-cash interest expense........................................ 106 100
Change in assets and liabilities:
Increase in accounts receivable, prepaid expenses and other
assets........................................................ (2,079) (4,073)
Decrease (increase) in inventories............................. (3,610) 908
Increase (decrease) in accounts payable and accrued
liabilities................................................... (3,842) 1,602
Decrease in accrued interest................................... (5,107) (5,243)
Decrease in accrued income taxes............................... (3,278) (3,207)
-------- ----------
Net cash used by operating activities....................... (12,595) (6,113)
-------- ----------
Cash flows from financing activities:
Repayment of long-term debt......................................... (221) --
Proceeds from exercise of stock options............................. 82 --
-------- ----------
Net cash used by financing activities....................... (139) --
-------- ----------
Cash flows from investing activities:
Purchases of property and equipment, net............................ (3,406) (4,584)
Other, net.......................................................... (494) (844)
-------- ----------
Net cash used by investing activities....................... (3,900) (5,428)
-------- ----------
Cash and temporary cash investments:
Net decrease during the period...................................... (16,634) (11,541)
Balance, beginning of the period.................................... 29,260 19,730
-------- ----------
Balance, end of the period.......................................... $ 12,626 $ 8,189
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 20
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Cole National
Corporation (CNC), its wholly owned subsidiaries, including Cole National Group,
Inc. (CNG), and CNG's wholly owned subsidiaries (collectively, the "Company").
All significant intercompany transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared
without audit and certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, although the Company
believes that the disclosures herein are adequate to make the information not
misleading. These statements should be read in conjunction with the Company's
consolidated financial statements for the fiscal year ended February 3, 1996.
In the opinion of management, the accompanying financial statements contain
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the Company's financial position as of May 4, 1996 and the
results of operations and cash flows for the 13 weeks ended May 4, 1996 and
April 29, 1995.
Inventories
The accompanying interim consolidated financial statements have been
prepared without physical inventories. Inventories at May 4, 1996 and April 29,
1995 were valued at the lower of first-in, first-out (FIFO) cost or market.
Cash Flows
Net cash flows from operating activities reflect cash payments for income
taxes and interest of $4,095,000 and $10,323,000, respectively, for the 13 weeks
ended May 4, 1996, and $3,186,000 and $10,627,000, respectively, for the 13
weeks ended April 29, 1995.
Earnings Per Share
Earnings per share for the 13 weeks ended May 4, 1996 and April 29, 1995
have been calculated based on 10,435,423 and 10,405,119, respectively, weighted
average number of common shares outstanding.
(2) ASSET IMPAIRMENT
During the first quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of". Adoption of SFAS
No. 121 had no material impact on the Company's results of operations, financial
position or cash flows.
(3) SEASONALITY
The Company's business is seasonal with approximately 30% of its sales and
approximately 50% of its income from operations generated in the fourth fiscal
quarter, which contains the important Christmas retailing season. Therefore,
earnings or losses for a particular interim period are not necessarily
indicative of full year results.
F-5
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS OF COLE NATIONAL CORPORATION:
We have audited the accompanying consolidated balance sheets of Cole
National Corporation (a Delaware corporation) and Subsidiaries (the Company) as
of February 3, 1996 and January 28, 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended February 3, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cole
National Corporation and Subsidiaries as of February 3, 1996 and January 28,
1995 and the results of their operations and their cash flows for each of the
three years in the period ended February 3, 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
March 19, 1996.
F-6
<PAGE> 22
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments............................. $ 29,260 $ 19,730
Accounts receivable............................................. 18,589 17,701
Inventories..................................................... 84,794 87,246
Prepaid expenses and other...................................... 5,892 3,590
Deferred income tax benefits.................................... 10,675 13,301
----------- -----------
Total current assets.................................... 149,210 141,568
Property and equipment, at cost................................... 157,050 140,301
Less -- accumulated depreciation and amortization............... (90,909) (84,284)
----------- -----------
Total property and equipment, net....................... 66,141 56,017
Other assets...................................................... 5,070 2,926
Cost in excess of net assets of purchased businesses, net......... 81,163 82,808
----------- -----------
Total assets............................................ $ 301,584 $ 283,319
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................... $ 705 $ 169
Accounts payable................................................ 29,273 25,141
Accrued interest................................................ 7,050 6,935
Accrued liabilities............................................. 53,933 55,067
Accrued income taxes............................................ 5,976 4,644
----------- -----------
Total current liabilities............................... 96,937 91,956
Long-term debt, net of discount................................... 181,903 184,388
Deferred income taxes and other................................... 5,611 3,669
Stockholders' equity:
Preferred stock................................................. -- --
Common stock.................................................... 10 10
Paid-in capital................................................. 99,827 99,749
Notes receivable-stock option exercise.......................... (1,117) (1,108)
Accumulated deficit............................................. (81,587) (95,345)
----------- -----------
Total stockholders' equity.............................. 17,133 3,306
----------- -----------
Total liabilities and stockholders' equity.............. $ 301,584 $ 283,319
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-7
<PAGE> 23
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $ 577,091 $ 528,049 $ 472,888
Costs and expenses:
Cost of goods sold................................ 182,934 164,723 140,952
Operating expenses................................ 332,471 305,470 281,188
Depreciation and amortization..................... 15,730 14,892 13,516
----------- ----------- -----------
Total costs and expenses.................. 531,135 485,085 435,656
----------- ----------- -----------
Income from operations.............................. 45,956 42,964 37,232
Interest expense, net............................... 21,388 23,216 21,799
----------- ----------- -----------
Income before income taxes and extraordinary item... 24,568 19,748 15,433
Income tax provision (benefit)...................... 10,810 (4,909) 2,361
----------- ----------- -----------
Income before extraordinary item.................... 13,758 24,657 13,072
Extraordinary gain (loss) on early extinguishment of
debt.............................................. -- (917) 35,815
----------- ----------- -----------
Net income.......................................... $ 13,758 $ 23,740 $ 48,887
========== ========== ==========
Earnings (loss) per common share:
Income before extraordinary item.................. $ 1.32 $ 2.62 $ 2.47
Extraordinary gain (loss)......................... -- (.10) 6.78
----------- ----------- -----------
Net income........................................ $ 1.32 $ 2.52 $ 9.25
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-8
<PAGE> 24
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE TOTAL
COMMON PAID-IN STOCK OPTION ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL EXERCISE DEFICIT EQUITY
------ ------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 30, 1993.......... $ 5 $44,010 $ -- $(167,972) $(123,957)
------ ------- ------------ ----------- -------------
Net income....................... -- -- -- 48,887 48,887
Exercise of stock options........ -- 1,130 (1,130) -- --
------ ------- ------------ ----------- -------------
Balance, January 29, 1994.......... 5 45,140 (1,130) (119,085) (75,070)
------ ------- ------------ ----------- -------------
Net income....................... -- -- -- 23,740 23,740
Proceeds from initial public
offering...................... 5 54,535 -- -- 54,540
Exercise of stock options........ -- 74 -- -- 74
Repayment of notes receivable.... -- -- 22 -- 22
------ ------- ------------ ----------- -------------
Balance, January 28, 1995.......... 10 99,749 (1,108) (95,345) 3,306
------ ------- ------------ ----------- -------------
Net income....................... -- -- -- 13,758 13,758
Exercise of stock options........ -- 78 (9) -- 69
------ ------- ------------ ----------- -------------
Balance, February 3, 1996.......... $ 10 $99,827 $ (1,117) $ (81,587) $ 17,133
======== ======= ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-9
<PAGE> 25
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 13,758 $ 23,740 $ 48,887
Adjustments to reconcile net income to net cash
provided by operations:
Extraordinary (gain) loss on early
extinguishment of debt....................... -- 917 (35,815)
Depreciation and amortization.................. 15,730 14,892 13,516
Non-cash interest expense...................... 454 469 5,343
Deferred income taxes.......................... 4,495 (10,153) --
Change in assets and liabilities:
Increase in accounts receivable, prepaid
expenses and other assets................. (4,905) (4,610) (2,541)
Decrease (increase) in inventories........... 2,452 (8,723) (12,264)
Increase (decrease) in accounts payable and
accrued liabilities....................... 3,095 (1,252) 7,529
Increase (decrease) in accrued interest...... 115 (2,451) 8,304
Increase in accrued income taxes............. 1,332 2,807 355
----------- ----------- -----------
Net cash provided by operating
activities.............................. 36,526 15,636 33,314
----------- ----------- -----------
Cash flows from financing activities:
Repayment of long-term debt....................... (5,406) (56,859) (188,206)
Payment of deferred financing fees................ -- (100) (1,251)
Proceeds from initial public offering, net........ -- 54,540 --
Proceeds from long-term debt...................... -- -- 187,557
Other............................................. 69 96 --
----------- ----------- -----------
Net cash used by financing activities..... (5,337) (2,323) (1,900)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment, net.......... (19,832) (18,527) (13,074)
Acquisitions of businesses........................ (800) (4,675) (3,220)
Other, net........................................ (1,027) (1,285) (560)
----------- ----------- -----------
Net cash used by investing activities..... (21,659) (24,487) (16,854)
----------- ----------- -----------
Cash and temporary cash investments:
Net increase (decrease) during the period......... 9,530 (11,174) 14,560
Balance, beginning of the period.................. 19,730 30,904 16,344
----------- ----------- -----------
Balance, end of the period........................ $ 29,260 $ 19,730 $ 30,904
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-10
<PAGE> 26
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Cole National
Corporation (CNC), its wholly owned subsidiaries, including Cole National Group,
Inc. (CNG), and CNG's wholly owned subsidiaries (collectively, the Company). All
significant intercompany transactions have been eliminated in consolidation.
The Company is a national specialty service retailer operating in both host
and non-host environments. The Company's primary lines of business are
personalized gifts and eyewear products, both of which are about equal in size
based on sales. The Company sells its products nationally through over 2,300
retail locations in 49 states, and differentiates itself from other specialty
retailers by providing value-added services at the point of sale at all of its
retail locations. The Company considers its operations to be in one business
segment.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years are identified according to the calendar year in which they begin.
Fiscal year 1995 consisted of 53 weeks, and fiscal years 1994 and 1993 each
consisted of 52 weeks.
Inventories
The Company's inventories are valued at the lower of first-in, first-out
(FIFO) cost or market.
Property and Depreciation
The Company's policy is to provide depreciation using the straight-line
method over a period which is sufficient to amortize the cost of the asset
during its useful life.
The estimated useful lives for depreciation purposes are:
<TABLE>
<S> <C>
Buildings and improvements...................................... 5 to 40 years
Equipment....................................................... 3 to 10 years
Furniture and fixtures.......................................... 2 to 10 years
Leasehold improvements.......................................... 2 to 20 years
</TABLE>
Property and equipment, at cost, consist of the following as of February 3,
1996 and January 28, 1995 (000's omitted):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land and buildings.............................................. $ 3,615 $ 4,989
Furniture, fixtures and equipment............................... 116,968 104,061
Leasehold improvements.......................................... 36,467 31,251
-------- --------
Total property and equipment.................................... $157,050 $140,301
======== ========
</TABLE>
Store Opening Expenses
Store opening expenses are charged to operations in the year the store is
opened, which is generally the year the expense is incurred.
F-11
<PAGE> 27
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Other Assets
Cost in excess of net assets of purchased businesses is being amortized on
a straight-line basis over 40 years and is presented net of accumulated
amortization of $29,640,000 and $26,880,000, at February 3, 1996 and January 28,
1995, respectively. Management, which regularly evaluates its accounting for
goodwill, considering such factors as historical profitability, current
operating profits and cash flows, believes that the asset is realizable and the
amortization period is appropriate.
Financing costs incurred in connection with obtaining long-term debt are
capitalized and amortized over the life of the related debt using the effective
interest method.
Cash Flows
For purposes of reporting cash flows, the Company considers all temporary
cash investments, which have original maturities of three months or less, to be
cash equivalents. The carrying value of cash equivalents approximates fair value
because of the short maturity of such instruments.
Net cash flows from operating activities reflect cash payments for income
taxes and interest as follows (000's omitted):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income taxes........................................... $ 4,265 $ 2,249 $ 2,685
Interest............................................... $21,580 $24,662 $ 8,530
</TABLE>
During 1995, non-cash financing activities included incurring $3,192,000 in
capital lease obligations.
Capital Stock
At February 3, 1996 and January 28, 1995, there were 10,430,185 and
10,405,119, respectively, shares of common stock, par value $.001 per share (the
Common Stock), outstanding. During 1995, all outstanding shares of Class B and
Class C common stock were exchanged or converted in accordance with their terms
on a share-for-share basis into Class A common stock issued by the Company. All
shares of Class B and Class C common stock were cancelled. At February 3, 1996,
there were 24,000,000 and 1,000,000 authorized shares of Class A common stock
and undesignated preferred stock, respectively.
Earnings Per Share
Earnings per share for 1995, 1994 and 1993 have been calculated based on
10,415,047; 9,395,319 and 5,282,577, respectively, weighted average number of
common shares outstanding. The impact of stock options and warrants has not been
included in the calculation of earnings per share as the effect of their
exercise is not material or is antidilutive.
Stock-Based Compensation
In 1996 the Company will adopt Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." This standard
establishes a fair value method for accounting for stock-based compensation
plans either through recognition or disclosure. The Company intends to adopt
this standard by disclosing the pro forma net income and earnings per share
amounts assuming the fair value method was adopted on January 29, 1995. The
adoption of this standard will not impact the Company's results of operations,
financial position or cash flows.
F-12
<PAGE> 28
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Asset Impairment
In the first quarter of 1996 the Company will adopt SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This standard requires the Company to evaluate the
recoverability of long-lived assets based on expected future cash flows. The
adoption of this standard is not expected to have a material impact on the
Company's results of operations, financial position or cash flows.
(2) INITIAL PUBLIC OFFERING
On April 18, 1994, the Company completed an initial public offering (IPO)
of five million shares of Common Stock at a price to the public of $12.00 per
share. Net proceeds from the IPO were $54.5 million and were used to retire
outstanding debt (see Note 3).
(3) LONG-TERM DEBT
Long-term debt at February 3, 1996 and January 28, 1995 is summarized as
follows (000's omitted):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
7.5% obligation in connection with Industrial Revenue
Bonds...................................................... $ 506 $ 675
11.25% senior notes:
Face value 181,000 186,000
Unamortized discount....................................... (1,834) (2,118)
-------- --------
Total 11.25% senior notes.......................... 179,166 183,882
Capital lease obligations.................................... 2,936 --
-------- --------
182,608 184,557
Less current portion......................................... (705) (169)
-------- --------
Net long-term debt................................. $181,903 $184,388
======== ========
</TABLE>
On September 30, 1993, CNG completed a public offering of $190.0 million of
11.25% Senior Notes (the CNG Notes). Proceeds of $187.6 million were used to
repay $126.0 million of bank loans, plus accrued interest thereon, and $59.9
million of Senior Subordinated Notes including accrued interest. The Company
recorded a net gain of $35.8 million (with no related income tax effect) on
extinguishment of this debt in fiscal 1993.
The CNG Notes are unsecured and mature October 1, 2001 with no earlier
scheduled redemption or sinking fund payments. The CNG Notes bear interest at a
rate of 11.25% per annum, payable semi-annually on each April 1 and October 1.
The indenture pursuant to which the CNG Notes were issued restricts dividend
payments to CNC to 50% of CNG's net income after October 31, 1993, plus amounts
due to CNC under a tax sharing agreement and for administrative expenses of CNC
not to exceed .25% of the Company's net sales. The indenture also contains
certain optional and mandatory redemption features and other financial
covenants.
Concurrent with the issuance and sale of the CNG Notes, CNC also exchanged
the remaining $50.0 million of Senior Subordinated Notes for new 13% Senior
Notes due 2002. Interest was payable semi-annually and was paid in additional
13% Senior Notes.
Proceeds from the Company's IPO were used to retire $4.0 million of the CNG
Notes and all $50.0 million of the 13% Senior Notes during the first quarter of
fiscal 1994. The Company recorded an extraordinary loss of $.9 million
representing the payment of premiums, the write-off of unamortized discount and
other costs associated with retiring this debt. The loss is net of an income tax
benefit of $.5 million.
F-13
<PAGE> 29
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The agreement in connection with the Industrial Revenue Bonds provides for
repayment of the obligation in annual installments of $168,750. The Industrial
Revenue Bonds are secured by office and distribution facilities with a net book
value of $1,781,000 at February 3, 1996.
Annual aggregate principal payments due on long-term debt, excluding
capital leases, are $168,750 in each of the years 1996 through 1998 with no
payments due in 1999 or 2000.
At February 3, 1996, the fair value of the Company's long-term debt was
approximately $185.3 million compared to a carrying value of $182.6 million. The
fair value was estimated primarily by using quoted market prices.
(4) REVOLVING CREDIT FACILITY
The principal operating subsidiaries of CNG entered into a Revolving Credit
Facility which provides for working capital borrowings, including letters of
credit, of up to $50 million through December 31, 1998. Effective September 1,
1995, the working capital facility was amended such that borrowings bear
interest, at the borrower's option, at the Prime Rate plus .25% or the
Eurodollar Rate plus 2.5% per annum. The Company pays a commitment fee of .375%
per annum on the total unused portion of the facility.
The maximum amounts of short-term borrowings outstanding during 1995 and
1994 were $3.5 million and $13.0 million, respectively. No amounts were
outstanding as of February 3, 1996 or January 28, 1995.
The Revolving Credit Facility restricts dividend payments to CNG to amounts
needed to pay interest and principal on the CNG Notes and certain amounts
relating to taxes, along with up to $15.0 million plus .25% of the Company's net
sales annually for other direct expenses of CNG or CNC. The Revolving Credit
Facility also contains covenants which, among other things, require CNG to
maintain certain financial ratios and specified levels of working capital, net
worth and earnings, and limit the amount of capital expenditures.
(5) STOCK OPTIONS AND WARRANTS
The Company had stock options outstanding at February 3, 1996 under the
1992 Management Stock Option Plan (the 1992 Plan), the 1993 Management Stock
Option Plan (the 1993 Plan), the 1993 Option Agreements granting options to
non-employee Directors (the 1993 Option Agreements) and the 1994 non-qualified
Stock Option Plan for non-employee Directors (the 1994 Plan). The Company is
authorized to issue to key employees up to 555,556 and 600,000 shares of Common
Stock under the 1992 Plan and the 1993 Plan, respectively. The Company is also
authorized to issue to non-employee Directors of the Company up to 22,500 and
100,000 shares of Common Stock under the 1993 Option Agreements and the 1994
Plan, respectively. Options generally become exercisable over a three or a
four-year period from the date of grant and expire ten years from the date of
grant.
F-14
<PAGE> 30
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following summarizes the activity under the stock option plans and
agreements:
<TABLE>
<CAPTION>
SHARES
UNDER OPTION PRICE RANGE
------------ ---------------
<S> <C> <C>
Outstanding at January 30, 1993.................................. 600,556 $3.00
Granted........................................................ 617,750 3.00 - 27.00
Exercised...................................................... (376,634) 3.00
Cancelled...................................................... (27,750) 3.00 - 27.00
------------ ---------------
Outstanding at January 29, 1994.................................. 813,922 3.00 - 27.00
Granted........................................................ 5,000 12.63
Exercised...................................................... (24,775) 3.00
Cancelled...................................................... (125,593) 3.00 - 27.00
------------ ---------------
Outstanding at January 28, 1995.................................. 668,554 3.00 - 27.00
Granted........................................................ 123,100 9.75 - 13.69
Exercised...................................................... (25,066) 3.00 - 10.00
Cancelled...................................................... (17,291) 3.00 - 27.00
------------ ---------------
Outstanding at February 3, 1996.................................. 749,297 $3.00 - $13.69
==========
Exercisable at February 3, 1996.................................. 385,646 $3.00 - $12.63
==========
</TABLE>
At February 3, 1996, there were 17,284 shares available for future grant
under the 1992 and 1993 Plans and 98,500 shares available for future grant under
the 1994 Plan.
During 1994, the Company offered holders of options granted under the 1993
Plan the opportunity to exchange a portion of their existing vested and unvested
stock options for a reduced number of new options under the 1993 Plan with
adjusted exercise prices and vesting schedules. The result was to reduce the
aggregate number of options outstanding under the 1993 Plan, to extend the
vesting schedule for the repriced options from four years to five years and to
reduce the maximum exercise price from $27.00 per share to $12.25 per share.
Payment for some of the options exercised between 1993 and 1995 has been
made by executing promissory notes, of which $1,117,000 were outstanding at
February 3, 1996. The promissory notes are secured by the shares of common stock
acquired and payable five years from the date of exercise at interest rates
ranging from 5.33% to 5.92%.
In January 1996, the Board of Directors adopted the 1996 Management Stock
Option Plan (the 1996 Plan). Under the 1996 Plan, the Company is authorized to
issue to key employees up to 884,000 shares of Common Stock. Subsequent to year
end, options for 663,000 shares were granted at $10.81 per share. These options
become exercisable over a five-year period, subject to accelerated vesting based
on the price of the Common Stock reaching certain specified levels, and expire
ten years from the date of grant.
At February 3, 1996, there were warrants to purchase 173,675 shares of
Common Stock outstanding. Of these, warrants to purchase 2,625 shares are
exercisable at $1.00 per share and expire in 2000. Warrants to purchase 92,107
shares are exercisable at $24.70 per share and expire on March 6, 1997. Warrants
to purchase 78,943 shares are exercisable at $49.40 per share and expire on
March 6, 1999.
F-15
<PAGE> 31
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(6) STOCKHOLDERS' EQUITY
In August 1995, the Company's Board of Directors approved a Stockholders'
Rights Plan. The Rights Plan provides for the distribution of one Right for each
outstanding share of the Company's Common Stock held of record as of the close
of business on September 1, 1995 or that thereafter become outstanding prior to
the earlier of the final expiration date of the Rights or the first date upon
which the Rights become exercisable. Each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock, without par value, at a price of $40.00, subject
to adjustment. The Rights are not exercisable until ten days after a person or
group buys or announces a tender offer for 15% or more of the Company's Common
Stock, unless such date is extended as provided in the Rights Plan. In the event
the Rights become exercisable, Rights that are beneficially owned by all other
persons would be adjusted and such holders would thereafter have the right to
receive, upon exercise thereof at the then current exercise price of the Right,
that number of shares of Common Stock (or, under certain circumstances, an
economically equivalent security or securities of the Company) having a market
value of two times the exercise price of the Right. The Rights will expire on
August 31, 2005, unless extended or unless the Rights are earlier redeemed by
the Company in whole, but not in part, at a price of $0.01 per Right, or
exchanged.
(7) INCOME TAXES
Income tax expense for fiscal 1995, 1994 and 1993 is detailed below (000's
omitted):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Currently payable --
Federal....................................................... $ 4,518 $ 3,228 $ --
State and local............................................... 1,797 2,016 2,361
-------- -------- --------
6,315 5,244 2,361
-------- -------- --------
Deferred --
Federal....................................................... 3,361 (766) --
Utilization of net operating loss carryforwards............... 1,134 4,859 --
Change in valuation allowance................................. -- (14,246) --
-------- -------- --------
4,495 (10,153) --
-------- -------- --------
Income tax provision (benefit)................................ $ 10,810 $ (4,909) $ 2,361
======== ======== ========
</TABLE>
At February 3, 1996, the Company has minimum tax credits in the amount of
approximately $2.0 million that can be carried forward indefinitely.
The income tax expense reflected in the accompanying consolidated
statements of income differs from the federal statutory rate as follows (000's
omitted):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Tax provision at statutory rate................................. $ 8,599 $ 6,912 $ 5,401
Tax effect of --
State income taxes, net of federal tax benefit................ 1,168 1,310 1,534
Amortization of cost in excess of net assets of purchased
businesses................................................. 900 901 901
Benefit of net operating loss carryforward.................... -- -- (5,585)
Change in valuation allowance................................. -- (14,246) --
Other, net.................................................... 143 214 110
-------- -------- --------
Tax provision (benefit).................................. $ 10,810 $ (4,909) $ 2,361
======== ======== ========
</TABLE>
F-16
<PAGE> 32
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets and deferred tax liabilities at
February 3, 1996 and January 28, 1995 are as follows (000's omitted):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Employee benefit accruals............................................... $ 3,375 $ 3,883
Other non-deductible accruals........................................... 3,959 4,315
State and local taxes................................................... 1,108 981
Tax credit and net operating loss carryforwards......................... 1,990 4,693
Other................................................................... 1,252 712
------- -------
Total deferred tax assets....................................... 11,684 14,584
------- -------
Deferred tax liabilities:
Depreciation and amortization........................................... (5,225) (3,763)
Other................................................................... (836) (668)
------- -------
Total deferred tax liabilities.................................. (6,061) (4,431)
------- -------
Net deferred taxes........................................................ $ 5,623 $10,153
======= =======
</TABLE>
(8) RETIREMENT PLANS
The Company maintains a noncontributory defined benefit pension plan (the
Retirement Plan) that covers employees who have met eligibility service
requirements and are not members of certain collective bargaining units. The
Retirement Plan calls for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Company and their
compensation levels near retirement.
The Company's policy is to fund amounts necessary to keep the Retirement
Plan in full force and effect, in accordance with the Internal Revenue Code and
the Employee Retirement Income Security Act of 1974. Actuarial present values of
benefit obligations are determined using the projected unit credit method.
Pension expense for fiscal 1995, 1994 and 1993 includes the following
components (000's omitted):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the period.................. $ 528 $ 581 $ 620
Interest cost on the projected benefit obligation.................. 1,369 1,292 1,275
Less:
Return on plan assets --
Actual........................................................ (1,138) 178 (452)
Deferred...................................................... 11 (1,294) (640)
------- ------- -------
(1,127) (1,116) (1,092)
Amortization of transition asset over 17.9 years................. (179) (179) (179)
------- ------- -------
Net pension expense...................................... $ 591 $ 578 $ 624
======= ======= =======
</TABLE>
F-17
<PAGE> 33
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following sets forth the funded status of the Retirement Plan at
December 31, 1995 and 1994 based upon the actuarial present values of benefit
obligations (000's omitted):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accumulated benefit obligations:
Vested.................................................................. $17,147 $14,550
Nonvested............................................................... 291 218
------- -------
Total........................................................... $17,438 $14,768
======= =======
Projected benefit obligation for service rendered to date................. $19,030 $15,842
Fair value of plan assets, primarily money market and equity mutual
funds................................................................... 13,849 12,052
------- -------
Plan assets less than projected benefit obligation........................ (5,181) (3,790)
Unrecognized prior service cost........................................... 168 197
Net unrecognized loss..................................................... 2,983 947
Unamortized transition asset.............................................. (1,595) (1,774)
------- -------
Pension liability included in accrued liabilities............... $(3,625) $(4,420)
======= =======
</TABLE>
The weighted average discount rate used to measure the projected benefit
obligation was 7.75% in 1995 and 8.50% in 1994. For both years, the rate of
increase in future compensation levels was 5.0% and the expected long-term rate
of return on plan assets was 9.5%.
During fiscal 1993, the Company established a defined contribution plan,
including features under Section 401(k) of the Internal Revenue Code, which will
provide retirement benefits to its employees. Eligible employees may contribute
up to 15% of their compensation to the plan. There is no mandatory matching of
employee contributions by the Company, but discretionary matches of $164,000,
$164,000 and $100,000 were recorded for 1995, 1994 and 1993, respectively.
During fiscal 1994, the Company established two Supplemental Executive
Retirement Plans which will provide for the payment of retirement benefits to
participating executives supplementing amounts payable under the Company's
Retirement Plan. The first plan is an excess benefit plan designed to replace
benefits that would otherwise have been payable under the Retirement Plan but
that were limited as a result of certain tax law changes. The second plan is a
defined contribution plan under which participants will receive an annual credit
based on a percentage of base salary, subject to vesting requirements. Expense
for these plans for fiscal 1995 and 1994 was $447,000 and $413,000,
respectively.
(9) COMMITMENTS
The Company leases a substantial portion of its facilities including
laboratories, office and warehouse space, and retail store locations. These
leases have initial terms of up to 10 years and typically do not provide for
renewal options. In most leases covering retail store locations, additional
rents are payable based on store sales. In addition, the Company operates
departments in various host stores paying occupancy costs solely as a percentage
of sales under agreements containing short-term cancellation clauses. Generally,
the Company is required to pay taxes and normal expenses of operating the
premises for laboratory, office, warehouse and
F-18
<PAGE> 34
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
retail store leases; the host stores pay these expenses for departments operated
on a percentage-of-sales basis. The following amounts represent rental expense
for fiscal 1995, 1994 and 1993 (000's omitted):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Occupancy costs based on sales....................... $50,218 $47,198 $41,329
All other rental expense............................. 32,697 30,003 27,940
Sublease rental income............................... (1,510) (1,455) (1,197)
------- ------- -------
$81,405 $75,746 $68,072
======= ======= =======
</TABLE>
During 1995, the Company entered into leases for equipment which have been
accounted for as capital leases. At February 3, 1996, property under capital
leases consisted of $3,192,000 in equipment with accumulated amortization of
$37,000.
At February 3, 1996, future minimum lease payments for all leases, and the
present value of future minimum lease payments for capital leases are as follows
(000's omitted):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996................................................... $ 675 $ 30,053
1997................................................... 698 26,727
1998................................................... 698 23,537
1999................................................... 785 19,678
2000................................................... 610 15,308
2001 and Thereafter.................................... -- 36,621
------- ---------
Total future minimum lease payments.................... 3,466 $151,924
=========
Amount representing interest........................... (530 )
-------
Present value of future minimum lease payments......... $2,936
======
</TABLE>
Effective March 25, 1995, CNG entered into an agreement with a third party
for the management and operation of the Company's data processing center. The
agreement expires in March 2005 and may be terminated by the Company upon six
months' notice and payment of certain fees for termination.
The agreement provides for minimum payments as follows (000's omitted):
<TABLE>
<S> <C>
1996......................................... $ 6,448
1997......................................... 5,674
1998......................................... 5,020
1999......................................... 6,442
2000......................................... 6,829
Thereafter................................... 21,307
-------
$51,720
=======
</TABLE>
F-19
<PAGE> 35
COLE NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(10) ACQUISITIONS AND DISPOSITIONS OF BUSINESSES
The Company has made several acquisitions, each of which has been accounted
for as a purchase. In May 1995, the Company acquired the assets of 59 optical
departments located in BJ's Wholesale Clubs for a purchase price of $1.1
million. In January 1994, the Company acquired the assets of 107 leased optical
departments within Montgomery Ward stores for a purchase price of $4.7 million.
In September 1993, the Company acquired the operating assets from and assumed
certain liabilities of Contact Lens Supply, Inc., a mail order distributor of
contact lenses, for a purchase price of $3.2 million.
In April 1995, the Company sold its 39 Sunspot fashion sunglass kiosks. No
gain or loss was recognized on this transaction.
(11) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's business is seasonal, with approximately 30% of its sales and
approximately 50% of its income from operations generated in the fourth fiscal
quarter which contains the important Christmas selling season.
The following is a summary of quarterly financial data for the 53 weeks
ended February 3, 1996 and the 52 weeks ended January 28, 1995. The fourth
quarter of fiscal 1995 consisted of 14 weeks; all other quarters consisted of 13
weeks (000's omitted except per share amounts).
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
APRIL 29, JULY 29, OCTOBER 28, FEBRUARY 3,
1995 1995 1995 1996
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.......................... $125,254 $138,099 $ 138,646 $ 175,092
Gross margin....................... 86,530 94,758 95,465 117,404
Net income (loss).................. (27 ) 3,766 229 9,790
Earnings per share................. .00 .36 .02 .94
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
APRIL 30, JULY 30, OCTOBER 29, JANUARY 28,
1994 1994 1994 1995
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.......................... $115,680 $129,738 $ 123,688 $ 158,943
Gross margin....................... 81,047 90,369 85,579 106,331
Income (loss) before extraordinary
items............................ (1,147 ) 5,303 (880) 21,381
Net income (loss).................. (2,557 ) 5,303 (880) 21,874
Earnings (loss) per share:
Income (loss) before
extraordinary items........... (.18 ) .51 (.08) 2.06
Net income (loss)................ (.40 ) .51 (.08) 2.11
</TABLE>
F-20
<PAGE> 36
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE
SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................... 2
Incorporation of Certain
Documents by Reference................ 2
The Company............................. 3
Use of Proceeds......................... 4
Selected Financial Data................. 4
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 5
Risk Factors............................ 10
Management.............................. 12
Underwriting............................ 13
Legal Matters........................... 14
Experts................................. 14
Index to Financial Statements........... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,250,000 SHARES
COLE NATIONAL CORPORATION
CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
MCDONALD & COMPANY
SECURITIES, INC.
SMITH BARNEY INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 37
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the Shares being
registered hereby, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................ $ 9,945
National Association of Securities Dealers, Inc. filing fee.................... 3,384
Printing costs................................................................. 75,000
Accounting fees and expenses................................................... 15,000
Legal fees and expenses (not including Blue Sky)............................... 40,000
Blue Sky fees and expenses..................................................... 10,000
Miscellaneous expenses......................................................... 21,671
----------
Total................................................................ $ 175,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of the Company's Certificate provides that the Company will
indemnify its officers, directors and each person who is or was serving or who
had agreed to serve at the request of the Board of Directors or an officer of
the Company as an employee or agent of the Company or as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise to the full extent permitted by the General Corporation Law of
the State of Delaware (the "DGCL") or any other applicable laws as from time to
time may be in effect and that the Company may enter into agreements which
provide for indemnification greater or different from that provided in the
Certificate. In addition, the Company has provided in Article Eighth of its
Certificate that no director will be personally liable to the Company or its
stockholders for or with respect to any acts or omissions in the performance of
his or her duty as a director, to the full extent permitted by the DGCL or any
other applicable laws as from time to time may be in effect. The Certificate
further provides that any repeal or modification of Article Seventh or Article
Eighth will not adversely affect the right or protection existing under such
provision prior to such repeal or modification.
Subsection (a) of the Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under standards similar to those set forth in the paragraph above, except that
no indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
that despite the adjudication of liability but in view of all the circumstances
II-1
<PAGE> 38
of the case, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Section 145 further provides that, to the extent that a director or officer
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he will be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that any indemnification under subsections (a) and
(b) of Section 145 (unless ordered by a court) will be made by a corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of Section 145; that expenses incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
unless it is ultimately determined that he is not entitled to be indemnified by
the corporation; that indemnification provided for by Section 145 will not be
deemed exclusive of any other rights to which the indemnified party may be
entitled; and that a corporation is empowered to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under Section 145.
The Company has entered into indemnity agreements (the "Indemnity
Agreements") with the current Directors and executive officers of the Company
and expects to enter into similar agreements with any Director or those
executive officers designated by the Board of Directors of the Company elected
or appointed in the future at the time of their election or appointment.
Pursuant to the Indemnity Agreements, the Company will indemnify a Director
or officer of the Company (the "Indemnitee") if the Indemnitee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that the Indemnitee is or was a Director or officer of the
Company, or is or was serving at the request of the Company in certain
capacities with another entity, against any and all costs, charges and expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the Indemnitee in connection with the defense or settlement of such
proceeding. Indemnity is available to the Indemnitee unless it proved by clear
and convincing evidence that the Indemnitee's action or failure to act was not
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company.
The Indemnity Agreements mandate advancement of expenses to the Indemnitee
if the Indemnitee provides the Company with a written promise that (i) he has
reasonably incurred or will reasonably incur actual expenses in defending an
actual civil, criminal, administrative, or investigative action, suit,
proceeding or claim and (ii) he will repay such amount if it is ultimately
determined that he is not entitled to be indemnified by the Company. In
addition, the Indemnity Agreements provide various procedures and presumptions
in favor of the Indemnitee's right to receive indemnification under the
Indemnity Agreement.
Reference is made to the Underwriting Agreement, which will provide for
indemnification by the Underwriters of the Company's and its subsidiaries'
respective directors and officers who sign the Registration Statement, and any
person controlling the Company against certain civil liabilities, including
liabilities under the Securities Act, in connection with information relating to
such Underwriters provided by or on behalf of such Underwriters for use in the
Registration Statement.
Under the Company's Director and Officer Liability Insurance Policy, each
director and certain officers of the Company are insured against certain
liabilities which might arise in connection with their respective positions with
the Company.
ITEM 16. EXHIBITS
The following Exhibits are filed herewith and made a part hereof:
II-2
<PAGE> 39
<TABLE>
<CAPTION>
PAGINATION BY
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ------ ------------------------------------------------------------- -----------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
4.1 Restated Certificate of Incorporation of the Company is
incorporated herein by reference to Exhibit 3.1(i) of the
Company's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
4.2 Amended and Restated By-Laws of the Company is incorporated
herein by reference to Exhibit 3.2(ii) of the Company's
Annual Report on Form 10-K for the period ended February 3,
1996 (File No. 1-12814).
4.3 Indenture dated as of September 30, 1993 between CNG and
Norwest Bank Minnesota, N.A., as trustee, relating to the
11 1/4% Senior Notes due 2001 (the form of which Senior Note
is included in such Indenture) is incorporated herein by
reference to Exhibit 4.1 of the Company's Annual Report on
Form 10-K for the period ended February 3, 1996 (File No.
1-12814).
4.4 The Company by this filing agrees, upon request, to file with
the SEC the instruments defining the rights of holders of
long-term debt of the Company and its subsidiaries where the
total amount of securities authorized thereunder does not
exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis.
5.1 Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
23.1 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power(s) of Attorney.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Company's annual
report pursuant to Section 13(a) or 15(a) of the Exchange Act (and where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(a) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other that the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
II-3
<PAGE> 40
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide public offering thereof.
II-4
<PAGE> 41
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company certifies
that it has reasonable grounds to believe that it meets the requirements for
filing a Form S-3 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, State of Ohio, on June 12, 1996.
COLE NATIONAL CORPORATION
By: /s/ WAYNE L. MOSLEY
WAYNE L. MOSLEY
VICE PRESIDENT AND CONTROLLER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------------------------------
<C> <S> <C>
* Chairman and Chief June 12, 1996
JEFFREY A. COLE Executive Officer and Director
(Principal Executive Officer
and Principal Financial Officer)
* President, Chief Operating June 12, 1996
BRIAN B. SMITH Officer and Director
/s/ WAYNE L. MOSLEY Vice President and Controller June 12, 1996
WAYNE L. MOSLEY (Principal Accounting Officer)
* Director June 12, 1996
TIMOTHY F. FINLEY
* Director June 12, 1996
IRWIN N. GOLD
* Director June 12, 1996
PETER V. HANDAL
* Director June 12, 1996
CHARLES A. RATNER
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which are being filed
herewith with the Securities and Exchange Commission on behalf of such
officers and directors.
/s/ WAYNE L. MOSLEY
WAYNE L. MOSLEY, ATTORNEY-IN-FACT
II-5
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION BY
EXHIBIT SEQUENTIAL NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
------ -------------------------------------------------------- --------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
4.1 Restated Certificate of Incorporation of the Company is
incorporated herein by reference to Exhibit 3.1(i) of
the Company's Annual Report on Form 10-K for the period
ended February 3, 1996 (File No. 1-12814).
4.2 Amended and Restated By-Laws of the Company is
incorporated herein by reference to Exhibit 3.2(ii) of
the Company's Annual Report on Form 10-K for the period
ended February 3, 1996 (File No. 1-12814).
4.3 Indenture dated as of September 30, 1993 between CNG and
Norwest Bank Minnesota, N.A., as trustee, relating to
the 11 1/4% Senior Notes due 2001 (the form of which
Senior Note is included in such Indenture) is
incorporated herein by reference to Exhibit 4.1 of the
Company's Annual Report on Form 10-K for the period
ended February 3, 1996 (File No. 1-12814).
4.4 The Company by this filing agrees, upon request, to file
with the Commission the instruments defining the rights
of holders of long-term debt of the Company and its
subsidiaries where the total amount of securities
authorized thereunder does not exceed 10% of the total
assets of the Company and its subsidiaries on a
consolidated basis.
5.1 Opinion of Jones, Day, Reavis & Pogue as to the validity
of the securities being offered.
23.1 Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power(s) of Attorney.
</TABLE>
<PAGE> 1
EXHIBIT 1.1
DRAFT: 6-11-96
1,250,000 Shares
COLE NATIONAL CORPORATION
(a Delaware corporation)
Class A Common Stock
(Par Value $.001 Per Share)
UNDERWRITING AGREEMENT
----------------------
June __, 1996
McDONALD & COMPANY SECURITIES, INC.
SMITH BARNEY INC.
as Representatives of the Several Underwriters
c/o McDonald & Company Securities, Inc.
McDonald Investment Center
Cleveland, Ohio 44114
Ladies and Gentlemen:
Cole National Corporation, a Delaware corporation (the "Company")
confirms its agreement with McDonald & Company Securities, Inc., Smith Barney
Inc. ("Smith Barney") and each of the other underwriters named in Schedule A
hereto (collectively, the "Underwriters," which term shall also include any
underwriter substituted as hereinafter provided in Section 10 hereof), for whom
McDonald and Smith Barney are acting as representatives (in such capacity,
McDonald and Smith Barney shall hereinafter be referred to as the
"Representatives"), with respect to the sale by the Company of 1,250,000 shares
of Class A Common Stock, par value $.001 per share (the "Common Stock"), of the
Company, and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of Common Stock set forth in said Schedule
A, aggregating 1,250,000 shares of Common Stock, and with respect to the grant
by the Company of the option described in Section 2(b) hereof to purchase all or
any part of 187,500 shares of Common Stock, par value $.001 per share, solely to
cover over-allotments, in each case except as may otherwise be provided in the
Pricing Agreement, as hereinafter defined. The aforesaid 1,250,000 shares of
Common Stock (the "Initial Securities") to be purchased by the Underwriters and
all or any part of the 187,500 shares of Common Stock subject to the option
described in Section 2(b) hereof (the "Option Securities") are collectively
hereinafter called the "Securities."
Prior to the purchase and public offering of the Securities by
the Underwriters and the Representatives, acting on behalf of the several
Underwriters, shall enter into an agreement
<PAGE> 2
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Company and the Representatives and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Securities will be governed by this Underwriting Agreement (this
"Agreement"), as supplemented by the Pricing Agreement. From and after the date
of the execution and delivery of the Pricing Agreement, this Agreement shall be
deemed to incorporate the Pricing Agreement.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
333-_______) and a related preliminary prospectus for the registration of the
Securities under the Securities Act of 1933, as amended (the "1933 Act"), and
has filed such amendments thereto, if any, and such amended preliminary
prospectuses as may have been required to the date hereof. Such registration
statement (as amended, if applicable) and the prospectus constituting a part
thereof (including the documents incorporated therein by reference pursuant to
Item 12 of Form S-3 under the 1933 Act and the information, if any, deemed to be
part thereof pursuant to Rule 430A(b) of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations")), as from time to
time amended or supplemented pursuant to the 1933 Act or otherwise, are
hereinafter referred to as the "Registration Statement" and the "Prospectus,"
respectively, except that if any revised prospectus shall be provided to the
Underwriters by the Company in connection with the offering of the Securities
which differs from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective (whether or not such revised prospectus
is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act
Regulations), the term "Prospectus" shall refer to such revised Prospectus from
and after the time it is first provided to the Underwriters for such use. Any
reference herein to the Registration Statement, any preliminary prospectus or
the Prospectus shall be deemed to refer to and include the documents
incorporated therein by reference pursuant to Item 12 of Form S-3 under the 1933
Act.
The Company understands that the Underwriters propose to make
a public offering of the Securities as soon as the Representatives deems
advisable after the Registration Statement becomes effective and the Pricing
Agreement has been executed and delivered.
SECTION 1. REPRESENTATIONS AND WARRANTIES. (a) The
Company represents and warrants to each Underwriter as of the date
hereof and as of the date of the Pricing Agreement (such latter
date being hereinafter referred to as the "Representation Date") as
follows:
(i) The Company has been subject to the
requirements of Section 12 or 15(d) of the Securities Exchange Act of 1934 (the
"1934 Act") for a period of at least 12 months prior
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to the initial filing of the Registration Statement and has filed all the
material required to be filed pursuant to Section 13, 14 or 15(d) of the 1934
Act for a period of at least 12 calendar months immediately preceding the
initial filing of the Registration Statement and through and including the
Representation Date in a timely manner and otherwise satisfies all applicable
requirements for the use of Form S-3 under the 1933 Act in connection with the
transactions contemplated hereby and by the Registration Statement.
(ii) The documents incorporated by reference in
the Prospectus, when they were filed with the Commission, conformed in all
material respects to the requirements of the 1934 Act and the rules and
regulations of the Commission thereunder (the "1934 Act Regulations"), and none
of such documents contained at the date of such filing an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
(iii) At the time the Registration Statement
becomes effective and at the Representation Date, the Registration Statement
will comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations, and the Registration Statement will not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
The Prospectus, at the Representation Date (unless the term "Prospectus" refers
to a prospectus which has been provided to the Underwriters by the Company for
use in connection with the offering of the Securities which differs from the
Prospectus on file at the Commission at the time the Registration Statement
becomes effective, in which case at the time it is first provided to the
Underwriters for such use) and at the Closing Time referred to in Section 2,
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that the representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus made in
reliance upon and in conformity with information furnished to the Company in
writing by any Underwriter through the Representatives expressly for use in the
Registration Statement or Prospectus.
(iv) The accountants who certified the financial
statements and supporting schedules included or incorporated by reference in the
Registration Statement are independent public accountants as required by the
1933 Act and the 1933 Act Regulations.
(v) The financial statements included or
incorporated by reference in the Registration Statement and the Prospectus
present fairly the financial position of the Company and its consolidated
subsidiaries, as at the dates indicated and the
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results of their operations for the periods specified; except as otherwise
stated in the Registration Statement, said financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis; and the supporting schedules incorporated by reference in
the Registration Statement present fairly the information required to be stated
therein.
(vi) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus, except as
otherwise stated therein, (A) there has been no material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, (B) there
have been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which are
material with respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(vii) The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of Delaware
with corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Prospectus; and the Company is duly
qualified as a foreign corporation to transact business and is in good standing
in each jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business, except where
the failure to so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise.
(viii) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Prospectus and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify
would not have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise; all of the issued and
outstanding capital stock of each such subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and is owned by the Company,
directly or through one or more direct or
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indirect subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance or claim.
(ix) The Company has the authorized, issued and
outstanding capitalization set forth in the Prospectus; except as otherwise set
forth in the Registration Statement, the shares of issued and outstanding
capital stock of the Company have been duly authorized and validly issued and
are fully paid and non-assessable; the shares of Common Stock to be issued and
sold by the Company have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Company in the manner contemplated by this Agreement, will be validly issued and
fully paid and non-assessable; the issuance of shares of Common Stock
contemplated by this Agreement is not subject to preemptive or other similar
rights; the Common Stock conforms in all material respects to all statements
relating thereto contained in the Prospectus; the certificates for the
Securities are in due and proper form; and the holders of the Securities will
not be subject to personal liability by reason of being such holders.
(x) This Agreement has been duly authorized,
executed and delivered by the Company.
(xi) Neither the Company nor any of its
subsidiaries is in violation of its respective charter or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, loan agreement or note or in any
material contract, lease or other instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any of its subsidiaries is
subject; the consummation of the transactions contemplated herein and by the
Pricing Agreement has been duly authorized by the Company by all necessary
corporate action and the issuance, sale and delivery of the shares of Common
Stock to be issued and sold by the Company and the execution, delivery and
performance of this Agreement by the Company will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the Company
or any of its subsidiaries is a party or by which it or any of them may be
bound, or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any of its subsidiaries
or any applicable law, administrative regulation or administrative or court
decree.
(xii) No labor dispute with the employees of the
Company or any of its subsidiaries exists or, to the knowledge of
the Company, is imminent; and the Company is not aware of any
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<PAGE> 6
existing or imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors which might be expected to result in any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise.
(xiii) There is no action, suit or proceeding
before or by any court or governmental agency or body, domestic or foreign, now
pending or, to the knowledge of the Company, threatened, against or affecting
the Company or any of its subsidiaries, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which, considered
singly or in the aggregate, may result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, or which may materially and adversely affect the properties or
assets thereof or which may materially or adversely affect the consummation of
this Agreement or the Pricing Agreement; all pending legal or governmental
proceedings to which the Company or any subsidiary is a party or of which any of
their respective property or assets is the subject which are not described in
the Registration Statement, including ordinary routine litigation incidental to
the business, are, considered in the aggregate, not material; and there are no
contracts or documents of the Company or any of its subsidiaries which are
required to be filed as exhibits to the Registration Statement by the 1933 Act
or by the 1933 Act Regulations which have not been so filed.
(xiv) The Company and its subsidiaries own or
possess, or can acquire on reasonable terms, the patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names (collectively,
"intellectual property") presently employed by them in connection with the
business now operated by them, except where the failure to own or possess or
have the ability to acquire any such intellectual property would not have a
material adverse effect on the condition, financial or otherwise, or on the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, and neither the Company nor any of
its subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise.
(xv) No authorization, approval or consent of any
court or governmental authority or agency is necessary in
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<PAGE> 7
connection with the sale of the Securities hereunder, except such as may be
required under the 1933 Act or the 1933 Act Regulations, which qualification has
been obtained, or state and foreign securities laws.
(xvi) The Company and its subsidiaries possess
such material certificates, authorizations or permits issued by the appropriate
state, federal or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them, and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the revocation
or modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise.
(xvii) All United States federal income tax returns
of the Company and each of its subsidiaries required by law to be filed have
been filed and all taxes shown by the said returns or otherwise assessed which
are due and payable have been paid, except assessments against which appeals
have been or will be promptly taken. The United States federal income tax
returns of the Company and its subsidiaries on a consolidated basis through the
fiscal year ended [January 28, 1995] have been filed and no assessment in
connection therewith has been made against the Company, [and the United States
federal income tax return for the fiscal year ended February 3, 1996 will be
filed on or before October 15, 1996 (the date on which such return is required
by law to be filed)] or pursuant to any extension or extensions that may be
granted thereon. The Company and its subsidiaries have filed all other tax
returns which are required to have been filed by them pursuant to applicable
state, local or other law except (i) with respect to such taxes as are being
contested in good faith and (ii) insofar as the failure to file such returns
individually and in the aggregate would not have a material adverse effect on
the condition, financial or otherwise, or on the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, and have paid all taxes due pursuant to said returns or pursuant to
any assessment received by the Company or its subsidiaries, except for such
taxes, if any, as are being contested in good faith and as to which adequate
reserves have been provided. The charges, accruals and reserves on the
consolidated books of the Company in respect of any income and corporation tax
liability for any years not finally determined are adequate to meet any
assessments or re-assessments for additional income tax for any years not
finally determined, except to the extent of any inadequacy which would not have
a material adverse effect on the condition, financial or otherwise, or on the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise.
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<PAGE> 8
(xviii) The Company and its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with management's
general or specific authorization, (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (C) access to
assets is permitted only in accordance with management's general or specific
authorization, and (D) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xix) Except for such rights which have been
waived in writing, there are no holders of securities (debt or equity) of the
Company or any of its subsidiaries, or holders of rights, options or warrants to
obtain securities of the Company or any of its subsidiaries, who, by reason of
the filing of the Registration Statement under the 1933 Act, have the right to
request the Company or any of its subsidiaries to register under the 1933 Act
securities held by them. The Company and its subsidiaries have complied in all
material respects with all of the terms of any of their outstanding agreements
relating to the rights of any holder of securities to have securities registered
under the Registration Statement. Except as described in the Prospectus, there
are no outstanding options, warrants or other rights calling for the issuance
of, and there are no commitments, plans or arrangements to issue, any shares of
Common Stock or any security convertible into or exchangeable or exercisable for
any shares of Common Stock.
(xx) The Company and its subsidiaries have good
title to all properties owned by them, in each case free and clear of all liens,
encumbrances and defects except (A) as do not materially interfere with the use
made and proposed to be made of such properties, (B) as referred to in the
Registration Statement (including the Notes to the Consolidated Financial
Statements included therein) or (C) as could not reasonably be expected to
materially and adversely affect the condition, financial or otherwise, or the
earnings or business affairs of the Company and its subsidiaries considered as
one enterprise.
(xxi) Except as disclosed in the Registration
Statement, the Company and its subsidiaries are in material compliance with all
applicable existing federal, state and local laws and regulations relating to
protection of human health or the environment or imposing liability or standards
of conduct concerning any Hazardous Material (as hereinafter defined)
("Environmental Laws"), except, in each case, where such noncompliance, singly
or in the aggregate, would not have a material and adverse effect on the
condition, financial or otherwise, or the earnings or business affairs of the
Company and its subsidiaries considered as one enterprise. The term "Hazardous
Material" means (A) any "hazardous substance" as defined by the
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<PAGE> 9
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (B) any "hazardous waste" as defined by the Resource Conservation and
Recovery Act, as amended, (C) any petroleum or petroleum product, (D) any
polychlorinated biphenyl and (E) any pollutant or contaminant or hazardous,
dangerous or toxic chemical, material, waste or substance regulated under or
within the meaning of any other Environmental Law.
(xxii) There is no alleged liability, or to the
best knowledge and information of the Company, potential liability (including,
without limitation, alleged or potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) of the Company or its subsidiaries
arising out of, based on or resulting from (A) the presence or release into the
environment of any Hazardous Material at any location at which the Company or
any of its subsidiaries has previously conducted or is currently conducting any
business (whether or not owned by the Company or its subsidiaries) or has
previously owned or currently owns any property, or (B) any violation or alleged
violation of any Environmental Law, (X) which alleged or potential liability is
required to be disclosed in the Registration Statement, other than as disclosed
therein, or (Y) which alleged or potential liability, singly or in the
aggregate, would have a material and adverse effect on the condition, financial
or otherwise, or the earnings or business affairs of the Company and its
subsidiaries considered as one enterprise.
(xxiii) The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
(xxiv) The Company and each of its subsidiaries
maintain reasonably adequate insurance with respect to their properties and
business against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or similar businesses
and similarly situated, of such types and in such amounts as are customarily
carried under similar circumstances by such other corporations.
(xxv) The shares of Common Stock outstanding prior
to the Representation Date have been duly listed on the New York Stock Exchange
("NYSE") and the shares of Common Stock to be issued and sold by the Company
pursuant to the Agreement have been duly authorized for listing on the NYSE,
subject only to official notice of issuance.
(xxvi) The Company has furnished the
Representatives letters from each of the executive officers and directors of the
Company pursuant to which such persons have agreed during a period of 180 days
from the date hereof that, without the prior written consent of McDonald, such
persons will not sell, offer to sell, contract to sell, or otherwise dispose of,
directly or indirectly,
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any shares of Common Stock, any other equity security of the Company, or any
security convertible into or exchangeable or exercisable for shares of Common
Stock, beneficially owned by such person or with respect to which such person
has the power of disposition, other than as bona fide gifts.
(b) Any certificate signed by an officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING. (a) On
the basis of the representations and warranties herein contained and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
to each Underwriter, and each Underwriter, severally and not jointly, agrees to
purchase from the Company, at the price agreed upon by the Representatives and
the Company as set forth in the Pricing Agreement, the number of shares of
Common Stock set forth in Schedule A opposite the name of such Underwriter
(except as otherwise provided in the Pricing Agreement).
(i) If the Company has elected not to rely upon
Rule 430A under the 1933 Act Regulations, the initial public offering price of
the Securities and the purchase price of the Securities to be paid by the
several Underwriters shall be agreed upon and set forth in the Pricing
Agreement, dated the date hereof, and an amendment to the Registration Statement
and the Prospectus will be filed before the Registration Statement becomes
effective.
(ii) If the Company has elected to rely upon Rule
430A under the 1933 Act Regulations, the initial public offering price of the
Securities and the purchase price of the Securities to be paid by the several
Underwriters shall be determined by agreement among the Representatives and the
Company and set forth in the Pricing Agreement. In the event that such prices
have not been agreed upon and the Pricing Agreement has not been executed and
delivered by all parties thereto by the close of business on the fourth business
day following the date of this Agreement, this Agreement shall terminate
forthwith, without liability of any party to any other party, unless otherwise
agreed to by the Company and the Representatives.
(b) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Underwriters, severally and
not jointly, to purchase up to 187,500 shares of Common Stock at the price per
share set forth in the Pricing Agreement. The option hereby granted will expire
30 days after (i) the date the Registration Statement becomes effective, if the
Company has elected not to rely on Rule 430A under the 1933 Act Regulations or
(ii) the date of the Pricing Agreement, if the Company has elected to rely on
Rule 430A under the 1933 Act
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Regulations, and may be exercised in whole or in part from time to time (but not
more than twice) only for the purpose of covering over-allotments which may be
made in connection with the offering and distribution of the Initial Securities
upon notice by the Representatives to the Company setting forth the number of
Option Securities as to which the several Underwriters are then exercising the
option and the time and date of payment and delivery for such Option Securities.
Any such time and date of payment (a "Date of Delivery") shall be determined by
the Representatives, but shall not be later than seven full Business Days after
the exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined, unless otherwise agreed by the Representatives and the
Company. If the option is exercised as to all or any portion of the Option
Securities, each of the Underwriters, acting severally and not jointly, will
purchase that proportion of the total number of Option Securities then being
purchased which the number of Initial Securities set forth in Schedule A
opposite the name of such Underwriters bears to the total number of Initial
Securities (except as otherwise provided in the Pricing Agreement), subject in
each case to such adjustments as the Representatives in its discretion shall
make to eliminate any sales or purchases of fractional shares.
(c) Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
McDonald & Company Securities, Inc., McDonald Investment Center, Cleveland, Ohio
or at such other place as shall be agreed upon by the Representatives and the
Company, at 10:00 A.M. on the third business day (unless postponed in accordance
with the provisions of Section 10) following the date the Registration Statement
becomes effective (or, if the Company has elected to rely upon Rule 430A, the
third business day after execution of the Pricing Agreement), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called the "Closing Time"); provided, however, that if the
Registration Statement becomes effective later than 4:30 p.m., Eastern Time, on
any date, then, subject to the foregoing, the Closing Time shall be the fourth
business day thereafter (or, if the Company has elected to rely upon Rule 430A,
and the Pricing Agreement is not executed until after 4:30 p.m., Eastern Time,
on any date, the fourth business day after execution of the Pricing Agreement).
In addition, in the event that any or all of the Option Securities are to be
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices of McDonald & Company Securities, Inc., or at such other place as shall
be agreed upon by the Representatives and the Company on each Date of Delivery
as specified in the notice from the Representatives to the Company. Payment
shall be made to the Company by wire transfer of immediately available funds to
the account designated by the Company, against delivery of the Securities to the
Underwriters. The certificates representing
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Securities shall be in such denominations and registered in such names as the
Representatives may request in writing at least two business days before the
Closing Time. It is understood that each Underwriter has authorized the
Representatives, for their account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Securities which it has agreed to
purchase. The Representatives may (but shall not be obligated to) make payment
of the purchase price for the Securities to be purchased by any Underwriter
whose check has not been received by the Closing Time, but such payment shall
not relieve such Underwriter from its obligations hereunder. The Securities will
be made available for examination and packaging by the Underwriters not later
than 10:00 A.M. on the last business day prior to the Closing Time at such place
as the Underwriters may designate in New York, New York.
SECTION 3. COVENANTS OF THE COMPANY. The Company
covenants with each Underwriter as follows:
(a) The Company will notify the Underwriters immediately, and
confirm the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective amendment),
(ii) of the receipt of any comments from the Commission, (iii) of any request by
the Commission for any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose or
the suspension of the qualification of the Securities for offering or sale, in
any jurisdiction, or the threatening or initiation of any proceeding for that
purpose. The Company will make every reasonable effort to prevent the issuance
of any stop order or any order preventing or suspending the use of any
preliminary prospectus or suspending such qualification and, if any stop order
or any order preventing or suspending the use of any preliminary prospectus or
suspending such qualification is issued, to obtain the lifting thereof at the
earliest possible moment.
(b) The Company will give the Underwriters notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations),
will furnish the Underwriters with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement or use any such
prospectus to which counsel for the Underwriters and counsel for the Company
mutually agree shall not be filed or used.
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(c) The Company will deliver to the Underwriters four signed
copies of the Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by reference
therein) and will also deliver to the Underwriters conformed copies of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits).
(d) The Company will furnish to each Underwriter, from time to
time during the period when the Prospectus is required to be delivered under the
1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or
supplemented) as such Underwriter may reasonably request for the purposes
contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the 1934
Act Regulations.
(e) If any event shall occur as a result of which counsel for
the Company and counsel for the Underwriters mutually agree that it is necessary
to amend or supplement the Prospectus in order to make the Prospectus not
misleading in light of the circumstances existing at the time it is delivered to
a purchaser or if for any other reason it shall be necessary to amend or
supplement the Prospectus in order to comply with the 1933 Act, the 1933 Act
Regulations, the 1934 Act or the 1934 Act Regulations, the Company will
forthwith amend or supplement the Prospectus (in form and substance mutually
satisfactory to counsel for the Underwriters and counsel for the Company and in
compliance with the 1933 Act and the 1933 Act Regulations) so that, as so
amended or supplemented, the Prospectus will not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances existing at the time it is
delivered to a purchaser, not misleading and will comply with the 1933 Act, the
1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, and the Company
will furnish to the Underwriters a reasonable number of copies of such amendment
or supplement.
(f) The Company will endeavor, in cooperation with the
Underwriters, to qualify the Securities for offering and sale under the
applicable securities laws of such states and other jurisdictions of the United
States as the Representatives may designate; PROVIDED, HOWEVER, that the Company
shall not be obligated to qualify as a foreign corporation in any jurisdiction
in which it is not so qualified. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements and reports as may
be required by the laws of such jurisdiction to continue such qualification in
effect, for a period of not less than one year from the effective date of the
Registration Statement.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the
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1933 Act Regulations) covering a twelve month period beginning not later than
the first day of the Company's fiscal quarter next following the "effective
date" (as defined in said Rule 158) of the Registration Statement.
(h) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A of the 1933 Act Regulations, then immediately following the execution
of the Pricing Agreement, the Company will prepare, and file or transmit the
filing with the Commission in accordance with such Rule 430A and Rule 424(b) of
the 1933 Act Regulations, copies of an amended Prospectus, or, if required by
such Rule 430A, a post-effective amendment to the Registration Statement
(including an amended Prospectus), containing all information so omitted.
(i) The Company, during the period when the Prospectus is
required to be delivered under the 1933 Act, will file all documents required to
be filed with the Commission pursuant to Sections 13, 14 or 15 of the 1934 Act
within the time periods required by the 1934 Act and the 1934 Act Regulations.
(j) The Company will effect the listing of the Common
Stock issued in the Exchange Transaction on the NYSE.
(k) During a period of 120 days from the date hereof, the
Company will not, without the prior written consent of McDonald, sell, offer to
sell, contract to sell, or otherwise dispose of, directly or indirectly, any
shares of Common Stock, any other equity security of the Company or any security
convertible into or exchangeable or exercisable for Common Stock (except for
shares of Common Stock issued pursuant to this Agreement and the Pricing
Agreement, the grant of options or the issuance of shares of Common Stock upon
the exercise of outstanding options under the Company's existing stock option
plans and the issuance of shares of Common Stock upon the exercise of
outstanding warrants or upon the conversion of outstanding capital stock
pursuant to the terms thereof).
(l) The Company will use all commercially reasonable efforts
to do and perform all things required or necessary to be done and performed by
it under this Agreement prior to the Closing Time and will satisfy all
conditions precedent to the delivery of the Securities.
SECTION 4. PAYMENT OF EXPENSES. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the printing and filing and delivery to the Underwriters of copies
of the Registration Statement as originally filed and of each amendment thereto,
during the period specified in Section 3(d) hereof (excluding any fees, costs or
expenses of counsel to the Underwriters), (ii) the printing of this Agreement
and the Pricing Agreement, (iii) the preparation,
14
<PAGE> 15
issuance and delivery of the certificates for the Securities to the
Underwriters, (iv) the fees and disbursements of the Company's counsel and
accountants, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees and
the fees and disbursements of counsel for the Underwriters in connection
therewith and in connection with the preparation of the Blue Sky Survey, which
counsel fees shall not exceed $8,000, (vi) the printing and delivery to the
Underwriters of copies of the Registration Statement as originally filed and
each amendment thereto, of the preliminary prospectuses, and of the Prospectus
and any amendments or supplements thereto, (vii) the printing and delivery to
the Underwriters of the Blue Sky Survey, (viii) the fees and expenses of the
Company's transfer agent, (ix) the fee of the National Association of Securities
Dealers, Inc. and (x) the fees and expenses incurred in connection with the
listing of the Securities on the NYSE.
If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 5 or Section 9(a)(i), the Company
shall reimburse the Underwriters for all of their out-of-pocket expenses
relating to the transactions contemplated hereby, including the reasonable fees
and disbursements of counsel for the Underwriters.
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The
obligations of the Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company herein contained, to the
performance by the Company of its obligations hereunder, and to the following
further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M. on the date hereof, or with the consent of the
Representatives, at a later time and date, not later, however, than 5:30 P.M. on
the first business day following the date hereof, or at such later time and date
as may be approved by the Underwriters; and at the Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
Commission. If the Company has elected to rely upon Rule 430A of the 1933 Act
Regulations, the price of the Securities and any price related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) of the 1933 Act Regulations within the prescribed time period, and
prior to Closing Time the Company shall have provided evidence satisfactory to
McDonald of such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in accordance
with the requirements of Rule 430A of the 1933 Act Regulations.
15
<PAGE> 16
(b) At the Closing Time the Underwriters shall have
received:
(i) An opinion, dated the Closing Time, of
Jones, Day, Reavis & Pogue, counsel for the Company and its subsidiaries,
substantially in the form set forth on Annex I attached hereto.
(ii) An opinion, dated the Closing Time, from
Charles J. Ibold, Esq. and David J. Sherriff, Esq., substantially in the form
set forth on Annex II attached hereto.
(iii) An opinion, dated the Closing Time, from
Charles J. Ibold, Esq., General Counsel of Cole Gift Corporation and Things
Remembered, Inc., substantially in the form set forth on Annex III attached
hereto.
(iv) An opinion, dated the Closing Time, from
David J. Sherriff, Esq., General Counsel of Cole Vision Corporation,
substantially in the form set forth on Annex IV attached hereto.
(v) An opinion, dated the Closing Time, of
Calfee, Halter & Griswold, counsel for the Underwriters, in form and substance
reasonably satisfactory to the Underwriters.
(vi) In giving their opinions required by
subsections (b)(i), (ii), (iii), (iv) and (v), respectively, of this section,
Jones, Day, Reavis & Pogue, Charles J. Ibold, Esq., David J. Sherriff, Esq.
and Calfee, Halter & Griswold shall each additionally state that although such
counsel has not undertaken to determine independently the accuracy,
completeness and fairness of the statements contained in the Registration
Statement or in the Prospectus and takes no responsibility therefor, such
counsel has participated in discussions and meetings with officers and other
representatives of the Company and discussions with the auditors for the
Company in connection with the preparation of the Registration Statement and
the Prospectus. Such counsel has not, however, undertaken to determine
independently and, therefore, does not assume any responsibility, explicitly or
implicitly, for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus. Nothing has come to
such counsel's attention that has caused such counsel to believe that (A) the
Registration Statement, at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, or (B) the Prospectus, at the Closing Time, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that in each case such counsel need not
express any opinion or belief with respect to the financial statements or other
financial data contained in the Registration Statement or the Prospectus.
16
<PAGE> 17
(c) At the Closing Time, there shall not have been, since the
date hereof or since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Underwriters shall have received a certificate of the Chairman and Chief
Executive Officer of the Company and the chief financial or chief accounting
officer of the Company, dated as of the Closing Time, to the effect that (A)
there has been no such material adverse change, (B) the representations and
warranties in Section 1 are true and correct with the same force and effect as
though expressly made at and as of the Closing Time, (C) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Time, and (D) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been initiated or threatened by the
Commission.
(d) At the time of the execution of this Agreement, the
Underwriters shall have received from Arthur Andersen LLP, independent certified
public accountants, a letter dated such date, in form and substance previously
approved by the Representatives, with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus.
(e) At the Closing Time, the Underwriters shall have received
from Arthur Andersen LLP, independent certified public accountants, a letter,
dated as of Closing Time, to the effect that they reaffirm the statements made
in the letter furnished pursuant to subsection (d) of this Section, except that
the specified date referred to shall be a date not more than five days prior to
the Closing Time.
(f) At the Closing Time, the Representatives shall have been
furnished with such documents and opinions as it may reasonably require for the
purpose of enabling counsel for the Underwriters to pass upon the issuance and
sale of the Securities as herein contemplated and related proceedings, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be reasonably satisfactory in form and substance to
the Representatives and counsel for the Underwriters.
(g) At the time of the execution of this Agreement, the
Representatives shall have received from each of the executive officers and
directors of the Company a letter in which each such person agrees during a
period of 120 days from the date hereof,
17
<PAGE> 18
that such person will not, without the prior written consent of McDonald, sell,
offer to sell, contract to sell, or otherwise dispose of, directly or
indirectly, any shares of Common Stock, any other equity security of the Company
or any security convertible into or exchangeable or exercisable for shares of
Common Stock, beneficially owned by such person or with respect to which such
person has the power of disposition, other than as bona fide gifts.
(h) At the Closing Time, any of the shares of Common Stock
that were not issued and outstanding prior to the Closing Time shall have been
approved for listing on the NYSE, subject to official notice of issuance.
(i) In the event that the Underwriters exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the Option
Securities, the representations and warranties of the Company contained herein
and the statements in any certificates furnished by the Company hereunder shall
be true and correct as of each Date of Delivery and, at the relevant Date of
Delivery, the Representatives shall have received:
(i) A certificate, dated such Date of Delivery,
of the Chairman and Chief Executive Officer of the Company and of the chief
financial or chief accounting officer of the Company confirming that the
certificate delivered at the Closing Time pursuant to Section 5(c) hereof
remains true and correct as of such Date of Delivery.
(ii) An opinion, dated such Date of Delivery, of
Jones, Day, Reavis & Pogue, counsel for the Company and its Subsidiaries,
substantially in the form set forth on Annex I attached hereto.
(iii) An opinion, dated such Date of Delivery,
from Charles J. Ibold, Esq. and David J. Sherriff, Esq., substantially in the
form set forth on Annex II attached hereto.
(iv) An opinion, dated such Date of Delivery,
from Charles J. Ibold, Esq., General Counsel of Cole Gift Centers, Inc. and
Things Remembered, Inc., substantially in the form set forth on Annex III
attached hereto.
(v) An opinion, dated such Date of Delivery,
from David J. Sherriff, Esq., General Counsel of Cole Vision Corporation,
substantially in the form set forth on Annex IV attached hereto.
(vi) An opinion, dated such Date of Delivery, of
Calfee, Halter & Griswold, counsel for the Underwriters, in form and substance
reasonably satisfactory to the Underwriters.
(vii) A letter from Arthur Andersen LLP, in form
and substance satisfactory to the Representatives and dated such Date
18
<PAGE> 19
of Delivery, substantially the same in form and substance as the letter
furnished to the Underwriters pursuant to Section 5(e) hereof, except that the
"specified date" in the letter furnished pursuant to this Section 5(h)(vii)
shall be a date not more than five days prior to such Date of Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Representatives by notice to the Company at any time at or prior to
Closing Time, and such termination shall be without liability of any party to
any other party except as provided in Section 4. Notwithstanding any such
termination, the provisions of Sections 6 and 7 shall remain in effect.
SECTION 6. INDEMNIFICATION. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act, and
each officer and director of each Underwriter and any such controlling person to
the extent and in the manner set forth as follows:
(i) against any and all loss, liability, claim,
damage, and expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the information deemed to be
part of the Registration Statement pursuant to Rule 430A(b) of the 1933 Act
regulations, if applicable, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation; or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as
incurred (including, subject to Section 6(c) hereof, the fees and disbursements
of counsel chosen by the Underwriters), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by a governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or any such
19
<PAGE> 20
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply (A) to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives expressly for use in the
Registration Statement or Prospectus and (B) with respect to the Prospectus or
any preliminary prospectus to the extent that any loss, liability, claim, damage
or expense results from the fact that such Underwriter sold Securities to a
person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus (and any amendment or
supplement thereto) in any case where such delivery is required by the 1933 Act
if the Company previously furnished copies thereof to such Underwriter and the
loss, liability, claim, damage or expense results from an untrue statement or
omission of a material fact contained in the Prospectus or any preliminary
prospectus which was corrected in the Prospectus (or any amendment or supplement
thereto).
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives expressly for use in the Registration Statement (or
any amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability which it may have otherwise than on account of this indemnity
agreement. An indemnifying party may participate at its own expense in the
defense of any such action. In no event shall the indemnifying parties be liable
for fees and expenses (which fees and expenses shall be reasonable) of more than
one counsel (in addition to any local counsel) separate from their own counsel
for all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances; PROVIDED, HOWEVER, that if an indemnified
party shall have been advised in writing by counsel
20
<PAGE> 21
selected to represent the indemnified parties that an actual or potential
conflict of interest exists between the position of that indemnified party and
other indemnified parties, the indemnified party in question shall have the
right to select separate counsel to participate in the defense of such action on
behalf of such indemnified party, and the indemnifying parties shall be
responsible for the reasonable fees and expenses of such separate counsel.
SECTION 7. CONTRIBUTION. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in Section 6 is for any reason held to be unenforceable by the
indemnified parties although applicable in accordance with its terms, the
Company and the Underwriters shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company and one or more Underwriters, as
incurred, in such proportions that the Underwriters are responsible for that
portion represented by the percentage that the underwriting discount appearing
on the cover page of the Prospectus bears to the initial public offering price
appearing thereon and the Company is responsible for the balance; PROVIDED,
HOWEVER, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section, each person, if any, who controls an Underwriter within the
meaning of Section 15 of the 1933 Act, and each officer and director of any
Underwriter and of any such control person, shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as the Company.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties and agreements contained in
this Agreement and the Pricing Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any Underwriter or controlling person, or by or on behalf of the Company, and
shall survive delivery of the Securities to the Underwriters.
SECTION 9. TERMINATION OF THE AGREEMENT. (a) The
Representatives may terminate this Agreement, by notice to the Company, at any
time at or prior to Closing Time (i) if there has been, since the date of this
Agreement or since the respective dates as of which information is given in the
Registration Statement, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one
21
<PAGE> 22
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States, or any new outbreak of hostilities or material escalation
thereof or other calamity or crisis, the effect of which is such as to make it,
in the judgment of the Representatives, impracticable to market the Securities
or to enforce contracts for the sale of the Securities, or (iii) if trading in
the Common Stock has been suspended by the Commission, or if trading generally
on either the American Stock Exchange or the New York Stock Exchange has been
suspended, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required, by either of said Exchanges
or by order of the Commission or any other governmental authority, or if a
banking moratorium has been declared by either federal, New York or Ohio
authorities.
(b) If this Agreement is terminated pursuant to this Section
9, such termination shall be without liability of any party to any other party
except as provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 6 and 7 shall remain in effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one
or more of the Underwriters shall fail at Closing Time to purchase the Initial
Securities which it or they are obligated to purchase under this Agreement and
the Pricing Agreement (the "Defaulted Securities"), the Representatives shall
have the right, within 24 hours thereafter, to make arrangements for one or more
of the non-defaulting Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements with such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Initial Securities, the non-defaulting Underwriters shall be
obligated to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Initial Securities, this Agreement shall terminate without liability
on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in the
termination of this Agreement, either the Representatives or the Company shall
have the right to postpone the Closing Time for a period not exceeding seven
days in order to effect any required
22
<PAGE> 23
changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
The Underwriters shall have the right to amend Schedule A
hereto by making such substitutions or corrections as indicated in the Pricing
Agreement.
SECTION 11. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunications. Notices to the
Underwriters shall be directed in care of the Representatives at 2100 McDonald
Investment Center, Cleveland, Ohio 44114, attention: Daniel F. Austin, Senior
Managing Director, and notices to the Company shall be directed to it at 5915
Landerbrook Drive, Mayfield Heights, Ohio 44124, attention: Wayne L. Mosley,
telecopy number (216) 461-3489; and
SECTION 12. PARTIES. This Agreement and the Pricing Agreement
shall each inure to the benefit of and be binding upon the Underwriters and the
Company and their respective successors. Nothing expressed or mentioned in this
Agreement or the Pricing Agreement is intended or shall be construed to give any
person, firm or corporation, other than the Underwriters and the Company and
their respective successors and the controlling persons and officers and
directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or the Pricing Agreement or any provision herein and
therein contained. This Agreement and the Pricing Agreement and all conditions
and provisions hereof and thereof are intended to be for the sole and exclusive
benefit of the Underwriters and the Company and their respective successors, and
said controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
Purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
SECTION 13. GOVERNING LAWS AND TIME. This Agreement and the
Pricing Agreement shall be governed by and construed in accordance with the
internal laws of the State of Ohio without giving effect to principles of
conflict of laws. Specified times of day refer to Cleveland Time. As used
herein, the term "business day" means any day on which the New York Stock
Exchange is open for business.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all
23
<PAGE> 24
counterparts, will become a binding agreement between the Underwriters and the
Company in accordance with its terms.
Very truly yours,
COLE NATIONAL CORPORATION
By:___________________________
Name:
Title:
CONFIRMED AND ACCEPTED
as of the date first above written:
McDONALD & COMPANY SECURITIES,INC.
SMITH BARNEY INC.
BY: McDONALD & COMPANY SECURITIES, INC.
By:___________________________
Name:
Title:
For themselves and as Representatives of the other Underwriters in Schedule A
hereto.
24
<PAGE> 25
SCHEDULE A
<TABLE>
<CAPTION>
Number
of Shares
Underwriters to be Purchased
- ------------ ---------------
<S> <C>
McDonald & Company Securities, Inc...............................................
Smith Barney Inc.................................................................
Total...................................................................... 1,250,000
=========
</TABLE>
<PAGE> 26
Exhibit A
1,250,000 Shares
COLE NATIONAL CORPORATION
(A Delaware corporation)
CLASS A COMMON STOCK
(Par Value $.001 Per Share)
PRICING AGREEMENT
-----------------
June __, 1996
McDONALD & COMPANY SECURITIES, INC.
SMITH BARNEY INC.
as Representatives of the Several Underwriters
c/o McDonald & Company Securities, Inc.
McDonald Investment Center
Cleveland, Ohio 44114
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated June
__, 1996 (the "Underwriting Agreement"), relating to the purchase by the several
Underwriters named in Schedule A thereto, for whom McDonald & Company
Securities, Inc. and Smith Barney Inc. are acting as representative, of the
above shares of the Class A Common Stock, par value $.001 per share, of Cole
National Corporation (the "Company").
Pursuant to Section 2 of the Underwriting Agreement, the
Company agrees with the Underwriters as follows:
1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be $_____.
2. The purchase price per share for the Securities to be paid
by the several Underwriters shall be $_____, being an amount equal to the
initial public offering price set forth above less $____ per share.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all
<PAGE> 27
counterparts, will become a binding agreement among the Underwriters and the
Company in accordance with its terms.
Very truly yours,
COLE NATIONAL CORPORATION
By:___________________________
Its:__________________________
CONFIRMED AND ACCEPTED as of the date first above written:
McDONALD & COMPANY SECURITIES, INC.
SMITH BARNEY INC.
BY McDONALD & COMPANY SECURITIES, INC.
By: _______________________________
Name:
Title:
For themselves and as Representatives of the other Underwriters in Schedule A to
the Underwriting Agreement.
2
<PAGE> 28
Annex I
Form of Opinion of
Jones, Day, Reavis & Pogue
--------------------------
(i) Each of the Company and the direct and indirect
subsidiaries of the Company (collectively, "Subsidiaries") (other than Bay
Cities Optical Company and Western States Optical, Inc.) is duly incorporated,
validly existing, and in good standing under the laws of the state of its
respective incorporation, and each of the Company and the Subsidiaries has the
corporate power and authority to own or lease its properties and to conduct its
business as described in the Prospectus, and the Company has the corporate power
and authority to execute, deliver and perform its obligations under the
Underwriting Agreement.
(ii) The authorized capital stock of the Company consists of:
(a) 24,000,000 shares of Class A Common Stock, $.001 par value per share ("Class
A Common Stock"), of which _____________ shares are issued and outstanding; and
(b) 1,000,000 shares of Preferred Stock, without par value, none of which shares
are issued and outstanding. Except as otherwise stated in the Prospectus, all of
the shares of issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. The
Securities to be issued and sold by the Company pursuant to the Underwriting
Agreement have been duly authorized for issuance and sale to the Underwriters
pursuant to the Underwriting Agreement and, when issued and delivered by the
Company in the manner contemplated by the Underwriting Agreement, will be
validly issued and fully paid and nonassessable. The issuance of the Securities
to be issued and sold by the Company is not subject to preemptive or other
similar statutory rights or contractual preemptive or other similar contractual
rights pursuant to any contract or agreement filed as an exhibit to either the
Registration Statement or any document incorporated therein by reference
pursuant to Item 12 of Form S-3 under the 1933 Act and by which the Company is
bound.
(iii) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company and is a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms except
as rights to indemnity and contribution thereunder may be limited under
applicable securities laws.
(iv) All of the outstanding capital stock of each of the
Subsidiaries has been duly authorized and validly issued and is fully paid and
nonassessable and is owned, directly or indirectly, by the Company, and, to the
best of our knowledge, is free and clear of any security interest, adverse
claims, lien or encumbrance, and there are no outstanding rights, warrants or
options to acquire, or instruments convertible into or exchangeable
<PAGE> 29
for, any shares of capital stock or other equity interest in any
subsidiary.
(v) The Company is not an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended.
(vi) The execution and delivery by the Company of the
Underwriting Agreement and the performance of its obligations thereunder will
not (A) result in the violation of any Delaware corporate, Ohio or Federal
statute or regulation, or any order or decree known to us of any court or
governmental authority binding upon the Company or any of its subsidiaries or
their property, (B) conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default or in creation of a lien
under any of the provisions of the Company's or any of its subsidiaries'
Certificates of Incorporation or Bylaws or any indenture, mortgage, deed of
trust, loan agreement or other agreement filed as an exhibit to the Registration
Statement and by which the Company is bound, or (C) result in the creation of
any lien upon any of the properties or assets of the Company or any of its
subsidiaries.
We have participated in the preparation of the Registration
Statement and Prospectus. From time to time we have had discussions with
officers, Directors and employees of the Company, Arthur Andersen LLP, the
independent accountants who examined certain of the consolidated financial
statements of the Company and its subsidiaries included in the Registration
Statement and Prospectus, and your representatives concerning the information
contained in the Registration Statement and Prospectus and the proposed
responses to various items in Form S-3. Based thereupon we are of the opinion
that the Registration Statement and the Prospectus (except for the operating
statistics, financial statements and the notes thereto, financial schedules,
other financial, statistical and accounting data included therein and except for
the information referred to under the caption "Experts" as having been included
or incorporated by reference in the Registration Statement and Prospectus on the
authority of Arthur Andersen LLP as experts, as to which we express no opinion)
at the time the Registration Statement became effective under the Securities Act
of 1933 complied as to form in all material respects with the Securities Act of
1933 and the rules and regulations thereunder.
We further are of the opinion that the statements contained in
the Prospectus under the caption "Description of Capital Stock" and the sixth
paragraph under the caption "Underwriting" and Item 15 in part II of the
Registration Statement, insofar as they purport to summarize the provisions of
the documents referred to therein, present fair summaries of such provisions.
2
<PAGE> 30
We do not know of any litigation or any governmental
proceedings or investigations, pending or threatened, required to be described
in the Prospectus that are not described as required, or of any contracts or
other documents of a character required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration Statement
that are not described and filed as required.
The Registration Statement has become effective under the
Securities Act of 1933; any required filing of the Prospectus or any supplement
thereto pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and, to the best of our knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose are pending before or threatened by the
Commission.
We have not independently verified and are not passing upon,
and do not assume any responsibility for, the accuracy, completeness or fairness
(except as set forth in the third preceding paragraph above) of the information
contained in the Registration Statement and Prospectus or incorporated therein
by reference. Based upon the participation and discussions described above,
however, no facts have come to our attention that cause us to believe that the
Registration Statement (except for the operating statistics, financial
statements and the notes thereto, financial schedules, other financial,
statistical and accounting data included or incorporated by reference therein
and except for the information referred to under the caption "Experts" as having
been included in the Registration Statement and Prospectus on the authority of
Arthur Andersen LLP, as experts, as to all of which we express no view), at the
time it became effective contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus (with the
foregoing exceptions), at such time or on the date hereof included or includes
any untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3
<PAGE> 31
Annex II
Form of Opinion of
Charles J. Ibold, Esq. and David J. Sherriff, Esq.
(i) Each of the Company and Cole National Group,
Inc. (the "Subsidiary") is duly incorporated, validly existing, and in good
standing under the laws of the state of its incorporation, with corporate power
and authority to own or lease its properties and to conduct its business as
described in the Prospectus. The Company has the corporate power and authority
to execute, deliver and perform the obligations under the Underwriting
Agreement. Each of the Company and the Subsidiary is duly qualified to do
business and is in good standing in all jurisdictions where it is required to be
so qualified, except where the failure to be so qualified would not individually
or in the aggregate have a material adverse effect on the business, condition
(financial or other), results of operations or properties of the Company and the
direct and indirect subsidiaries of the Company taken as a whole.
(ii) The Underwriting Agreement has been duly
authorized, executed and delivered by the Company.
(iii) Neither the issuance and sale of the
Securities and the execution and delivery by the Company of the Underwriting
Agreement nor its performance of its obligations thereunder will (A) result in
the violation of any Ohio or Federal statute or regulation, or any order or
decree known to me of any court or governmental authority binding upon the
Company or the Subsidiary or their property or (B) conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default or result in the creation of a lien under any of the provisions of the
Company's or the Subsidiary's Certificate of Incorporation or Bylaws or any
indenture, loan agreement, mortgage, deed of trust or other agreement filed as
an exhibit to the Registration Statement and by which the Company or the
Subsidiary is bound, or (C) result in the creation of any lien upon any of the
properties or assets of the Company or the Subsidiary.
(iv) Except as disclosed in the Registration
Statement and the Prospectus, there is no action, suit, investigation or
proceeding, governmental or otherwise, pending or, to the best of my knowledge,
threatened against the Company or the Subsidiary, (A) in which an injunction or
order has been entered preventing the issuance or sale of the Securities or the
execution, delivery or performance by the Company of the Underwriting Agreement,
(B) that seeks to restrain, enjoin or prevent the issuance of the Securities, or
the execution and delivery by the Company of the Underwriting Agreement or any
of the other transactions contemplated thereby, or (C) questions the legality or
validity of any such transaction or that seeks to recover damages or obtain
other relief in connection with any such transaction.
<PAGE> 32
(v) Except for the order of the Commission
declaring the Registration Statement effective, and permits and similar
authorizations required under the securities or Blue Sky laws of certain
jurisdictions, and except for such consents that are required and have been
received, no consent, approval, authorization or other order from, and no filing
with or notice to, any Ohio or Federal regulatory body, administrative agency,
or other Ohio or Federal governmental authority, and no filing with or notice
to, to the best of my knowledge, any other person or entity, is required for the
due authorization, execution, delivery and performance by the Company of the
Underwriting Agreement.
(vi) Neither the Company nor the Subsidiary is in
violation of its Certificate of Incorporation or Bylaws.
Except as set forth in the Prospectus, I am not aware of (A)
the existence of any default (or any event the occurrence of which with notice
or lapse of time, or both, would constitute a default) under any bond,
indenture, mortgage, deed of trust, note, loan or credit agreement or other
material agreement or instrument filed as an exhibit to either the Registration
Statement or any document incorporated therein by reference pursuant to Item 12
of Form S-3 under the 1933 Act and to which the Company or the Subsidiary is a
party or to which any of their property or assets is subject or (B) the issuance
of any notice or pendency or threat of any investigation or review by any
governmental entity with respect to (1) any alleged violation by the Company or
the Subsidiary of any statute, law, ordinance, rule, regulation, judgment,
decree or order of any governmental entity, agency or body, or (2) any alleged
failure by the Company or the Subsidiary to have all permits, certificates,
licenses, approvals and other authorizations required in connection with the
operation of its business, which, with respect to clauses (A) and (B) herein
would (individually or in the aggregate) (i) adversely affect the legality,
validity or enforceability of the Underwriting Agreement or (ii) have a material
adverse effect on the business, condition (financial or other), results of
operations or properties of the Company and the direct and indirect subsidiaries
of the Company taken as a whole.
I have participated in the preparation of the Registration
Statement and Prospectus. From time to time I have had discussions with
officers, Directors and employees of the Company, Arthur Andersen LLP, the
independent accountants for the Company, and your representatives concerning the
information contained in the Registration Statement and Prospectus and the
proposed responses to various items in Form S-3. I have not, however,
independently verified and am not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the information
contained in the Registration Statement and Prospectus or incorporated therein
by reference. Based upon the participation and discussions described above,
however, no facts have come to my attention that cause me to believe that the
Registration Statement (except for the operating statistics,
<PAGE> 33
financial statements and the notes thereto, financial schedules, other
financial, statistical and accounting data included or incorporated by reference
therein and except for the information referred to under the caption "Experts"
as having been included in the Registration Statement and Prospectus on the
authority of Arthur Andersen LLP, as experts, as to all of which I express no
view), at the time it became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus (with the foregoing exceptions) as of its date or on the date hereof
included or includes any untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
There is no litigation or governmental proceedings or
investigations, pending, or, to the best of my knowledge, threatened against the
Company or the Subsidiary, required to be described in the Registration
Statement and the Prospectus that are not described as required, or of any
contracts or other documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement that are not described and filed as required.
<PAGE> 34
Annex III
Form of Opinion of
Charles J. Ibold
(i) Each of Cole Gift Centers, Inc. ("Cole Gift") and Things
Remembered, Inc. ("TRI"); (Cole Gift and TRI are collectively referred to as the
"Company") and TRI's Subsidiary (defined as Cole Management Services, Inc.) is
duly incorporated, validly existing, and in good standing under the laws of the
state of its respective incorporation, with corporate power and authority to own
or lease its properties and to conduct its business as described in the
Prospectus. Each of the Company and TRI's Subsidiary is duly qualified to do
business and is in good standing in all jurisdictions where it is required to be
so qualified, except where the failure to be so qualified would not individually
or in the aggregate have a material adverse effect on the business condition
(financial or other), results of operations or properties of the Company and
TRI's Subsidiary taken as a whole.
(ii) Except as disclosed in the Registration Statement and
the Prospectus, there is no action, suit, investigation or proceeding,
governmental or otherwise, pending or, to the best of my knowledge, threatened
against the Company or TRI's Subsidiary, (A) in which an injunction or order has
been entered preventing the issuance of sale of the Securities, (B) that seeks
to restrain, enjoin or prevent the issuance or the Securities or any of the
transactions contemplated thereby, or (C) questions the legality or validity of
any such transaction or that seeks to recover damages or obtain other relief in
connection with any such transaction.
(iii) Neither Cole Gift, TRI nor TRI's Subsidiary is in
violation of its Certificate or Incorporation or Bylaws.
Except as set forth in the Prospectus, I am not aware of (A)
the existence of any default (or any event the occurrence of which with notice
or lapse of time, or both, would constitute a default) under any bond,
indenture, mortgage, deed of trust, note, loan or credit agreement or other
material agreement or instrument filed as an exhibit to either the Registration
Statement or any document incorporated therein by reference pursuant to Item 12
of Form S-3 under the 1933 Act and to which the Company or TRI's Subsidiary is
a party or to which any of them or their property or assets is subject or (B)
the issuance of any notice or pendency or threat of any investigation or review
by any governmental entity with respect to (1) any alleged violation by the
Company or TRI's Subsidiary of any statute, law, ordinance, rule, regulation,
judgment decree or order of any governmental entity, agency or body, or (2) any
alleged failure by the Company or TRI's Subsidiary to have all permits,
certificates, licenses, approvals and other authorizations required in
connection with the operation of its business, which, with respect to clauses
(A) and (B) herein would (individually or in the aggregate) have a material
adverse effect
<PAGE> 35
on the business, condition (financial or other), results of operations or
properties of the Company and TRI's Subsidiary taken as a whole.
I have reviewed and read the Registration Statement and
Prospectus. I have not, however, independently verified and am not passing upon,
and do not assume any responsibility for, the accuracy, completeness or fairness
of the information contained in the Registration Statement and Prospectus or
incorporated by reference therein. Based upon my review of the Registration
Statement and Prospectus described above, however, no facts have come to my
attention that cause me to believe that the Registration Statement (except for
the operating statistics, financial statements and the notes thereto, financial
schedules, other financial, statistical and accounting data included therein and
except for the information referred to under the caption "Experts" as having
been included or incorporated by reference in the Registration Statement and
Prospectus on the authority of Arthur Andersen LLP, as experts, as to all of
which I express no view), at the time it became effective contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus (with the foregoing exceptions) as of its date or on the
date hereof included or includes any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
There is no litigation or governmental proceedings or
investigations, pending, or, to the best of my knowledge, threatened against the
Company or TRI's Subsidiary, required to be described in the Registration
Statement and the Prospectus that are not described as required, or of any
contracts or other documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement that are not described and filed as required.
2
<PAGE> 36
Annex IV
Form of Opinion of
David J. Sherriff
(i) Each of Cole Vision Corporation (the "Company") and the
Subsidiaries (defined as Western States Optical, Inc., Bay Cities Optical
Company, Cole Vision Services, Inc., Cole Management Services, Inc. and Cole
Lens Supply, Inc.) is duly incorporated, validly existing, and in good standing
under the laws of the state of its respective incorporation, with corporate
power and authority to own or lease its properties and to conduct its business
as described in the Prospectus. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing in all jurisdictions where it
is required to be so qualified, except where the failure to be so qualified
would not individually or in the aggregate have a material adverse effect on the
business, condition (financial or other), results of operations or properties of
the Company and the Subsidiaries taken as a whole.
(ii) Except as disclosed in the Registration Statement and
the Prospectus, there is no action, suit, investigation or proceeding,
governmental or otherwise, pending or, to the best of my knowledge, threatened
against the Company or any of the Subsidiaries, (A) in which an injunction or
order has been entered preventing the issuance or sale of the Securities, (B)
that seeks to restrain, enjoin or prevent the issuance of the Securities or any
of the transactions contemplated thereby, or (C) questions the legality or
validity of any such transaction or that seeks to recover damages or obtain
other relief in connection with any such transaction.
(iii) Neither the Company nor any of the Subsidiaries is in
violation of their respective Certificate of Incorporation or Bylaws.
Except as set forth in the Prospectus, I am not aware of (A)
the existence of any default (or any event the occurrence of which with notice
or lapse of time, or both, would constitute a default) under any bond,
indenture, mortgage, deed of trust, note, loan or credit agreement or other
material agreement or instrument filed as an exhibit to either the Registration
Statement or any document incorporated therein by reference pursuant to Item 12
of Form S-3 under the 1933 Act and to which the Company or any of the
Subsidiaries is a party or to which any of them or their property or assets is
subject or (B) the issuance of any notice or pendency or threat of any
investigation or review by any governmental entity with respect to (1) any
alleged violation by the Company or any of the Subsidiaries of any statute,
law, ordinance, rule, regulation, judgment decree or order of any governmental
entity, agency or body, or (2) any alleged failure by the Company or any of the
Subsidiaries to have all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation
<PAGE> 37
of its business, which, with respect to clauses (A) and (B) herein would
(individually or in the aggregate) have a material adverse effect on the
business, condition (financial or other), results of operations or properties of
the Company and the Subsidiaries taken as a whole.
I have reviewed and read the Registration Statement and
Prospectus. I have not, however, independently verified and am not passing upon,
and do not assume any responsibility for, the accuracy, completeness or fairness
of the information contained in the Registration Statement and Prospectus or
incorporated therein by reference. Based upon my review of the Registration
Statement and Prospectus described above, however, no facts have come to my
attention that cause me to believe that the Registration Statement (except for
the operating statistics, financial statements and the notes thereto, financial
schedules, other financial, statistical and accounting data included or
incorporated by reference therein and except for the information referred to
under the caption "Experts" as having been included in the Registration
Statement and Prospectus on the authority of Arthur Andersen LLP, as experts, as
to all of which I express no view), at the time it became effective contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus (with the foregoing exceptions) as of its
date or on the date hereof included or includes any untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
There is no litigation or governmental proceedings or
investigations, pending, or, to the best of my knowledge, threatened against the
Company or any of the Subsidiaries, required to be described in the Registration
Statement and the Prospectus that are not described as required, or of and
contracts or other documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement that are not described and filed as required.
2
<PAGE> 1
EXHIBIT 5.1
June 12, 1996
Cole National Corporation
5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
Re: 1,437,500 Shares of Class A Common Stock,
par value $.001 per share, of Cole National
Corporation to be Offered Through Underwriters
----------------------------------------------
Dear Ladies and Gentlemen:
We are acting as counsel for Cole National Corporation, a
Delaware corporation (the "Corporation"), in connection with the issuance and
sale of 1,437,500 shares of Class A Common Stock, par value $.001 per share, of
the Corporation (the "Shares") in accordance with the Underwriting Agreement
(the "Underwriting Agreement") to be entered into by and among the Corporation,
McDonald & Company Securities, Inc. and Smith Barney Inc., as Representatives of
the several Underwriters named in the Underwriting Agreement (collectively, the
"Underwriters").
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion, and based thereon we are
of the opinion that, subject to the due approval of the specific terms of the
issuance and sale of the Shares by the Board of Directors of the Corporation:
The Shares, when issued, will be duly authorized and, when
issued and delivered to the Underwriters pursuant to the Underwriting Agreement
against payment of the consideration therefor as provided therein (and provided
payment of consideration received by the Corporation is at least equal to the
par value of such Shares), will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as
Exhibit 5.1 to the Registration Statement No. 333-_____ on
Form S-3 filed by the Corporation to effect registration of the
<PAGE> 2
Cole National Corporation
June 12, 1996
Page 2
Shares under the Securities Act of 1933, as amended (the "Registration
Statement"), and to the reference to us under the caption "Legal Matters" in the
Prospectus comprising a part of the Registration Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included and incorporated by reference in or
made a part of this registration statement.
Arthur Andersen LLP
Cleveland, Ohio,
June 12, 1996.
<PAGE> 1
EXHIBIT 24.1
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL CORPORATION
REGISTRATION STATEMENT ON FORM S-3
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National Corporation, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jeffrey A. Cole, Joseph Gaglioti and Wayne Mosley, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration
Statement(s) on Form S-3 relating to the registration for sale of the
Corporation's Class A Common Stock, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such
substitute.
EXECUTED as of June 6, 1996.
Chairman, Chief Executive Officer,
/s/ Jeffrey A. Cole Chief Financial Officer and Director
- ------------------------------ ------------------------------------
Signature Title
Jeffrey A. Cole
- ------------------------------
Name
<PAGE> 2
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL CORPORATION
REGISTRATION STATEMENT ON FORM S-3
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National Corporation, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jeffrey A. Cole, Joseph Gaglioti and Wayne Mosley, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration
Statement(s) on Form S-3 relating to the registration for sale of the
Corporation's Class A Common Stock, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such
substitute.
EXECUTED as of June 6, 1996.
President, Chief Operating
/s/ Brian Smith Officer and Director
- ------------------------------ ------------------------------------
Signature Title
Brian Smith
- ------------------------------
Name
<PAGE> 3
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL CORPORATION
REGISTRATION STATEMENT ON FORM S-3
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National Corporation, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jeffrey A. Cole, Joseph Gaglioti and Wayne Mosley, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration
Statement(s) on Form S-3 relating to the registration for sale of the
Corporation's Class A Common Stock, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such
substitute.
EXECUTED as of June 6, 1996.
/s/ Timothy F. Finley Director
- ------------------------------ ------------------------------------
Signature Title
Timothy F. Finley
- ------------------------------
Name
<PAGE> 4
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL CORPORATION
REGISTRATION STATEMENT ON FORM S-3
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National Corporation, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jeffrey A. Cole, Joseph Gaglioti and Wayne Mosley, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration
Statement(s) on Form S-3 relating to the registration for sale of the
Corporation's Class A Common Stock, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such
substitute.
EXECUTED as of June 6, 1996.
/s/ Irwin N. Gold Director
- ------------------------------ ------------------------------------
Signature Title
Irwin N. Gold
- ------------------------------
Name
<PAGE> 5
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL CORPORATION
REGISTRATION STATEMENT ON FORM S-3
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National Corporation, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jeffrey A. Cole, Joseph Gaglioti and Wayne Mosley, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration
Statement(s) on Form S-3 relating to the registration for sale of the
Corporation's Class A Common Stock, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such
substitute.
EXECUTED as of June 6, 1996.
/s/ Peter V. Handal Director
- ------------------------------ ------------------------------------
Signature Title
Peter V. Handal
- ------------------------------
Name
<PAGE> 6
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL CORPORATION
REGISTRATION STATEMENT ON FORM S-3
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National Corporation, a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jeffrey A. Cole, Joseph Gaglioti and Wayne Mosley, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration
Statement(s) on Form S-3 relating to the registration for sale of the
Corporation's Class A Common Stock, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such
substitute.
EXECUTED as of June 6, 1996.
/s/ Charles A. Ratner Director
- ------------------------------ ------------------------------------
Signature Title
Charles A. Ratner
- ------------------------------
Name
