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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the fiscal year ended January 30, 1999, or
Transition report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the transition period from __________ to
__________.
Commission file number 1-12814
COLE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 34-1453189
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
5915 Landerbrook Drive, Mayfield Heights, Ohio 44124
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (440) 449-4100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $.001 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 23, 1999 was approximately $229,045,000, based upon the
last price reported for such date by the New York Stock Exchange.
As of March 23, 1999, 14,861,857 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on June 10, 1999 are incorporated herein by reference
into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Cole National Corporation was incorporated as a Delaware corporation in
1984. Cole National Corporation, primarily through the subsidiaries owned by its
direct subsidiary, Cole National Group, Inc. is a leading provider of eyewear
products, optometric services and personalized gifts with 2,884 retail locations
in 50 states, Canada and the Caribbean. References herein to the "Company"
include Cole National Corporation, its direct and indirect subsidiaries, and its
predecessor companies. Cole National Corporation's businesses are conducted
through two principal operating units: Cole Vision and Things Remembered. Cole
Vision consists of Cole Licensed Brands, Cole Managed Vision Care and Pearle,
which was acquired on November 15, 1996. Cole National Corporation believes
that, based on industry data, Cole Vision is one of the largest optical retail
companies in the world. Things Remembered operates the only nationwide chain of
personalized gift stores. Cole National Corporation differentiates itself from
other specialty retailers by providing value-added services at the point of sale
at all of its retail locations.
COLE VISION
Cole Vision contributed 77.3% of Cole National Corporation's net
revenue in fiscal 1998 with 2,066 company-owned and franchised locations
throughout the United States, Canada and the Caribbean as of January 30, 1999.
Cole Licensed Brands and Pearle share purchasing power and corporate support
functions. The Cole Managed Vision Care programs give participants access to a
network of company-owned, franchised and third-party optical locations.
COLE LICENSED BRANDS
Cole Licensed Brands operates principally under the "Sears Optical",
"Ward's Optical", "Target Optical" and "BJ's Optical Department" names. As of
January 30, 1999, Cole Licensed Brands operated 1,186 locations in 47 states and
Canada, including 788 departments on the premises of Sears department stores,
179 departments in Montgomery Ward stores, 82 departments in BJ's Wholesale Club
stores, 12 departments in Target stores, 121 freestanding stores operated under
the name "Sears Optical" and four other locations. Retail locations are
generally operated under a lease or license arrangement through which the host
store collects the sales receipts, retains an agreed upon percentage of sales
and remits the remainder to Cole Licensed Brands on a weekly basis.
Cole Licensed Brands' locations are, in most cases, full-service retail
eyecare stores offering brand name and private label prescription eyeglasses,
contact lenses and accessories, with an on-premises doctor of optometry who
performs complete eye examinations and prescribes eyeglasses and contact lenses.
Most optical departments, which are typically 1,000 square feet in size, operate
with a doctor of optometry, a department manager, and from one to seven
opticians depending on store sales volume. The majority of the doctors of
optometry are independent, as is often required by state law, with the remainder
being employed by Cole Licensed Brands. The independent doctors sublease space
and equipment from Cole Licensed Brands where permitted by law, or from the
host, and retain their examination fees.
Each of the retail locations is computer linked to five centralized
manufacturing laboratories, which grind, cut and fit lenses to order and ship
them to the stores. Cole Licensed Brands provides next day delivery on most of
the eyewear it offers when requested by its customers. All of the frames and
lenses used in its eyeglasses are purchased from outside suppliers, both in the
United States and several foreign countries.
A variety of marketing and promotional efforts, primarily newspaper,
direct mail, yellow pages and host advertising, are used to build and maintain
its customer base. Host advertising includes the placement of promotional
material within sales circulars or credit card billings sent out by the host
store to its customers.
PEARLE
At January 30, 1999, Pearle's operations consisted of 471 company-owned
and 409 franchised stores located in 45 states, Canada, and the Caribbean. Most
Pearle stores operate in either an "Express" or "Mainline" store format. Express
stores contain a full surfacing lab that can manufacture most glasses in
approximately one hour. Mainline stores can manufacture over 50% of
prescriptions on-site in approximately one hour. Other prescriptions are sent to
the main
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laboratory in Dallas. At January 30, 1999, 304 of the company-owned stores and
118 of the franchised stores were Express, with the balance being Mainline.
The Express stores typically are located in high traffic freestanding,
strip centers and mall locations with most stores averaging 3,000 square feet.
The Express stores are usually staffed with two managers and a support staff of
four to eight people. Mainline stores have an average size of 1,700 square feet
and are also located in freestanding buildings, or in smaller strip or regional
centers. Mainline stores generally carry a smaller assortment of inventory than
Express stores and are usually staffed with one manager and two to three
associates. Most Pearle stores have a doctor of optometry on site with
approximately 80% leasing space from Pearle on an independent basis and the
remaining being direct employees of Pearle.
Pearle's marketing strategy employs a wide range of media at both the
national and local levels. The franchised and company-owned stores each
contribute a percentage of revenues to Pearle's marketing budget with
approximately half of Pearle's marketing expenditures devoted to television.
Pearle's brand positioning of high quality eyecare products and services has
been reinforced by an advertising and promotions program, which includes
Pearle's advertising slogans, Nobody Cares for Eyes Better Than Pearle and The
Doctor Is In.
Pearle operates a warehouse facility in Dallas that inventories and
distributes a comprehensive product line, including frames, eyeglass lenses,
contact lenses, optical supplies and eyewear accessories to company-owned and
franchised locations.
Pearle has maintained a franchise program since 1980. Most of the
franchised stores are single franchise operations, with no franchisee operating
more than ten stores. With the proper financial approvals, a franchise purchase
can be financed through Pearle. Currently, Pearle offers financing over periods
up to ten years at variable interest rates ranging from prime plus one point to
prime plus three points adjusted periodically.
Each franchisee is required to enter into a franchise agreement
requiring payment of an initial franchise fee. The term of the typical franchise
agreement is equal to the earlier of ten years or the expiration or termination
of the underlying base lease. Royalty and advertising contributions typically
are based on a percentage of the franchisee's gross revenues from the retail
operation and/or non-surgical professional fee revenues. The total monthly
advertising contribution is distributed between Pearle's system-wide advertising
fund and the local co-op market advertising fund. Franchisees are generally
eligible to participate in Cole Vision's managed vision care programs.
Cole National Corporation also has an approximate 24% equity interest
in Pearle Europe B.V., which operates 519 company-owned and franchised optical
locations in the Netherlands, Belgium, Germany and Austria. In terms of market
share, Pearle Europe is the largest optical retailer in the Netherlands, Belgium
and Austria, and second largest in Germany.
COLE MANAGED VISION CARE
In the last several years, Cole Vision has expanded its managed vision
care program that provides low cost, comprehensive eyecare benefits marketed
directly to large employers, HMO's and other organizations, primarily under the
name "Vision One." Vision One's basic program gives plan sponsors the
opportunity to offer their members a group discount at locations within the
managed vision care network with minimal direct cost to the plan sponsor. An
enhanced Vision One program allows plan sponsors to provide their members with
prepaid eye examinations, as well as pricing discounts or reimbursements.
Cole Managed Vision Care's network has over 6,000 points of service,
including all Cole Vision company-owned retail locations, approximately 90% of
franchised locations, 700 locations in a nationwide chain store's optical
departments, and 3,000 independent ophthalmologists, making it the largest chain
provider of managed vision care in the United States. Cole Managed Vision Care
generated approximately 31% of Cole Vision's revenues in fiscal 1998.
THINGS REMEMBERED
Things Remembered contributed 22.7% of Cole National Corporation's net
revenue in fiscal 1998. As of January 30, 1999, Things Remembered operated 818
stores and kiosks generally located in large, enclosed shopping malls located in
46 states. Each location carries a wide assortment of engravable items and
provides "while you shop" personalization services for any occasion including
holiday, business and special occasion gift events. Things Remembered offers
engraving for items purchased at the store as well as for items purchased
elsewhere.
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Merchandise sold at Things Remembered stores consists of a broad
assortment of gift categories and items at prices generally ranging from $10 to
$75. Things Remembered's offering of gifts includes writing instruments, clocks,
music boxes, picture frames and albums, executive desk sets and accessories, ID
bracelets, glassware, lighters, keys and key rings, door knockers and Christmas
ornaments. Things Remembered features brand name merchandise as well as higher
margin private label merchandise. At some locations, computer-controlled
embroidery equipment is utilized for the personalization of merchandise such as
throws, sweaters, bathrobes, jackets, baseball caps, towels and baby blankets.
These softgoods are also available in most of Things Remembered's other
locations with personalization services provided from a central fulfillment
facility.
At January 30, 1999, Things Remembered locations consisted of 450
stores and 368 kiosks. The typical store consists of about 1,000 square feet,
while kiosks, which are units generally located in the center of the common mall
area, are typically 200 square feet in size.
Things Remembered locations are usually operated by one or two
employees during non-peak periods and up to 15 employees during the peak
Christmas season. Locations typically employ a store manager on a full-time
basis and a full or part-time assistant manager, while the balance of the
employees is part-time sales associates.
Nearly all locations are equipped with computerized engravers and key
duplicating machines. Many stores also have equipment for etching glassware
items. All locations are equipped with point-of-sale terminals.
Most of Things Remembered's store merchandise is shipped through its
centralized warehouse and distribution facility located near Youngstown, Ohio.
The warehouse utilizes a computerized carousel system to automate the process of
locating merchandise needed to fill a store order.
HOST RELATIONSHIPS
Cole National Corporation believes it has developed excellent
relationships with the host stores in which Cole Licensed Brands operates. Cole
National Corporation has maintained its relationships in the optical business
with Sears and Montgomery Ward for over 35 years. Approximately 90% of the Sears
stores and all of the BJ's Wholesale and Montgomery Ward stores that offer
optometric services are operated by Cole Licensed Brands. Although leases with
major hosts are terminable by either party upon relatively short notice, Cole
Licensed Brands has never had a lease terminated other than in connection with a
store closing, relocation or major remodeling.
PURCHASING
The merchandise, supplies and component parts required for the various
products sold by Cole National Corporation are purchased from a large number of
suppliers and manufacturers and are generally readily available. In most cases,
such purchases are not made under long-term contracts. Cole National Corporation
believes that the loss of any one supplier or manufacturer should not have a
material adverse effect on its operations.
COMPETITION
Cole National Corporation operates in highly competitive businesses.
Cole Vision competes with other optical companies, private ophthalmologists,
optometrists and opticians and a growing number of HMOs in a highly fragmented
marketplace on the basis of the patient service it provides, as well as price
and product quality. In addition, Pearle competes on the basis of its highly
recognized brand name and one-hour express service. Cole National Corporation
believes that, based on industry data, Cole Vision is one of the largest optical
retail companies in the world. Although Things Remembered operates the only
nation-wide chain of gift stores offering "while you shop" gift engraving, key
duplicating, glass etching and monogramming, as well as related merchandise, it
competes with many other retailers that sell gift items. Things Remembered
competes with such other retailers primarily on the basis of the value-added
point of sale services, as well as price and product quality. Some of Cole
National Corporation's competitors have greater financial resources than Cole
National Corporation.
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EMPLOYEES
As of January 30, 1999, Cole National Corporation and its subsidiaries
had approximately 9,200 full-time and 3,900 part-time employees. During October,
November and December, Cole National Corporation employs additional full- and
part-time employees. In fiscal 1998, approximately 3,500 additional employees
were employed during such period. Approximately 150 employees at certain Pearle
locations are represented by labor unions. Cole National Corporation considers
its present labor relations to be satisfactory.
ITEM 2. PROPERTIES
Cole National Corporation leases an office in Highland Heights, Ohio,
and leases its executive offices and an office in Cleveland, Ohio.
During fiscal 1998, Cole National Corporation purchased a building in
Twinsburg, Ohio, which comprises approximately 175,000 square feet of office
space. All of Cole Vision's home office functions moved to this facility during
fiscal 1998.
All Cole Licensed Brands retail locations are leased or operated under
a license with the host store, and none of the individual retail locations is
material to operations. Leases for departments operated in Sears stores and
freestanding stores operated under the name "Sears Optical" are generally for
terms of 90 days and five years, respectively.
Pearle leases most of their retail stores under non-cancelable
operating leases with terms generally ranging from five to ten years and which
generally contain renewal options for additional periods. Pearle is the
principal lessee on a majority of stores operated by franchisees who sublease
the facilities from Pearle.
Cole Vision leases five optical laboratories, located in Knoxville,
Tennessee (two labs); Memphis, Tennessee; Salt Lake City, Utah; and Richmond,
Virginia, pursuant to leases expiring (including renewals at the option of Cole
Vision) in 2002, 2005, 2002, 2001 and 2013, respectively. Pearle owns its Dallas
Support Center, which comprises 88,721 square feet of office space and 147,336
square feet of laboratory and distribution facilities. Pearle also owns a small
headquarters and laboratory in Puerto Rico. Cole Vision also leases a home
office, lab and distribution center facility for its Canadian operations
pursuant to leases expiring in 2000.
Leases for Things Remembered stores and kiosks are generally for terms
of ten and five years, respectively. During the first quarter of fiscal 1999,
Things Remembered moved its home office functions to the leased facility in
Highland Heights, Ohio. The office and warehouse facility that Things Remembered
owns and occupied during fiscal 1998 is expected to be sold in fiscal 1999. In
fiscal 1997, a 210,000 square foot warehouse and distribution facility was
constructed for Things Remembered. On December 31, 1998, Things Remembered
entered into an agreement with a third party for the sale and leaseback of its
distribution center that expires in 2013 and includes three options to renew the
lease for five-year terms.
Cole National Corporation believes that its relationships with its
lessors are generally good.
ITEM 3. LEGAL PROCEEDINGS
While Cole National Corporation is not presently involved in any
material legal proceedings, from time to time during the ordinary course of
business, it is threatened with, or may become a party to legal actions and
other proceedings incidental to its business. Management believes that Cole
National Corporation's potential exposure to such legal actions is adequately
covered by its general liability insurance and reserves.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of security holders through
the solicitation of proxies or otherwise during the fourth quarter of the fiscal
year ended January 30, 1999.
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ITEM 4A. EXECUTIVE OFFICERS OF COLE NATIONAL CORPORATION
(a) The following persons are the executive officers of Cole National
Corporation who are not members of its Board of Directors, having been
elected to their respective offices by the Board of Directors to serve
until the election and qualification of their respective successors:
<TABLE>
<CAPTION>
Name Age Office
---- --- ----------------------------------------
<S> <C> <C>
Leslie D. Dunn 54 Senior Vice President -
Business Development,
General Counsel and Secretary
George H. Bernstein, Jr. 37 Executive Vice President of Strategic
Planning and Chief Financial Officer
Joseph Gaglioti 53 Vice President and Treasurer
Wayne L. Mosley 45 Vice President and Controller
</TABLE>
(b) The following is a brief account of the positions held during the past
five years by each of the above named executive officers:
Ms. Dunn has been Senior Vice President - Business
Development, General Counsel and Secretary since September 1997. Prior
to joining Cole National Corporation, she was a partner in the law firm
of Jones Day Reavis & Pogue for more than five years.
Mr. Bernstein has been Executive Vice President of Strategic
Planning and Chief Financial Officer since March 1, 1999. Mr. Bernstein
was the Senior Vice President and General Manager of Things Remembered
from October 1997 to March 1999. Before joining Cole National
Corporation, Mr. Bernstein was President of American Vision Centers,
Inc., an optical retailer, from July 1996 to September 1997 and
President of Hess Shoes, a footwear retailer, from February 1992 to
June 1996.
Mr. Gaglioti has been Vice President since 1992 and Treasurer
since 1991. Mr. Gaglioti joined Cole National Corporation in 1981.
Mr. Mosley has been Vice President and Controller, Assistant
Secretary and Assistant Treasurer since 1992. Mr. Mosley joined Cole
National Corporation in 1986.
Information concerning Jeffrey A. Cole and Brian B. Smith,
Cole National Corporation 's executive officers who are also Directors,
will be included in Cole National Corporation's Proxy Statement for the
1999 Annual Meeting of Stockholders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Cole National Corporation's common stock is traded on the New York
Stock Exchange (NYSE) under the symbol "CNJ". The following table sets forth,
for the fiscal periods indicated, the high and low sales prices per share.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
---------------------------- --------------------------
Quarter High Low High Low
------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
First $ 41 $ 32 3/4 $ 35 1/8 $ 26 1/2
Second $ 40 3/8 $ 33 $ 48 1/4 $ 33
Third $ 33 $ 16 5/8 $ 46 $ 40 3/16
Fourth $ 21 3/16 $13 3/16 $ 43 1/2 $ 27 3/4
</TABLE>
Cole National Corporation's dividend policy has been, and for the
foreseeable future will continue to be, to retain earnings to support its growth
strategy. No dividends were paid during the last two fiscal years.
As of March 23, 1999 there were 214 shareholders of record.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below reflect continuing
operations only and should be read in conjunction with the consolidated
financial statements and the notes thereto and other information contained
elsewhere in this report (dollars in thousands, except per share amounts).
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenue $1,068,182 $1,000,198 $ 628,496 $ 515,892 $ 464,821
Operating income (loss) (1) $ 42,346 $ 62,864 $ (11,486) $ 43,651 $ 38,096
Income (loss) from continuing
operations (1) (2) $ 14,276 $ 19,933 $ (24,698) $ 13,798 $ 23,331
Income (loss) from continuing
operations per common share (1) (2)
Basic $ 0.96 $ 1.48 $ (2.18) $ 1.32 $ 2.48
Diluted $ 0.94 $ 1.43 $ (2.18) $ 1.31 $ 2.44
Weighted average number of shares
outstanding (000's)
Basic 14,802 13,481 11,333 10,415 9,395
Diluted 15,176 13,981 11,333 10,565 9,571
Total assets $ 628,024 $ 651,384 $ 578,456 $ 296,669 $ 280,298
Working capital $ 68,695 $ 73,175 $ 56,404 $ 61,275 $ 56,628
Stockholders' equity at year end $ 145,360 $ 132,015 $ 19,718 $ 17,133 $ 3,306
Current ratio 1.38 1.35 1.26 1.68 1.64
Long-term obligations and redeemable
preferred stock $ 276,013 $ 277,401 $ 317,547 $ 181,903 $ 184,388
Number of stores at year end (3) 2,884 2,833 2,657 1,834 1,741
Comparable store sales growth 3.1% 3.6% 7.2% 4.5% 5.4%
</TABLE>
(1) Fiscal 1998 amounts include a $23,120 pretax charge for restructuring
and other unusual items, of which $5,247 relates to inventory markdowns
that are included in cost of sales; fiscal 1997 amounts include an
$8,000 pretax charge for business integration related to the
acquisition of American Vision Centers; and fiscal 1996 amounts include
a $61,091 pretax charge for business integration and other
non-recurring items primarily related to the acquisition of Pearle.
(2) Fiscal 1998 amounts also include $6,000 of income from cash received in
a nontaxable settlement of claims against the former owner of Pearle.
(3) Includes Pearle and American Vision Centers franchise locations.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Fiscal years end on the Saturday closest to January 31 and are
identified according to the calendar year in which they begin. For example, the
fiscal year ended January 30, 1999 is referred to as "fiscal 1998." Fiscal 1998,
1997 and 1996 each consisted of 52-week periods.
Cole National Corporation has two reportable segments: Cole Vision,
which accounted for 77% of total revenue, and Things Remembered, which accounted
for 23% of total revenue. Most of Cole Vision's revenue is provided by sales of
prescription eyewear, accessories and services through its Cole Licensed Brands
and Pearle retail locations. Cole Vision's revenue is also provided by sales of
merchandise to franchisees and other outside customers, by royalties based on
sales, interest income on notes receivable and initial franchise fees from
franchisees and by fees from managed vision care programs. Things Remembered's
revenue is provided by sales of engravable gift merchandise and personalization
and other services primarily through retail stores and kiosks. See Note 12 of
the Notes to Consolidated Financial Statements for further discussion of
reportable segments.
On January 13, 1998, the Company announced the closing of its Cole Gift
Centers business that included 445 key duplicating, greeting card and gift
departments on the premises of hosts' stores. Cole Gift Centers has been
accounted for as a discontinued operation in the accompanying financial
statements. Accordingly, the results of operations and loss on disposition of
Cole Gift Centers have been excluded from the results of continuing operations.
See Note 4 of the Notes to Consolidated Financial Statements for further
discussion of discontinued operations.
On August 5, 1997, the Company acquired all of the issued and
outstanding common stock of American Vision Centers, Inc. ("AVC"). The
acquisition was accounted for using the purchase method of accounting.
Accordingly, AVC's results of operations, which included 80 company-owned
optical stores and 75 franchised locations at January 31, 1998, have been
included in the consolidated statements of operations since the date of
acquisition. For the six-month period ended January 31, 1998, AVC's net revenue
was approximately $25.0 million. See Notes 2 and 3 of the Notes to Consolidated
Financial Statements for further discussion of this acquisition.
On November 15, 1996, the Company acquired the North American and
Caribbean operations of Pearle, Inc. and a minority interest in Pearle's
European business. The acquisition of Pearle has been accounted for under the
purchase method of accounting. Accordingly, Pearle's results of operations,
which included 348 company-owned stores and 338 franchised locations at February
1, 1997, have been included in the consolidated statements of operations since
the date of acquisition. For the eleven-week period ended February 1, 1997,
Pearle generated net revenue of $58.3 million. See Notes 2 and 3 of the Notes to
Consolidated Financial Statements for further discussion of this acquisition.
RESULTS OF OPERATIONS
The following is a discussion of the results of continuing operations
for the three fiscal years ended January 30, 1999. This discussion should be
read in conjunction with the consolidated financial statements and notes thereto
included in Item 8 of the Form 10-K.
FISCAL 1998 COMPARED TO FISCAL 1997
Net revenue increased 6.8% to $1.1 billion in fiscal 1998 from $1.0
billion in fiscal 1997. The increase in revenue was primarily attributable to
the inclusion in fiscal 1998 of additional Cole Vision units, including the AVC
stores acquired in August 1997, and a consolidated comparable store sales
increase of 3.1%. The consolidated comparable store sales increase in fiscal
1998 reflected a comparable store sales increase of 1.6% at Cole Vision and 7.4%
at Things Remembered. The Cole Vision comparable store sales increase resulted
from a 3.1% increase at Cole Licensed Brands partially offset by a 0.8% decrease
at Pearle. The Cole Vision sales increase reflected an increase in the number of
transactions due to more locations, as the average selling price was essentially
flat between years. The Pearle comparable store sales were impacted by a weaker
than expected reception to marketing and merchandising programs implemented in
the first quarter, as well as increased competitive pressures in the optical
business and what the Company perceives may be a general softening in the retail
optical market. At Things Remembered, the comparable store sales growth
reflected increased sales of additional personalization and new products
increasing the average transaction amount, while the number of transactions in
fiscal 1998 was similar to fiscal 1997. At January 30, 1999, the Company had
2,884 retail locations including 818 Things Remembered stores, 1,186 Licensed
Brands locations and 880 Pearle stores, of which 409 were franchised locations,
compared to 2,833 retail locations at January 31, 1998.
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Gross profit increased to $704.1 million in fiscal 1998 from $659.3
million in fiscal 1997. The gross profit increase was primarily attributable to
the increased revenue at both Cole Vision and Things Remembered, partially
offset by $5.2 million of inventory markdowns at Pearle in connection with
restructuring its operations. Excluding the inventory markdowns, gross margins
were 66.4% and 65.9% in fiscal 1998 and fiscal 1997, respectively. Gross margin
at Things Remembered improved to 71.0% in fiscal 1998 from 68.7% the prior year
with most of the improvement from increased personalization sales. At Cole
Vision gross margins were 65.1% in both fiscal 1998 and fiscal 1997.
Operating expenses increased 9.2% to $610.1 million in fiscal 1998 from
$558.5 million in fiscal 1997. As a percentage of revenue, operating expenses
were 57.1% in fiscal 1998 compared to 55.8% in fiscal 1997. The unfavorable
expense leverage was attributable to a 0.6 percentage point increase in managed
vision care expenses, a 0.6 percentage point increase in information systems
costs including $2.4 million incurred in connection with the Company's Year 2000
Readiness Program (see Year 2000 below for additional information) and a 0.5
percentage point increase in advertising expenditures, partially offset by a 0.4
percentage point leverage gain in store occupancy costs. The increase in managed
vision care expenses was primarily the result of increased administrative costs
necessary to handle the growth in call and claims volume. The increase in
advertising expenditures as a percentage of revenue was mainly due to
inefficient advertising efforts at Cole Vision, a result of the optical market
conditions mentioned above and the unexpected weakness of Pearle's first quarter
marketing and merchandising programs. Store occupancy expenses increased as a
result of more locations and higher percentage rents caused by increased
comparable store sales but gained leverage from the strong comparable store
sales increase at Things Remembered. Payroll costs also increased primarily
because of more retail units open in 1998 and additional payroll to support
increased sales, maintaining leverage to last year. Fiscal 1998 depreciation and
amortization expense of $33.7 million was $3.8 million more than fiscal 1997
reflecting increased amortization of systems development costs and the AVC
acquisition in fiscal 1997.
Fiscal 1998 included a $23.1 million pretax charge for restructuring
and other unusual items, including the inventory markdowns at Pearle, and fiscal
1997 included an $8.0 million pretax charge for non-recurring items related to
the integration of AVC into the Company's operations. See Restructuring,
Business Integration and Other Unusual Charges below.
Operating income, excluding the charges for restructuring, business
integration and other unusual charges from each year, decreased 7.6% to $65.5
million in fiscal 1998 from $70.9 million the prior year, as improved sales and
earnings at Things Remembered and Cole Licensed Brands were more than offset by
the disappointing results at Pearle.
Net interest expense and other income for fiscal 1998 of $18.7 million
decreased $9.2 million compared to fiscal 1997. The decrease was primarily
attributable to the recognition of $6.0 million of other income in the third
quarter of fiscal 1998 from cash received in the non-taxable settlement of
certain contingencies related to several claims against and indemnifications
from the former owner of Pearle, and lower interest expense following the
purchase and retirement of $150.9 million of 11-1/4% Senior Notes in connection
with a tender offer in September 1997, partially offset by additional interest
expense on $125.0 million of 8-5/8% Senior Subordinated Notes due 2007 issued in
August 1997.
The income tax provisions for fiscal 1998 and 1997 include $7.4 million
and $3.4 million, respectively, of income tax benefits related to the charges
for restructuring and other unusual items. The effective tax rate on income
excluding these charges and the $6.0 million settlement included in other income
was 41.0% in fiscal 1998 and 43.0% in fiscal 1997. This rate reflects the
significant impact of non-deductible amortization of goodwill in both years. A
more complete discussion of income taxes is included in Note 10 of the Notes to
Consolidated Financial Statements.
Net income increased to $14.3 million in fiscal 1998 from a net loss of
$6.2 million the prior year. The net loss in fiscal 1997 included a $14.0
million loss, net of an income tax benefit of $8.5 million, related to the
operations and closing of Cole Gift Centers and a $12.2 million extraordinary
loss, net of an income tax benefit of $7.5 million, recorded in the third
quarter of fiscal 1997 in connection with the early extinguishment of debt. The
loss on early extinguishment of debt represented the tender premium, write-off
of related unamortized debt discount and other costs associated with redemption
of the 11-1/4% Senior Notes.
8
<PAGE> 10
FISCAL 1997 COMPARED TO FISCAL 1996
Net revenue increased 59.1% to $1.0 billion in fiscal 1997 from $628.5
million in fiscal 1996. The increase in revenue was primarily attributable to
the acquisitions of Pearle and AOCO Limited, which operated 73 Sears locations
in Canada, in November 1996, and AVC in August 1997, which accounted for $290.7
million of the increase for the fiscal year. See Notes 2 and 3 of the Notes to
Consolidated Financial Statements for further discussion of the acquisitions.
Consolidated comparable store sales increased 3.6% in fiscal 1997 with a 5.9%
comparable store growth at Cole Vision and a 0.5% comparable store sales decline
at Things Remembered. The Cole Vision comparable store sales increase resulted
from a 6.1% increase at Cole Licensed Brands and a 2.5% increase at Pearle. The
increase at Cole Vision was primarily a result of successful eyewear promotions
and growth in managed vision care sales. The net revenue increase was also
attributable to the classification of capitation and other fees associated with
its growing managed vision care business as revenue. Prior to fiscal 1997, such
fees were netted with operating expenses in the financial statements. For fiscal
1997, these fees were approximately $41.8 million. The opening of additional
Cole Vision and Things Remembered units also contributed to the revenue
increase. At January 31, 1998, the Company had 2,833 retail locations, including
831 Things Remembered stores, 1,157 Licensed Brand locations and 845 Pearle
stores, of which 401 were franchised locations, compared to 2,657 retail
locations at February 1, 1997.
Gross profit increased to $659.3 million in fiscal 1997 from $427.3
million in fiscal 1996. The gross profit increase was primarily attributable to
the acquisitions and the growth of managed vision care fees now classified as
revenue. Gross margins for fiscal 1997 and fiscal 1996 were 65.9% and 68.0%,
respectively. The lower gross margin percentage in fiscal 1997 resulted
primarily from the addition of Pearle which operates at a lower gross margin
than the Company has historically experienced due to the higher costs of
in-store laboratories and lower margin wholesale sales to franchised stores.
This was partially offset by revenue generated by Pearle's franchise royalties
and fees, interest income on Pearle's franchise notes receivable and the managed
vision care fees, each of which has no corresponding cost of goods sold. As a
result, gross margin at Cole Vision was 65.1% in fiscal 1997 compared to 66.9%
in fiscal 1996. At Things Remembered, gross margin was 68.7% and 69.9% in fiscal
1997 and fiscal 1996, respectively. The lower gross margin at Things Remembered
was primarily attributable to increased sales of clearance and promotional
merchandise, partially offset by an increase in sales of additional
personalization.
Operating expenses increased 55.5% to $558.5 million in fiscal 1997
from $359.1 million in fiscal 1996. As a percentage of revenue, operating
expenses decreased to 55.8% in fiscal 1997 from 57.1% in fiscal 1996. The
leverage improvement was primarily a result of the addition of Pearle, which has
lower operating expenses as a percentage of revenue than the rest of the
Company, along with leverage gains achieved by Cole Vision's comparable store
sales increase. This was offset in part by leverage losses at Things Remembered
resulting from the decline in comparable store sales. Operating expenses
increased primarily because of the acquisitions and the classification of
capitation and other fees as revenue. The expense increase reflected higher
advertising expenditures, payroll costs, and store occupancy expenses, as well
as expenses related to the growth of managed vision care. Advertising
expenditures at Cole Vision were increased for optical promotions and Pearle
name awareness. Payroll costs increased because of more higher-volume retail
units open in 1997 and additional payroll to support increased sales. Store
occupancy expenses increased primarily as a result of more locations and higher
percentage rents caused by increased comparable store sales. As a percentage of
revenue, payroll and store occupancy costs improved by 1.2 and 2.1 percentage
points, respectively, over fiscal 1996, partially offset by the leverage loss
from other operating expenses which were affected by the reclassification of
managed vision care fees. Fiscal 1997 depreciation and amortization expense of
$30.0 million was $11.4 million more than fiscal 1996 reflecting the
acquisitions and an increase in capital expenditures.
The third and fourth quarter of fiscal 1997 included a total of $8.0
million of charges for non-recurring items related to integration of AVC into
the Company's operations. In the fourth quarter of fiscal 1996, a $61.1 million
pretax charge was recorded for certain unusual non-recurring items primarily
related to the integration and consolidation of Pearle. See Restructuring,
Business Integration and Other Unusual Charges below.
Operating income, excluding charges for business integration and other
unusual items from each year, increased 42.9% to $70.9 million in fiscal 1997
from $49.6 million the prior year, primarily the result of the acquisitions and
comparable store sales growth at Cole Vision, offset in part by soft sales
performance at Things Remembered.
Net interest expense for fiscal 1997 of $27.9 million increased $7.7
million compared to fiscal 1996. The increase was primarily attributable to the
additional interest expense on $150.0 million of 9-7/8% Senior Subordinated
Notes due 2006 issued in connection with financing the Pearle acquisition and
$125.0 million of 8-5/8% Notes. This
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<PAGE> 11
was partially offset by a decrease in interest expense due to the purchase and
subsequent retirement of $15.1 million of 11-1/4% Senior Notes in the second
quarter of fiscal 1996 and the purchase and retirement of an additional $150.9
million of the 11-1/4% Senior Notes in conjunction with a tender offer in
September 1997.
The income tax provisions for fiscal 1997 and 1996 include $3.4 million
and $20.0 million, respectively, of income tax benefits related to the charges
for business integration and other unusual items. The effective tax rate on
income excluding the charge for business integration and other unusual items was
43.0% in fiscal 1997 and 44.3% in fiscal 1996. This rate reflects the
significant impact of non-deductible amortization of goodwill in both years.
The net loss in fiscal 1997 of $6.2 million included a $14.0 million
loss, net of an income tax benefit of $8.5 million, related to the operations
and closing of Cole Gift Centers and a $12.2 million extraordinary loss, net of
an income tax benefit of $7.5 million, recorded in the third quarter of fiscal
1997 in connection with the early extinguishment of debt. A similar charge for
$0.7 million, net of an income tax benefit of $0.5 million, was recorded in the
second quarter of fiscal 1996.
RESTRUCTURING, BUSINESS INTEGRATION AND OTHER UNUSUAL CHARGES
In the fourth quarter of fiscal 1996, the Company recorded a $61.1
million pretax charge primarily related to its acquisition of Pearle, which
included costs related to the integration and consolidation of Pearle into the
Company's operations, as well as other unusual charges. The charge included
$15.8 million for store closings, $1.8 million for other facility closings,
$21.6 million related to computer systems, which included the settlement costs
of terminating an outsourcing agreement, $6.1 million for the writeoff of
goodwill pursuant to Statement of Financial Accounting Standards (SFAS) No. 121
and $15.8 of other unusual charges. The other charges related to employee
matters, including severance and hiring costs, costs associated with developing
and implementing a new franchise agreement, and compensation costs associated
with accelerated vesting of a stock option grant to executives.
In connection with the 1996 business integration charge, management
developed a plan, approved by the Board of Directors, that among other things
identified 29 Pearle stores that would be closed and 112 in-store labs that
would be taken out of stores. This plan consisted of a store-by-store analysis
of profitability, size, lease term and type of lab. In addition, the Company
decided to retain Pearle's distribution and central lab facilities, but close
the home office facility in Dallas, Texas. The Company's intent was to close the
stores, on average, over a six month period and labs, on average, over an
eighteen month period following February 1, 1997. The estimated costs of
closure, primarily related to lease obligations and impairment of fixed assets,
were determined based upon management's and Pearle's past experience in closing
stores and represented a portion of the remaining noncancellable term of the
operating leases after the expected closing dates. The estimate assumed the
Company would be able to avoid certain lease penalty provisions through
negotiations with landlords. This resulted in an accrual of $12.9 million being
recorded pursuant to EITF No. 94-3 as part of the original charge discussed
above.
The Company, whose integration efforts were initially focused primarily
on the new franchise agreement, closed one store in each of the first and second
quarters of fiscal 1997. The Company then acquired AVC in August 1997, and
recorded an additional $8.0 million integration charge in fiscal 1997, which
included costs of closing an additional 12 stores, six in-store labs, the AVC
central lab and the AVC home office, transitional costs incurred to change the
brand identity to Pearle and duplicate costs incurred through fiscal year end in
connection with the consolidation of the AVC home office functions.
The expected benefits of these business integration activities included
a stronger franchise network and reductions in (1) home office personnel and
occupancy costs, (2) purchasing costs for materials, (3) manufacturing costs
upon the completion of the removal of full in-store labs and closing of the AVC
lab, and (4) operating losses upon closure of certain unprofitable stores. The
consolidation of Pearle's home office and purchasing functions was substantially
completed in fiscal 1997, with the exception of lab systems, which are expected
to be completed in fiscal 1999. The consolidation of AVC functions, including
the shutdown of its central lab, was completed by the third quarter of fiscal
1998.
Negotiations with various landlords throughout fiscal 1997 proved more
difficult than originally anticipated. Also, due to other priorities of
integrating Pearle and the acquisition of AVC in mid-fiscal 1997, the original
plan was not fully implemented by the end of fiscal 1997. At the end of fiscal
1997 management reaffirmed its intent to close the remaining 27 stores and
convert the 112 lab locations as soon as practicable. The estimated cost of
closure was revised to equal the remaining lease liability assuming, on average,
stores would be closed six months after January 31, 1998.
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<PAGE> 12
This revised estimate did not differ materially from the previously established
accrual and therefore no adjustment to the reserve was required. Had
management's original plan corresponded to only the actual stores closed prior
to January 31, 1998, the restructuring charges would have been reduced by $9.1
million and $1.6 million for the fiscal years ended February 1, 1997 and January
31, 1998, respectively.
Of the facilities originally identified for closing, five stores were
closed in the first quarter and one store was closed in the second quarter of
fiscal 1998, and 17 full service labs were closed in the third quarter of fiscal
1998.
In the third quarter of fiscal 1998, several consultants were retained
to help assess various aspects of Cole National Corporation's optical
operations. As a result, in the fourth quarter of 1998, the original
restructuring plan was revised and a net pretax charge of $23.1 million was
recorded, related to further restructuring of its Pearle business along with
other unusual charges. The net pretax charge consisted of charges associated
with the restructuring of $13.9 million, a reversal of previously established
restructuring accruals of $12.3 million and other unusual charges totaling $21.5
million.
The restructuring charge of $13.9 million relates to changes made to
the Pearle operating model and structure of the home office organization.
Consultants conducted market research and helped develop and implement changes
to Pearle's marketing message, merchandise offerings and presentation, store
locations, organizational structure and other operational opportunities. In
addition, home office facilities and personnel, including Cole Managed Vision
Care administration and systems were relocated and consolidated into one central
facility. The results of these efforts resulted in charges for inventory
writedowns related to products that will no longer be carried, severance and
hiring costs primarily related to home office organizational changes,
consolidation of the home office facilities, including the writeoff of fixed
assets at the old facilities, consultant fees and changing the Pearle brand
message through signing, production and other costs. The charge related to the
inventory writedown has been reflected in cost of sales in accordance with EITF
No. 96-9.
As part of the revised plan, which was approved by the Board of
Directors in March 1999, it was determined that certain stores originally
identified for closure would either remain open or be closed at a much lower
cost than originally estimated. The plan is to close 26 stores, of which nine
were identified in the original store closing plan, over the next 12 months and
remove surfacing equipment from full service labs of 226 stores over the next
six to eighteen months. As a result of the revised plan, the expected cost of
closure is estimated to approximate $1.0 million, requiring a reversal of $12.3
million of the previous accrual. The primary reasons for the significant
reduction in the accrual were the passage of time of not closing stores earlier,
many of the stores now will be closed at the end of their lease terms, and the
shift in strategy in that only surfacing equipment would be removed from
full-service stores as opposed to the original plan of completely removing labs.
Management believes it will be able to implement its revised plan based on the
current status of lease termination negotiations and the expected installation
of new lab systems, along with a new central lab facility in 1999.
For the restructuring charges recorded in 1996, 1997 and 1998,
approximately $29.4 million represented non-cash charges and $34.2 million
represented cash outlays through January 30, 1999, including a total of $10.6
million that had been incurred and paid during the respective periods that each
charge was initially recorded. At January 30, 1999, approximately $7.1 million
of restructuring reserves remained, all of which is expected to result in cash
outlays over the next twelve months for lease settlement, severance and other
costs incurred in fiscal 1998 but paid in fiscal 1999.
The unusual charges in fiscal 1998 related to the writeoff of $8.8
million associated with the abandonment in the fourth quarter of previously
capitalized system development costs (including $1.9 million of incurred costs
that will be paid in the first half of fiscal 1999) and $2.7 million primarily
related to restricted stock issued to two senior executive officers. Cole
National Corporation also made an unconditional commitment in the fourth quarter
of fiscal 1998 to contribute $10 million through 2009, with payments beginning
in 2004, to a leading medical institution supporting the development of a
premier eye care research and surgical facility.
Refer to Note 3 of the Notes to Consolidated Financial Statements for
additional information regarding the restructuring, business integration and
other unusual charges.
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<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Cole National Corporation's primary source of liquidity is funds
provided from operations of its operating subsidiaries. In addition, its
wholly-owned subsidiary, Cole National Group, Inc. and its operating
subsidiaries have available to them working capital commitments of $75.0
million, reduced by commitments under letters of credit, under a credit facility
put in place at the time of the Pearle acquisition.
There were no working capital borrowings outstanding as of January 30,
1999, and the maximum amount outstanding at any time during fiscal 1998 was
$13.6 million. There were no working capital borrowings outstanding during
fiscal 1997. The credit facility contains covenants restricting the ability of
its operating subsidiaries to, among other things, pay dividends or make other
restricted payments to Cole National Corporation or Cole National Group. The
credit facility permits Cole National Group's subsidiaries to pay dividends to
the extent necessary to permit payment of all interest and principal on the
9-7/8% Notes and the 8-5/8% Notes when due.
During the second quarter of fiscal 1997, Cole National Corporation
completed a public offering of 2,587,500 shares of its common stock at an
offering price of $47.00 per share. The net proceeds of approximately $116.0
million were used for general corporate purposes including reducing outstanding
indebtedness and financing acquisitions, including the purchase of AVC.
In August 1997, Cole National Group issued $125.0 million of 8-5/8%
Notes. The net proceeds of the issuance were $121.8 million. Cole National Group
also commenced a tender offer which expired on September 12, 1997, to purchase
up to all of its $165.8 million outstanding 11-1/4% Senior Notes at $1,105.61
per $1,000 principal amount, plus accrued interest thereon, using the net
proceeds of the 8-5/8% Notes issuance and cash on hand. A total of $151.3
million of 11-1/4% Senior Notes was tendered, with the remaining amount redeemed
in October 1998.
In November 1998, the Board of Directors authorized the repurchase from
time to time of up to 1 million shares of common stock, or approximately 6.7% of
Cole National Corporation's outstanding shares, through open market or block
transactions. It is expected that the purchase price will be from internally
generated funds and that the shares purchased will be used, in part, to offset
dilution from stock options and in connection with other benefit plans. During
fiscal 1998, 259,500 shares of common stock were repurchased for an aggregate
purchase price of $5.5 million. As of January 30, 1999, Cole National
Corporation had purchased a total of 279,500 shares of common stock, and has
authority to purchase up to 720,500 shares of common stock in the open market
and block purchases.
At year end, $150.0 million of 9-7/8% Notes and $125.0 million of
8-5/8% Notes were outstanding. The 9-7/8% Notes and the 8-5/8% Notes are
unsecured and mature December 31, 2006 and August 15, 2007, respectively, with
no earlier scheduled redemption or sinking fund payment. Interest on the 9-7/8%
Notes is payable semi-annually on each June 30 and December 31, while the
interest on the 8-5/8% Notes is payable semi-annually on each February 15 and
August 15. The indentures pursuant to which the 9-7/8% Notes and the 8-5/8%
Notes were issued contain certain optional and mandatory redemption features and
other financial covenants, including restrictions on the ability of Cole
National Group to pay dividends or make other restricted payments to Cole
National Corporation. The indentures permit dividend payments equal to one-half
of Cole National Group's consolidated net income, provided that no default or
event of default has occurred under the indentures and that Cole National Group
has met a specified fixed charge coverage ratio test. The indentures also permit
payments to Cole National Corporation for certain tax obligations and for
administrative expenses not to exceed .25% of net sales. See Note 6 of the Notes
to Consolidated Financial Statements.
No significant principal payment obligations are due under its
outstanding indebtedness until the 9-7/8% Notes mature in 2006. The ability of
Cole National Corporation and its subsidiaries to satisfy these obligations will
be primarily dependent upon future financial and operating performance of the
subsidiaries and upon its ability to renew or refinance borrowings or to raise
additional equity capital.
Cash balances at year end were $51.1 million compared to $68.1 million
at January 31, 1998. Operations generated net cash of $62.4 million in fiscal
1998, $8.0 million in fiscal 1997 and $82.8 million in fiscal 1996. The primary
sources of the $54.4 million improvement in cash provided from operations in
fiscal 1998 compared to fiscal 1997 were from net income tax refunds received in
fiscal 1998 of $7.1 million compared to income taxes paid in fiscal 1997 of
$19.9 million, $20.6 million from a decrease in accounts and notes receivable,
prepaid expenses and other assets versus an increase last year and $6.8 million
from a smaller increase in inventories in fiscal 1998, partially offset by a
$5.5 million larger decrease in accounts payable and accrued liabilities. The
$74.8 million decrease in cash
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<PAGE> 14
provided by operations in fiscal 1997 compared to fiscal 1996 was primarily
attributable to a decrease in accounts payable and accrued liabilities of $11.8
million due in part to the payment of non-recurring charges, an increase in
inventories of $11.2 million versus $3.9 million in fiscal 1996, and a decrease
in accrued and deferred income taxes of $25.8 million versus an increase of
$16.3 million in fiscal 1996. These cash flow decreases were partly offset by a
$15.9 million decrease in the net assets of discontinued operations, increased
income from operations of $13.5 million, excluding the charge for integration
and other non-recurring items, and increased depreciation and amortization
expense of $11.4 million.
Net capital additions were $37.6 million, $32.6 million and $25.1
million in fiscal 1998, 1997 and 1996, respectively. The majority of the capital
additions was for store fixtures, equipment and leasehold improvements for new
stores and the remodeling of existing stores. Capital expenditures for fiscal
1998 include the purchase and furnishing of Cole Vision's headquarters office
building for $15.3 million. In fiscal 1997 construction of a new warehouse and
distribution facility for Things Remembered was completed at a cost of
approximately $9.3 million (of which $6.6 million is included in capital
expenditures in fiscal 1997). In fiscal 1998, proceeds of $8.8 million were
received from the sale and leaseback of this facility and a portion of the land.
In addition, the Company used $7.2 million for additional net investment in
Pearle Europe in connection with Pearle Europe's acquisition in 1998 of the
second largest optical retailer in Germany and the largest optical retailer in
Austria. The Company also used $7.2 million for several acquisitions of local
optical chains in fiscal 1998, $27.8 million for the purchase of AVC and $2.8
million for additional investment in Pearle Europe in fiscal 1997, and $157.4
million for the purchases of Pearle and AOCO Limited and $6.1 million for the
investment in Pearle Europe in fiscal 1996. In addition, Cole National
Corporation paid approximately $16.8 million and $17.9 million for systems
development costs in 1998 and 1997, respectively. Such costs have been
capitalized and are being amortized over their estimated useful lives.
For fiscal 1999, management plans to expand the number of stores, as
well as remodel and relocate stores, and currently estimates that capital
expenditures in fiscal 1999 will be approximately $30.0 million, excluding
acquisitions and systems development costs. Management estimates that it will
incur approximately $13.0 million in systems development costs in 1999 that will
be capitalized and subsequently amortized.
Cole National Corporation believes that funds provided from operations
along with funds available under the credit facility will provide adequate
sources of liquidity to allow its operating subsidiaries to continue to expand
the number of stores and to fund capital expenditures and systems development
costs.
YEAR 2000
Cole National Corporation has been working with a consultant to assess
and resolve the potential impact of the Year 2000 on the ability of its
computerized information systems to accurately process information that may be
date-sensitive (the "Year 2000 Readiness Program"). Any of the programs that
recognize a date using "00" as the year 1900 rather than the year 2000 could
result in errors or system failures.
During fiscal 1998, Cole National Corporation completed the assessment
of its internal critical and non-critical hardware and software. Included in the
assessment was the identification of all critical and non-critical computer
programs and hardware, including non-information technology systems such as
HVAC, telephone and others containing embedded microcontrollers, and an
evaluation of their Year 2000 readiness. Cole National Corporation utilizes over
500 separate computer information systems across its operations, many of which
were recently installed and are Year 2000 ready. In addition, modifications to
many other critical programs has been completed and testing of these programs is
in process. Management currently believes that all critical programs and
hardware will be Year 2000 ready, including testing, by the end of the third
quarter of fiscal 1999.
Concurrent with this internal assessment, Cole National Corporation
identified and contacted critical vendors, host stores and managed health care
partners with whom it does business regarding their Year 2000 readiness.
Although not all responses from third parties have been received, management is
not currently aware of any critical third party whose Year 2000 issues are
likely to have a material effect on the Company.
Cole National Corporation has not yet developed contingency plans and
such plans will depend primarily on the responses from critical third parties in
the event that it or critical third parties should fail to become Year 2000
ready. Cole National Corporation expects any necessary contingency plans to be
completed by the end of the third quarter of fiscal 1999.
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<PAGE> 15
Notwithstanding that Cole National Corporation is proceeding diligently
with the implementation of its own Year 2000 Readiness Program, including
ascertaining Year 2000 readiness of critical third parties, the inability of it
or critical third parties to effectuate timely and cost effective solutions to
Year 2000 issues could have a material adverse effect on the Company.
Management estimates the total cost of the Year 2000 Readiness Program
will be approximately $3.5 million, including approximately $0.3 million of new
hardware and software that will be capitalized. The remaining $3.2 million will
be expensed as incurred (approximately $2.4 million in fiscal 1998 and $0.8
million in fiscal 1999). These costs include only external costs as internal
costs, which consist primarily of payroll-related costs of employees, are not
tracked separately for the Year 2000 Readiness Program. The estimate of external
costs does not include costs associated with addressing and resolving issues as
a result of the failure of third parties to become Year 2000 ready.
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal 1998, SFAS No. 130 "Reporting Comprehensive Income," SFAS No.
131 "Disclosures about Segments of an Enterprise and Related Information," and
SFAS No. 132 "Employees Disclosures about Pensions and Other Postretirement
Benefits" were adopted. Adoption of these standards did not have a material
impact on the results of operations, financial position or cash flows.
RECENT DEVELOPMENTS AND FORWARD-LOOKING INFORMATION
The Company expects results in the first quarter of fiscal 1999 to be
below last year from continuing softening of sales at Cole Vision.
Certain sections of this Form 10-K Report, including this Management's
Discussion and Analysis, contain forward-looking statements within the meaning
of the Private Securities Litigation Act of 1995. Actual results may differ
materially from those forecast due to a variety of factors that can affect
operating results, liquidity and financial condition, such as risks associated
with the timing and achievement of the restructuring of the optical business,
the timing and achievement of improvements in the operations of the optical
business, the integration of acquired operations, the ability of Cole National
Corporation and its suppliers, host stores, and managed care organization
partners to achieve Year 2000 readiness, the ability to select and stock
merchandise attractive to customers, the implementation of its store acquisition
program, economic and weather factors affecting consumer spending, operating
factors affecting customer satisfaction, including manufacturing quality of
optical and engraved goods, the relationships with host stores and franchisees,
the mix of goods sold, pricing and other competitive factors, and the
seasonality of the business. Forward-looking statements are made based upon
management's expectations and beliefs concerning future events impacting Cole
National Corporation. All forward-looking statements involve risk and
uncertainty.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cole National Corporation is exposed to market risk from changes in
foreign currency exchange rates, which could impact its results of operations
and financial condition. Foreign exchange risk arises from the Company's
exposure in fluctuations in foreign currency exchange rates because Cole
National Corporation's reporting currency is the United States dollar.
Management seeks to minimize the exposure to foreign currency fluctuations
through natural internal offsets to the fullest extent possible.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item appears on pages F-1 through F-29 of
this Form 10-K and is incorporated herein by reference. Other financial
statements and schedules are filed herewith as "Financial Statement Schedules"
pursuant to Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
14
<PAGE> 16
The information required by this item as to Directors will be included
in Cole National Corporation's Proxy Statement under the caption "Election of
Directors" and is incorporated herein by reference. The information required by
this item as to executive officers who are not Directors is included in Item 4A
in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in Cole National
Corporation's Proxy Statement under the caption "Compensation of Executive
Officers" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included in Cole National
Corporation's Proxy Statement under the caption "Security Ownership of
Management and Certain Beneficial Owners" and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in Cole National
Corporation's Proxy Statement under the caption "Compensation Committee
Interlocks, Insider Participation and Certain Transactions" and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The consolidated financial statements and the related financial
statement schedules filed as part of this Form 10-K are located
as set forth in the index on page F-1 of this report.
(a)(3) EXHIBITS
See Exhibit Index on pages X-1 through X-6.
(b) REPORTS ON FORM 8-K
Report on Form 8-K dated January 12, 1999.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
COLE NATIONAL CORPORATION
April 30, 1999 By: /s/ Wayne L. Mosley
-----------------------------------
Wayne L. Mosley
Vice President and Controller
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
* Chairman and Chief April 30, 1999
- --------------------------------- Executive Officer and
Jeffrey A. Cole Director (Principal Executive Officer)
* President and Director April 30, 1999
- ---------------------------------
Brian B. Smith
* Executive Vice President of Strategic April 30, 1999
- --------------------------------- Planning and Chief Financial Officer
George H. Bernstein, Jr. (Principal Financial Officer)
/s/ Wayne L. Mosley Vice President and Controller April 30, 1999
- --------------------------------- (Principal Accounting Officer)
Wayne L. Mosley
* Director April 30, 1999
- ---------------------------------
Timothy F. Finley
* Director April 30, 1999
- ---------------------------------
Irwin N. Gold
* Director April 30, 1999
- ---------------------------------
Peter V. Handal
* Director April 30, 1999
- ---------------------------------
Charles A. Ratner
* Director April 30, 1999
- ---------------------------------
Walter J. Salmon
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
report on Form 10-K pursuant to the Powers of Attorney executed by the
above-named officers and directors of Cole National Corporation 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
16
<PAGE> 18
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F - 2
Consolidated Balance Sheets as of January 30, 1999 and January 31, 1998 F - 3
Consolidated Statements of Operations for the 52 weeks ended
January 30, 1999, January 31, 1998, and February 1, 1997 F - 4
Consolidated Statements of Cash Flows for the 52 weeks ended
January 30, 1999, January 31, 1998, and February 1, 1997 F - 5
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the 52 weeks ended January 30, 1999, January 31, 1998, and
February 1, 1997 F - 6
Notes to Consolidated Financial Statements F - 7
FINANCIAL STATEMENT SCHEDULES:
Report of Independent Public Accountants on the Financial Statement
Schedules F - 25
Schedule I - Condensed Financial Information of Registrant F - 26
Schedule II - Valuation and Qualifying Accounts F - 29
</TABLE>
All financial statement schedules not included have been omitted because they
are not applicable or because the required information is otherwise furnished.
F-1
<PAGE> 19
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 as of January 30,
1999 and January 31, 1998, and the related consolidated statements of
operations, stockholders' equity and comprehensive income and cash flows for
each of the three years in the period ended January 30, 1999. These financial
statements are the responsibility of Cole National Corporation'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 January 30, 1999 and January 31,
1998 and the results of their operations and their cash flows for each of the
three years in the period ended January 30, 1999 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
March 17, 1999.
F-2
<PAGE> 20
COLE NATIONAL CORPORATION AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in thousands)
----------------------
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
---------- ------------
<S> <C> <C>
Assets
- -------
Current assets:
Cash and temporary cash investments $ 51,057 $ 68,053
Accounts receivable, less allowance for doubtful accounts
of $7,189 in 1998 and $7,132 in 1997 45,561 52,030
Current portion of notes receivable 2,707 4,177
Refundable income taxes 9,556 9,520
Inventories 119,881 119,970
Prepaid expenses and other 8,582 9,195
Deferred income tax benefits 14,048 21,534
---------- ----------
Total current assets 251,392 284,479
Property and equipment, at cost 261,605 242,966
Less - accumulated depreciation and amortization (135,731) (115,162)
----------- ----------
Total property and equipment, net 125,874 127,804
Other assets:
Notes receivable, excluding current portion 32,039 25,783
Deferred income taxes and other 59,021 54,241
Intangible assets, net 159,698 159,077
---------- ----------
Total assets $ 628,024 $ 651,384
========== ==========
Liabilities and Stockholders' Equity
- -------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,497 $ 16,027
Accounts payable 73,065 75,271
Accrued interest 6,216 6,615
Accrued liabilities 101,791 112,434
Accrued income taxes 128 957
---------- ----------
Total current liabilities 182,697 211,304
Long-term debt, net of discount and current portion 276,013 277,401
Other long-term liabilities 23,954 30,664
Stockholders' equity:
Preferred stock - -
Common stock 15 15
Paid-in capital 257,981 251,405
Accumulated deficit (101,843) (116,119)
Accumulated other comprehensive loss (1,205) (1,749)
Treasury stock at cost (6,084) (611)
Unamoritized restricted stock awards (2,598) -
Notes receivable-stock option exercise (906) (926)
---------- ----------
Total stockholders' equity 145,360 132,015
---------- ----------
Total liabilities and stockholders' equity $ 628,024 $ 651,384
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
F-3
<PAGE> 21
COLE NATIONAL CORPORATION AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Dollars in thousands, except per share amounts)
------------------------------------------------
<TABLE>
<CAPTION>
52 Weeks Ended
-------------------------------------------
January 30, January 31, February 1,
1999 1998 1997
-------------- ------------- --------
<S> <C> <C> <C>
Net revenue $ 1,068,182 $ 1,000,198 $ 628,496
Costs and expenses:
Cost of goods sold 364,090 340,849 201,229
Operating expenses 610,131 558,531 359,085
Depreciation and amortization 33,742 29,954 18,577
Restructuring and other unusual charges 17,873 8,000 61,091
----------- ----------- -----------
Total costs and expenses 1,025,836 937,334 639,982
----------- ----------- -----------
Operating income (loss) 42,346 62,864 (11,486)
Interest and other (income) expense:
Interest expense 27,565 30,365 21,855
Interest and other income (8,841) (2,472) (1,704)
----------- ----------- -----------
Total other (income) expense 18,724 27,893 20,151
----------- ----------- -----------
Income (loss) from continuing operations before income taxes 23,622 34,971 (31,637)
Income tax provision (benefit) 9,346 15,038
----------- ----------- -----------
(6,939)
Income (loss) from continuing operations 14,276 19,933 (24,698)
----------- ----------- -----------
Discontinued operations:
Operating loss, net of income tax provision (benefit) of
$(39) and $180, respectively -- (67) (2,935)
Loss on disposal, net of income tax benefit of $8,500 -- (13,900) --
----------- ----------- -----------
Loss from discontinued operations -- (13,967) (2,935)
----------- ----------- -----------
Income (loss) before extraordinary item 14,276 5,966 (27,633)
Extraordinary loss on early extinguishment of debt,
net of income tax benefit of $7,467 and $494,
respectively -- (12,183) (682)
----------- ----------- -----------
Net income (loss) $ 14,276 $ (6,217) $ (28,315)
=========== =========== ===========
Earnings (loss) per common share:
Basic -
Income (loss) from continuing operations $ .96 $ 1.48 $ (2.18)
Loss from discontinued operations -- (1.04) (.26)
Extraordinary loss -- (.90) (.06)
----------- ----------- -----------
Net income (loss) $ .96 $ (.46) $ (2.50)
=========== =========== ===========
Diluted -
Income (loss) from continuing operations $ .94 $ 1.43 $ (2.18)
Loss from discontinued operations -- (1.00) (.26)
Extraordinary loss -- (.87) (.06)
----------- ----------- -----------
Net income (loss) $ .94 $ (.44) $ (2.50)
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-4
<PAGE> 22
COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
52 Weeks Ended
-----------------------------------------
January 30, January 31, February 1,
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 14,276 $ (6,217) $ (28,315)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of debt -- 12,183 682
Restructuring and other unusual charges 11,886 546 19,983
Depreciation and amortization 33,742 29,954 18,577
Non-cash interest, net (555) 142 440
Deferred income tax provision (benefit) 13,001 12,823 (16,194)
Change in assets and liabilities net of effects from acquisitions:
Decrease (increase) in accounts and notes receivable, prepaid
expenses and other assets 11,131 (9,513) (4,374)
Increase in inventories (4,404) (11,222) (3,935)
Decrease in net assets of discontinued operations -- 19,926 4,002
Increase (decrease) in accounts payable, accrued
liabilities and other liabilities (17,324) (11,812) 73,107
Increase (decrease) in accrued interest (399) (3,015) 2,580
Increase (decrease) in accrued, refundable and
deferred income taxes 1,038 (25,826) 16,256
--------- --------- ---------
Net cash provided by operating activities 62,392 7,969 82,809
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment, net (37,591) (32,645) (25,148)
Proceeds from sale/leaseback, net 8,835 -- --
Acquisitions of businesses, net of cash acquired (7,231) (27,926) (157,426)
Investment in Pearle Europe (10,296) (2,819) (6,102)
Repayment of loan by Pearle Europe 3,144 -- --
Systems development costs (16,802) (17,922) (2,933)
Other, net 277 (696) 111
--------- --------- ---------
Net cash used by investing activities (59,664) (82,008) (191,498)
--------- --------- ---------
Cash flows from financing activities:
Repayment of long-term debt (16,040) (170,705) (17,105)
Payment of deferred financing fees -- (3,191) (6,066)
Common stock repurchased (5,473) (611) --
Net proceeds from public stock offering -- 115,878 26,202
Net proceeds from long-term debt -- 125,000 148,875
Net proceeds from exercise of stock options and warrants 1,998 2,903 546
Other (209) (323) 118
--------- --------- ---------
Net cash provided (used) by financing activities (19,724) 68,951 152,570
--------- --------- ---------
Cash and temporary cash investments:
Net increase (decrease) during the period (16,996) (5,088) 43,881
Balance, beginning of the period 68,053 73,141 29,260
--------- --------- ---------
Balance, end of the period $ 51,057 $ 68,053 $ 73,141
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-5
<PAGE> 23
COLE NATIONAL CORPORATION AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
- ------------------------------------------------------------------------
(Dollars in thousands)
---------------------
<TABLE>
<CAPTION>
January 30, January 31, February 1,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Common Stock:
Balance at beginning of period $ 15 $ 12 $ 10
Net proceeds from sale of common stock -- 3 1
Exercise of stock options -- -- 1
--------- --------- ---------
Balance at end of period 15 15 12
--------- --------- ---------
Paid In Capital:
Balance at beginning of period 251,405 131,238 99,827
Net proceeds from sale of common stock -- 115,875 26,201
Stock options granted -- -- 4,153
Stock compensation 357 635 --
Exercise of stock options and warrants 3,577 3,657 1,057
Issuance of restricted stock 2,642 -- --
--------- --------- ---------
Balance at end of period 257,981 251,405 131,238
--------- --------- ---------
Accumulated Deficit:
Balance at beginning of period (116,119) (109,902) (81,587)
Net income (loss) 14,276 (6,217) (28,315)
--------- --------- ---------
Balance at end of period (101,843) (116,119) (109,902)
--------- --------- ---------
Accumulated Other Comprehensive Income (Loss):
Balance at beginning of period (1,749) (606) --
Other comprehensive income (loss) 544 (1,143) (606)
--------- --------- ---------
Balance at end of period (1,205) (1,749) (606)
--------- --------- ---------
Treasury Stock:
Balance at beginning of period (611) -- --
Common stock repurchased (5,473) (611) --
--------- --------- ---------
Balance at end of period (6,084) (611) --
--------- --------- ---------
Unamoritized Restricted Stock Awards:
Balance at beginning of period -- -- --
Issuance of restricted stock (2,642) -- --
Amortization of restricted stock awards 44 -- --
--------- --------- ---------
Balance at end of period (2,598) -- --
--------- --------- ---------
Notes Receivable -- Stock Option Exercise:
Balance at beginning of period (926) (1,024) (1,117)
Exercise of stock options -- -- (49)
Repayment of notes receivable 20 98 142
--------- --------- ---------
Balance at end of period (906) (926) (1,024)
--------- --------- ---------
Total Stockholders' Equity $ 145,360 $ 132,015 $ 19,718
========= ========= =========
Comprehensive Income:
Net income (loss) $ 14,276 $ (6,217) $ (28,315)
Cumulative translation adjustment 544 (1,143) (606)
--------- --------- ---------
Total comprehensive income $ 14,820 $ (7,360) $ (28,921)
========= ========= =========
</TABLE>
The accompany notes to consolidated financial statements are an integral part of
the consolidated statements.
F-6
<PAGE> 24
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 and its wholly owned subsidiaries, including
Cole National Group, Inc. and its wholly owned subsidiaries
(collectively, the Company). Cole National Group's subsidiaries include
Pearle, Inc. which was acquired on November 15, 1996 (see Note 2). All
significant intercompany transactions have been eliminated in
consolidation.
Fiscal years end on the Saturday closest to January 31 and are
identified according to the calendar year in which they begin. Fiscal
years 1998, 1997 and 1996 each consisted of 52-week periods.
NATURE OF OPERATIONS -
Cole National Corporation is a specialty service retailer,
operating in both host and non-host environments, whose primary lines
of business are eyewear products and services and personalized gifts.
Cole National Corporation sells its products through 2,475
company-owned retail locations and 409 franchised locations in 50
states, Canada, and the Caribbean, and differentiates itself from other
specialty retailers by providing value-added services at the point of
sale at all of its retail locations. Cole National Corporation has two
reportable segments: Cole Vision and Things Remembered (see Note 12).
INVENTORIES -
Inventories are valued at the lower of first-in, first-out
(FIFO) cost or market.
Property and Depreciation -
The policy is to provide depreciation using the straight-line
method over a period which is sufficient to amortize the cost of the
asset over its useful life or lease term.
The estimated useful lives for depreciation purposes are:
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
Property and equipment, at cost, consist of the following at
January 30, 1999 and January 31, 1998 (000's omitted):
<TABLE>
<CAPTION>
1999 1998
-------- ------
<S> <C> <C>
Land and buildings $ 23,463 $ 22,782
Furniture, fixtures and equipment 157,302 149,795
Leasehold improvements 80,840 70,389
---------- ----------
Total property and equipment $ 261,605 $ 242,966
========== ==========
</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-7
<PAGE> 25
INVESTMENT IN PEARLE EUROPE B.V. -
Included in other assets is Cole National Corporation's minority
investment in Pearle Europe B.V., which is in the retail optical
business in Europe. The largest investor in Pearle Europe owns a 73%
interest, Cole National Corporation owns a 24% interest, and Pearle
Europe's management owns the remaining 3% interest.
Cole National Corporation's common equity investment of $3.3
million at January 30, 1999 is accounted for using the equity method.
Included in interest and other income is Cole National Corporation's
equity share of Pearle Europe's earnings (loss), which totaled $0.9
million, $0.3 million and ($0.1) million in fiscal 1998, 1997, and
1996, respectively.
Included in notes receivable is $13.5 million and $6.2 million
of net shareholder loans receivable from Pearle Europe and its
subsidiaries at January 30, 1999 and January 31, 1998, respectively.
The shareholder loans provide for interest at rates ranging from 8% to
12.7%. Cole National Corporation reported interest income of $1.5
million on the notes in fiscal 1998 as compared to $0.5 million and
$0.1 million in 1997 and 1996, respectively. During fiscal 1998, Cole
National Corporation received interest payments against the balances
accrued over the period from fiscal 1996 through fiscal 1998 totaling
$0.9 million.
In February 1998, Cole National Corporation repaid a $3.1
million note payable to a subsidiary of Pearle Europe and invested an
additional $7.2 million in the form of 8% shareholder loans to Pearle
Europe in connection with Pearle Europe's acquisition of optical
operations in Germany and Austria. After these acquisitions, Pearle
Europe's annualized sales are estimated to be in excess of $300.0
million. In June 1998, Pearle Europe repaid to Cole National
Corporation a shareholder loan, including interest thereon, in the
amount of $3.7 million.
NOTES RECEIVABLE -
In addition to the notes receivable from Pearle Europe are notes
receivable from Pearle's franchisees throughout the U.S. The franchise
notes are collateralized by inventory, equipment, and leasehold
improvements at each location, generally bear interest at the prime
rate plus 3%, and require monthly payments of principal and interest
over periods of up to ten years.
INTANGIBLE ASSETS -
Intangible assets, net, consist of the following at January 30,
1999 and January 31, 1998 (000's omitted):
<TABLE>
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
Tradenames $ 46,725 $ 47,962
Goodwill 112,973 111,115
--------- ----------
$ 159,698 $ 159,077
========= ==========
</TABLE>
Tradenames acquired in connection with the Pearle acquisition
are being amortized on a straight-line basis over 40 years and are
presented net of accumulated amortization of $2,735,000 and $1,498,500
at January 30, 1999 and January 31, 1998, respectively.
Goodwill generally is being amortized on a straight-line basis
over 40 years and is presented net of accumulated amortization of
$37,880,000 and $34,008,000 at January 30, 1999 and January 31, 1998,
respectively. Management regularly evaluates its accounting for
goodwill considering primarily such factors as historical
profitability, current operating profits and cash flows. Cole National
Corporation believes that, at January 30, 1999, the asset is realizable
and the amortization period is still appropriate.
OTHER ASSETS -
Financing costs incurred in connection with obtaining long-term
debt are capitalized in other assets and amortized over the life of the
related debt using the effective interest method.
F-8
<PAGE> 26
In March 1998 the Accounting Standards Executive Committee
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP
provides that direct costs to develop or obtain internal use software,
including internal costs, should be capitalized and amortized over the
estimated useful life of the software.
Such costs incurred have been capitalized and are included in
other assets. These costs are being amortized on a straight-line basis
over periods ranging from two to seven years, beginning when the
software is placed in service. At January 30, 1999 and January 31,
1998, these costs, net of accumulated amortization, were $34,267,000
and $23,963,000, respectively.
VALUATION OF LONG-LIVED ASSETS -
Long-lived assets, such as property, plant and equipment,
goodwill and other intangibles, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the total of the expected future
undiscounted cash flows is less than the carrying amount of the asset,
a loss is recognized for the difference between the fair value and the
carrying value of the asset.
OTHER LONG-TERM LIABILITIES -
Other long-term liabilities consist primarily of certain
employee benefit obligations, deferred lease credits and other
lease-related obligations and other obligations not expected to be paid
within 12 months. Deferred lease credits are amortized on a
straight-line basis over the life of the applicable lease.
CAPITAL STOCK -
At January 30, 1999 and January 31, 1998, there were 14,835,746
and 14,727,325, respectively, shares of common stock, par value $.001
per share, outstanding. At January 30, 1999, there were 40,000,000 and
5,000,000 authorized shares of common stock and undesignated preferred
stock, respectively.
FOREIGN CURRENCY TRANSLATION -
The assets and liabilities of Cole National Corporation's
foreign subsidiaries and its investment in Pearle Europe are translated
to United States dollars at the rates of exchange on the balance sheet
date. Income and expense items are translated at average monthly rates
of exchange. Translation adjustments are presented as a component of
accumulated other comprehensive income within stockholders' equity.
REVENUES -
Revenues include sales of goods and services to retail customers
at company-operated stores, sales of merchandise inventory to
franchisees and other outside customers, other revenues from
franchisees such as royalties based on sales, interest income on notes
receivable and initial franchise fees, and capitation and other fees
associated with its growing managed vision care business.
Franchise revenues based on sales by franchisees are accrued as
earned. Initial franchise fees are recorded as income when all material
services or conditions relating to the sale of the franchises have been
substantially performed or satisfied by Cole National Corporation and
when the related store begins operations.
F-9
<PAGE> 27
ADVERTISING -
Advertising production costs and other advertising costs are expensed
as incurred, a portion of which are reimbursed by franchisees based on a
percentage of their sales. Advertising expense is summarized as follows (000's
omitted):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Gross advertising expense $ 82,492 $ 74,553 $ 37,427
Less: Franchisee contribution (20,244) (19,656) (4,230)
--------- --------- ---------
Net advertising expense $ 62,248 $ 54,897 $ 33,197
========= ========= =========
</TABLE>
EARNINGS PER SHARE -
Statement of Financial Accounting Standards (SFAS) No. 128 requires
that earnings per share be presented as two calculations: basic and diluted.
Basic earnings per share for 1998, 1997 and 1996 have been based on 14,802,023;
13,480,792 and 11,333,453, respectively, weighted average number of common
shares outstanding. Stock options and warrants that are outstanding are
considered to be potentially dilutive common stock. Diluted earnings per share
for 1998, 1997 and 1996 have been based on 15,176,469; 13,980,727 and
11,333,453, respectively, weighted average number of common shares outstanding
after consideration of the dilutive effect, if any, for these common share
equivalents.
CASH FLOWS -
For purposes of reporting cash flows, all temporary cash investments
which have original maturities of three months or less, are considered to be
cash equivalents. The carrying amounts of cash and cash equivalents approximate
fair value due to the short maturity of those instruments.
Net cash flows from operating activities reflect cash payments for
income taxes and interest as follows (000's omitted):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Income taxes $ 1,644 $ 19,889 $ 5,300
Interest $ 26,112 $ 33,682 $ 20,834
</TABLE>
Fiscal 1997 cash paid for income taxes includes $15.0 million of taxes
due on the sale of Pearle Holdings B.V. that were reimbursed to Cole National
Corporation by the seller in connection with the Pearle acquisition in fiscal
1996 and paid by Cole National Corporation in fiscal 1997.
During 1998, 1997 and 1996, non-cash financing activities included
incurring $77,000, $799,000 and $2,504,000, respectively, in capital lease
obligations.
USE OF ESTIMATES -
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.
RECLASSIFICATIONS -
Certain prior year amounts have been reclassified to conform with the
1998 presentation.
F-10
<PAGE> 28
(2) ACQUISITIONS OF BUSINESSES
On November 15, 1996, Cole National Corporation purchased, for
an aggregate purchase price of $219.7 million, including the costs of
acquisition, certain assets and all of the issued and outstanding
common stock of Pearle. Pearle consisted of 346 company-operated
optical stores and 340 franchised locations in the United States,
Canada and the Caribbean and 193 locations in the Netherlands and
Belgium. Immediately following the acquisition, Cole National
Corporation sold Pearle Holdings B.V., Pearle's European operations, to
Pearle Trust B.V. for approximately $62 million. No gain or loss was
recorded on this transaction. As more fully described in Note 1, Cole
National Corporation has retained an ownership interest in Pearle
Europe, the parent company of Pearle Trust B.V.
The Pearle acquisition was accounted for under the purchase
method of accounting. The results of operations of Pearle have been
included in the consolidated financial statements since the date of
acquisition. The purchase price was allocated to the assets acquired
and liabilities assumed based upon their relative fair values as of the
closing date. This resulted in an excess of purchase price over net
assets acquired of $24.5 million, including final adjustments of $4.3
million. The relative fair values of the assets acquired and
liabilities assumed were based upon valuations and other studies and
included tradenames of $49.5 million, unfavorable leasehold interests
of $7.5 million, accruals for involuntary severance and termination
benefits of $4.4 million and deferred tax assets of $16.7 million.
On a pro forma basis, if the Pearle acquisition had taken place
at the beginning of fiscal 1996, the unaudited consolidated net
revenues would have been $878.3 million for fiscal 1996. After giving
effect to certain pro forma adjustments, including adjustments to
reflect the amortization of tradenames and goodwill, the elimination of
transactions between Pearle and its former parent, the elimination of
Pearle's provision for impairment of intangible assets and related
costs which resulted from the acquisition, increased interest expense
and reduced interest income associated with acquisition funding and the
estimated related income tax effects, pro forma net loss in fiscal 1996
would have improved by $1.7 million or $0.15 per share from the amounts
reported. The unaudited pro forma results have been prepared for
informational purposes only and should not be considered indicative of
the actual results of operations which would have occurred had the
acquisition been in effect at the beginning of fiscal 1996, and do not
purport to be indicative of results of operations which may occur in
the future.
The 1998 results include the recognition of $6.0 million of
income from cash received in a nontaxable settlement of certain
contingencies related to several claims against and indemnifications
from the former owner of Pearle. In connection with this settlement,
Cole National Corporation assumed secondary liability for approximately
$10.0 million of loans to certain franchisees held by a third party.
Cole National Corporation is contingently liable should any of these
franchisees default, and also for prepayment penalties of up to $1.1
million. Cole National Corporation has established reserves for
potential losses on the loans, which mature through 2001. The
settlement also included a release of the former owner of Pearle from
certain future non-tax claims related to Pearle.
Cole National Corporation also made the following acquisitions,
each of which has been accounted for under the purchase method of
accounting. Pro forma financial results have not been presented for
these acquisitions, as they did not have a material effect on results
of operations.
In fiscal 1998, Cole National Corporation acquired ten Buckeye
Optical stores in Columbus, Ohio, and all of the issued and outstanding
common stock of Management Associates, Inc., whose operations consisted
of four 20/20 Eyecare stores located in Las Vegas, Nevada. The total
purchase price for these acquisitions was $7.2 million.
On August 5, 1997, Cole National Corporation acquired all of the
issued and outstanding common stock of American Vision Centers, Inc.
(AVC), whose operations consisted of 79 company-owned and 85 franchised
optical stores, for an aggregate purchase price of approximately $28.9
million, including debt assumed. The purchase price was allocated to
the assets acquired and liabilities assumed based upon their relative
fair values as of the closing date. This resulted in an excess of
purchase price over net assets acquired of $20.0 million. The relative
fair values of the assets acquired and liabilities assumed included
unfavorable leasehold interests of
F-11
<PAGE> 29
$3.4 million, accruals for involuntary severance and termination
benefits of $0.5 million, write-off of deferred assets of $1.4
million and deferred tax assets of $7.5 million.
In November 1996, Cole National Corporation acquired all of the
issued and outstanding stock of AOCO Limited, which operated 73 Sears
Optical Departments and two freestanding Vision Club stores in Canada,
for a purchase price of $2.6 million.
(3) RESTRUCTURING AND OTHER UNUSUAL CHARGES
In the fourth quarter of fiscal 1998, Cole National Corporation
began implementation of a restructuring plan and recorded a net pretax
charge of $23.1 million, related to restructuring its Pearle business
along with other unusual charges. The net pretax charge consisted of
charges associated with the restructuring of $13.9 million, a reversal
of previously established restructuring accruals of $12.3 million and
other unusual charges totaling $21.5 million. The restructuring charge
of $13.9 million relates to changes made to the Pearle operating model
and structure of the home office organization. These changes resulted
in charges for inventory write-downs related to products that will no
longer be carried, severance and hiring costs primarily related to home
office organizational changes, consolidation of the home office
facilities, including the write-off of fixed assets at the old
facilities, consultant fees and changing the Pearle brand message
through signing, production and other costs. The charge related to the
inventory write-down ($5.2 million) has been included in cost of sales
in fiscal 1998.
Additionally, Cole National Corporation had recorded
restructuring and other nonrecurring charges of $8.0 million and $61.1
million in fiscal 1997 and 1996, respectively. These charges consisted
primarily of costs of integrating and consolidating the recent
acquisitions of both AVC and Pearle, including costs of store and other
facility closings, a computer system termination fee and related asset
impairment costs. The accrual established in fiscal 1996 was based in
part upon the closure of certain stores and in-store labs. As part of
the revised restructuring plan discussed above, it was determined that
certain stores originally planned to be closed would either remain open
or be closed at a much lower cost than originally estimated. In
addition, management determined that, while it still plans to reduce
the number of full service labs, the lease costs and equipment to be
removed from the stores would be less than originally anticipated. Cole
National Corporation plans to close 26 stores over the next twelve
months and remove surfacing equipment from the full service labs of 226
stores over the next six to eighteen months. As a result, $12.3 million
of previously established accruals have been reversed into income as a
restructuring credit.
During fiscal 1997, an $8.0 million pretax business integration
charge associated with the AVC acquisition was recorded. Such charge
included costs incurred related to the integration and consolidation of
AVC into Cole National Corporation's operations, including costs of
store and other facility closings, transitional costs incurred to
change the brand identity to Pearle and duplicate costs incurred
through fiscal year end in connection with the consolidation of the AVC
home office functions. The charge consisted of $4.3 million of costs
incurred in fiscal 1997, $0.7 million of asset write-downs and $3.0
million of costs accrued in accordance with EITF No. 94-3.
The fiscal 1996 pretax charge of $61.1 million is primarily
related to the integration and consolidation of Pearle into Cole
National Corporation's operations, as well as certain other
non-recurring charges, including store and other facility closings,
computer systems and asset impairments. The charge consisted of $29.4
million of costs incurred in fiscal 1996, $17.4 million of asset
write-downs and $14.3 million of costs accrued in accordance with EITF
No. 94-3. Cole National Corporation had identified 29 unprofitable
Pearle stores which it intended to close along with 112 other retail
locations at which it intended to close the in-store labs and supply
these locations from other facilities. In addition, Cole National
Corporation decided to retain Pearle's distribution and central lab
facilities, but to close Pearle's home office facility in Dallas,
Texas. The charge in fiscal 1996 for store and other facility closings
consists primarily of the remaining noncancellable term of operating
leases and other obligations remaining on these facilities subsequent
to their estimated date of closing, along with the loss on fixed
assets. The charge for computer systems was primarily for settlement
costs of prematurely terminating an outsourcing agreement that was
providing systems integrations and data processing services. The asset
impairment charge related to goodwill associated with portions of its
optical business that would not be recoverable as the carrying values
of these businesses exceeded fair value, as measured by projected
future discounted cash flows, in accordance with SFAS No. 121.
F-12
<PAGE> 30
Other charges in fiscal 1996 include costs related to employee
matters, including duplicate costs incurred through the end of fiscal
1996 and costs related to hiring employees in connection with the
consolidation of the Pearle home office functions, and other costs of
management realignment. In addition, the other charges include
incremental travel and professional fees incurred in connection with
the integration of Pearle, along with costs of developing and
implementing a new franchise agreement. Also, in February 1996, the
Board of Directors granted stock options to executive officers at a
share price equal to the market price of the common stock on the date
of grant, which were subject to stockholder approval. The increase in
the price of the common stock between the grant date and the date of
stockholder approval resulted in $4.2 million of compensation expense.
The following summarizes the major components of the
restructuring charges recorded in fiscal 1996, 1997 and 1998, along
with cash and non-cash charges against the reserves (in millions):
<TABLE>
<CAPTION>
Charges to Reserve Charges to Reserve
1996 1997
---------------------- Remaining ---------------------- Remaining
Original Non- Reserve Non- Reserve
Charge Cash Cash at 2/1/97 Cash Cash at 1/31/98
----------- --------- ----------- ----------- --------- --------- ------------
1996 Charge
- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Store and other
facilities closing $ 17.6 $(0.2) $ - $ 17.4 $ (0.6) $(0.2) $ 16.6
Computer systems 21.6 (0.5) (4.0) 17.1 (12.6) - 4.5
Asset impairment 6.1 0.0 (6.1) - 0.0 - -
Other 15.8 (4.8) (6.8) 4.2 (3.5) - 0.7
------ ----- ------- ------ ------- ----- ------
Total $ 61.1 $(5.5) $ (16.9) $ 38.7 $ (16.7) $(0.2) $ 21.8
====== ===== ======= ====== ======= ===== ======
1997 Charge
- -----------------------
Store and other
facilities closing $ 2.5 $ - $ - $ 2.5
Severance 0.9 (0.1) - 0.8
Operating costs and
losses 1.7 (1.6) (0.1) -
Marketing and brand
conversion 1.5 (0.6) - 0.9
Other 1.4 (0.8) - 0.6
----------- ----------- --------- ------------
Total $ 8.0 $ (3.1) $(0.1) $ 4.8
=========== =========== ========= ============
1998 Charge
- -----------------------
Facilities relocations $ 2.6
Inventory 5.2
Marketing and brand
conversion 2.3
Professional fees 1.9
Severance/hiring 1.9
-----------
Total $ 13.9
===========
<CAPTION>
Charges to Reserve
1998
-------------------------------------- Remaining
Non- Reserve
Cash Cash Reversal at 1/30/99
--------- --------- ----------- -----------
1996 Charge
- -----------------------
<S> <C> <C> <C> <C>
Store and other
facilities closing $(0.4) $ (5.7) $ (9.5) $ 1.0
Computer systems (4.0) (0.5) - -
Asset impairment 0.0 0.0 - -
Other (0.2) 0.0 (0.5) -
----- ------ ------- -----
Total $(4.6) $ (6.2) $ (10.0) $ 1.0
===== ====== ======= =====
1997 Charge
- -----------------------
Store and other
facilities closing $(0.4) $ - $ (2.1) $ -
Severance (1.0) - 0.2 -
Operating costs and
losses - - - -
Marketing and brand
conversion (0.7) - (0.2) -
Other (0.2) (0.2) (0.2) -
-------- ----------- ----------- -----------
Total $(2.3) $ (0.2) $ (2.3) $ -
======== =========== =========== ===========
1998 Charge
- -----------------------
Facilities relocations $(0.5) $ (0.5) $ - $ 1.6
Inventory - (5.2) - -
Marketing and brand
conversion (0.2) - - 2.1
Professional fees (0.8) (0.1) - 1.0
Severance/hiring (0.5) - - 1.4
-------- ----------- ----------- -----------
Total $(2.0) $ (5.8) $ - $ 6.1
======== =========== =========== ===========
</TABLE>
The reserves remaining at January 30, 1999 equal the amount of
future expected cash outlays, which for the 1996 charge are for lease
settlement costs for stores to be closed and are expected to be
incurred over the next twelve months. Of the remaining cash outlays
related to the 1998 charge, approximately $4.0 million had been
incurred in fiscal 1998 and is expected to be paid in the first quarter
of fiscal 1999. The remainder related primarily to severance
arrangements and operating costs of idle facilities that will be paid
through the fourth quarter of fiscal 1999.
The unusual charges in fiscal 1998 related to the write-off of
$8.8 million associated with the abandonment in the fourth quarter of
previously capitalized system development costs (including $1.9 million
of incurred costs that will be paid in the first half of fiscal 1999)
and $2.7 million primarily related to restricted stock issued to two
senior executive officers. See Note 8 for further discussion of the
restricted stock grants. Cole National Corporation also made an
unconditional commitment in the fourth quarter of fiscal 1998 to
F-13
<PAGE> 31
contribute $10.0 million through 2009, with payments beginning in 2004,
to a leading medical institution supporting the development of a
premier eye care research and surgical facility. This charge has been
recognized as a liability in accordance with SFAS No. 116.
(4) DISCONTINUED OPERATIONS
On January 13, 1998, Cole National Corporation announced the
closing of its Cole Gift Centers chain of personalized gift and
greeting card departments located in host stores. The decision to close
Cole Gift Centers was based on declining sales and profitability trends
in recent years and management's desire to focus its gift retailing
efforts on Things Remembered. For financial statement purposes, the
assets, liabilities, results of operations and cash flows of Cole Gift
Centers are included in the consolidated financial statements as
discontinued operations. The estimated loss on disposal of $13.9
million (net of an applicable income tax benefit of $8.5 million)
includes provisions for severance and other closing costs, inventory
and other asset write-offs and estimated operating losses for the
period from January 13, 1998 through February 1998 when all locations
were closed.
Cole Gift Centers' net revenue was $50.9 million and $55.5
million in 1997 and 1996, respectively. Consolidated interest expense
that was not directly attributable to other operations of Cole National
Corporation was allocated to discontinued operations based on the ratio
of the net assets of discontinued operations to total net assets of
Cole National Corporation plus consolidated debt of Cole National
Corporation not directly attributable to other operations. As a result,
the operating loss from discontinued operations includes allocated
interest expense of $1.3 million and $1.9 million in fiscal 1997 and
1996, respectively. The net loss of discontinued operations also
includes a non-recurring charge of $3.3 million in fiscal 1996,
primarily related to the write-off of goodwill at Cole Gift Centers, in
accordance with SFAS No. 121.
(5) PUBLIC OFFERINGS
On July 18, 1997, Cole National Corporation completed a public
offering of 2,587,500 shares of its common stock at a price of $47.00
per share. Net proceeds from the offering were approximately $116.0
million. The net proceeds from the offering were used for the purchase
of American Vision Centers, for Cole National Group's tender offer to
purchase up to all of its $165.8 million outstanding 11-1/4% Senior
Notes due 2001 (see Note 6) and for general corporate purposes,
including reducing outstanding indebtedness and financing possible
future acquisitions.
In 1996, Cole National Corporation completed a public offering
of 1,437,500 shares of common stock at a price of $19.25 per share. The
net proceeds from the offering were $26.2 million. A portion of the
proceeds was used to purchase $15.1 million of the 11-1/4% Senior
Notes, plus accrued interest thereon (see Note 6).
(6) LONG-TERM DEBT
Long-term debt at January 30, 1999 and January 31, 1998 is
summarized as follows (000's omitted):
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C> <C>
7-1/2% Obligation in connection with Industrial Revenue Bonds $ - $ 168
11-1/4% Senior Notes - 14,476
9-7/8% Senior Subordinated Notes:
Face value 150,000 150,000
Unamortized discount (964) (1,041)
---------- ----------
Total 9-7/8% Senior Subordinated Notes 149,036 148,959
8-5/8% Senior Subordinated Notes 125,000 125,000
Capital lease obligations (see Note 13) 3,474 4,825
-------- ----------
277,510 293,428
Less current portion (1,497) (16,027)
---------- ----------
Net long-term debt $ 276,013 $ 277,401
========= ==========
</TABLE>
F-14
<PAGE> 32
On August 15, 1997, Cole National Group announced a tender offer
to purchase up to all of its 11-1/4% Senior Notes at a price of
$1,105.61 per $1,000 of principal, plus accrued interest. The tender
offer expired on September 12, 1997, at which time a total of $151.3
million principal amount of the 11-1/4% Senior Notes were tendered,
leaving $14.5 million outstanding. As a result of the tender offer, in
the third quarter of fiscal 1997 Cole National Corporation recorded an
extraordinary charge of $12.2 million, net of an income tax benefit of
$7.5 million, representing the tender premium, the write-off of the
related unamortized debt discount and other costs associated with
redeeming the debt. The remaining 11-1/4% Senior Notes not tendered in
1997 were called and retired in October 1998.
On August 22, 1997, Cole National Group issued $125.0 million of
8-5/8% Senior Subordinated Notes that mature in 2007 with no earlier
scheduled redemption or sinking fund payments. Proceeds from this debt
issuance of approximately $121.8 million, along with cash on hand, were
used to fund the above-described tender offer. Interest on the 8-5/8%
Notes is payable semi-annually on February 15 and August 15.
On November 15, 1996, Cole National Group issued $150 million of
9-7/8% Senior Subordinated Notes that mature in 2006 with no earlier
scheduled redemption or sinking fund payments. The 9-7/8% Notes were
used to finance a portion of the Pearle acquisition (see Note 2).
Interest on the 9-7/8% Notes is payable semi-annually on June 30 and
December 31.
The 8-5/8% Notes and the 9-7/8% Notes are general unsecured
obligations of Cole National Group, subordinated in right of payment to
senior indebtedness of Cole National Group and senior in right of
payment to any current or future subordinated indebtedness of Cole
National Group.
The indentures pursuant to which the 8-5/8% Notes and the 9-7/8%
Notes were issued restrict dividend payments to Cole National
Corporation to 50% of Cole National Group's net income after October
31, 1993, plus amounts due to Cole National Corporation under a tax
sharing agreement and for administrative expenses of Cole National
Corporation not to exceed 0.25% of Cole National Group's net revenue.
The indentures also contain certain optional and mandatory redemption
features and other financial covenants. Cole National Group was in
compliance with these covenants at January 30, 1999.
Cole National Corporation recorded an extraordinary loss of $0.7
million in 1996, net of an income tax benefit of $0.5 million,
representing the payment of premiums, the write-off of unamortized
discount and other costs associated with retiring $15.1 million of the
11-1/4% Senior Notes.
At January 30, 1999, the fair value of long-term debt was
approximately $282.7 million compared to a carrying value of $277.5
million. The fair value was estimated primarily by using quoted market
prices. There are no significant principal payment obligations under
its outstanding indebtedness until the 9-7/8% Notes mature in 2006.
(7) CREDIT FACILITY
Concurrent with the Pearle acquisition, the principal operating
subsidiaries of Cole National Group entered into a credit facility. The
credit facility replaced the existing revolving credit facility.
The credit facility provides the principal operating
subsidiaries of Cole National Group with a four-year revolving line of
credit of up to the lesser of a "borrowing base" or $75 million. Up to
$30 million of the credit facility is available for the issuance of
letters of credit. Borrowings under the credit facility initially bear
interest at a rate equal to, at the option of the principal operating
subsidiaries of Cole National Group, either (a) the Eurodollar Rate
plus 1.25% or (b) 0.25% plus the highest of (i) the prime rate, (ii)
the three-week moving average of the secondary market rates for
three-month certificates of deposit plus 1% and (iii) the federal funds
rate plus 0.5%. Cole National Group pays a commitment fee of 0.375% per
annum on the total unused portion of the facility. Additionally, the
credit facility requires the principal operating subsidiaries of Cole
National Group to comply with various operating covenants that restrict
corporate activities, including covenants restricting the ability of
the subsidiaries to incur additional indebtedness, pay dividends,
prepay subordinated indebtedness, dispose of certain investments or
make acquisitions. The credit facility also requires the subsidiaries
to comply with certain financial covenants, including covenants
regarding minimum interest
F-15
<PAGE> 33
coverage, maximum leverage and consolidated net worth. The principal
operating subsidiaries of Cole National Group were in compliance with
these covenants at January 30, 1999.
The credit facility restricts dividend payments to Cole National
Group to amounts needed to pay interest on the 9-7/8% Notes and the
8-5/8% Notes, and certain amounts related to taxes, along with up to
$8.0 million plus 0.25% of Cole National Group's consolidated net
revenue annually for other direct expenses of Cole National Corporation
or Cole National Group. In addition, dividends of up to $20.0 million
are permitted to repurchase the 8-5/8% Notes and/or the 9-7/8% Notes.
No borrowings under the credit facility were outstanding as of
January 30, 1999, and the maximum amount of borrowings during fiscal
1998 was $13.6 million. No borrowings under the credit facility were
outstanding as of January 31, 1998, or at any time during fiscal 1997.
(8) STOCK COMPENSATION AND WARRANTS
The 1998 Equity and Incentive Performance Plan provides for the
granting of up to 884,000 shares of common stock to officers, key
employees and consultants of Cole National Corporation in the form of
stock options, performance stock and performance units, restricted
stock and deferred stock.
At January 30, 1999, Cole National Corporation had stock options
outstanding under the 1998 Equity and Incentive Performance Plan and
other stock option plans and agreements. The right to exercise these
options generally commences between one and five years from the date of
grant and expires ten years from the date of grant. Both the number of
shares and the exercise price, which was based on the market price,
were fixed at the dates of grant. As of January 30, 1999, there were
219,644 shares available for future grants to officers, key employees,
non-employee Directors and consultants under Cole National
Corporation's various stock-based plans.
A summary of the status of Cole National Corporation's stock
options and related weighted average exercise prices ("Price") as of
the end of fiscal 1998, 1997 and 1996, and changes during each of the
fiscal years is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- --------------------- ----------------------
Shares Price Shares Price Shares Price
---------- -------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 1,471,906 $14.30 1,443,788 $12.29 749,297 $ 9.76
Granted 818,303 16.89 122,000 35.13 804,000 13.87
Exercised (181,701) 11.01 (80,856) 8.27 (97,787) 6.08
Canceled (21,362) 27.72 (13,026) 24.49 (11,722) 10.19
----------- ---------- --------
Outstanding, end of year 2,087,146 15.46 1,471,906 14.30 1,443,788 12.29
========== ========== ==========
Exercisable at end of year 707,343 13.59 595,838 11.57 508,530 9.86
</TABLE>
A summary of information for stock options outstanding at
January 30, 1999 and related weighted average remaining contract life
("Life") and Price is presented below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- ------------------------
Range of Exercise Prices Shares Life Price Shares Price
------------------------ ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 3.00 42,995 3.9 years $ 3.00 42,995 $ 3.00
$ 9.75 to $16.94 1,782,223 7.8 13.27 566,223 11.38
$24.88 to $44.94 261,928 8.5 32.40 98,125 31.01
---------- ----------
2,087,146 7.8 15.46 707,343 13.59
========== ==========
</TABLE>
Payment for certain options exercised between 1993 and 1996 has
been made by executing promissory notes, of which $906,000 were
outstanding at January 30, 1999. The promissory notes are secured by
the shares of common stock acquired and are payable on various dates
through April 2001 at interest rates ranging from 5.33% to 6.37%.
At January 30, 1999, 178,750 restricted shares of common stock
are outstanding under awards made to two senior executives in December
1998 under the 1998 Equity and Incentive Performance Plan. Vesting may
occur after the third anniversary of the grant date based upon the
attainment of certain market prices for Cole National Corporation's
common stock or on March 1, 2004. In connection with these restricted
shares, Cole
F-16
<PAGE> 34
National Corporation also awarded 146,250 restricted shares of its
treasury stock to these executives that were subsequently returned to
treasury in payment of related withholding taxes.
At March 7, 1999, there were warrants outstanding to purchase
2,625 shares of common stock at $1.00 per share that expire in 2000.
Cole National Corporation applies APB Opinion 25 and related
Interpretations in accounting for its stock-based compensation plans.
In connection with the restricted stock awards described above,
compensation cost of $2.3 million has been charged against income in
fiscal 1998 and unamortized restricted stock awards of $2.6 million is
expected to be amortized over future vesting periods. Compensation cost
of $0.1 million was also charged against income in fiscal 1998 for
13,803 stock options granted in connection with certain consulting
services . No compensation cost was recognized for its stock-based
plans in fiscal 1997. Compensation cost that has been charged against
income for its stock-based plans in fiscal 1996 was $4.2 million as
discussed in Note 3. Had compensation cost for Cole National
Corporation's stock-based compensation plans and agreements been
determined based on the fair value at the dates of awards consistent
with the method of SFAS No. 123, Cole National Corporation's net income
and diluted earnings per share would have been $13,589,000 and $0.90 in
fiscal 1998. Cole National Corporation's net loss and diluted loss per
share would have been increased to $6,731,000 and $.48 in fiscal 1997,
and $30,234,000 and $2.67 in fiscal 1996, respectively.
The fair value of each option granted was estimated on the date
of grant using the Black-Scholes option-pricing model with the
following assumptions: risk-free interest rates of 4.7%, 5.7% and 6.2%
for grants in fiscal 1998, 1997 and 1996, respectively, volatility of
35-39%, 35% and 33% in fiscal 1998, 1997 and 1996, respectively, and
expected lives of six years for options granted in all fiscal years.
The weighted average fair value of options granted during fiscal 1998,
1997 and 1996 were $7.33, $15.81 and $10.87, respectively. The effects
of applying SFAS No. 123 in the pro forma disclosure above are not
indicative of future amounts. SFAS No. 123 does not apply to options
granted prior to January 29, 1995 and additional awards in future years
are anticipated.
(9) STOCKHOLDERS' EQUITY
In August 1995, Cole National Corporation's Board of Directors
approved a Stockholders' Rights Plan. The Stockholders' Rights Plan
provides for the distribution of one right for each outstanding share
of Cole National Corporation'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 Cole National
Corporation one one-hundredth of a share of Series A Junior
Participating Preferred Stock, without par value, at a price of $180,
subject to adjustment. The rights are only exercisable if a person or
group buys or announces a tender offer for 15% or more of Cole National
Corporation's common stock. In the event such a transaction occurs,
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 of Cole National Corporation)
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 Cole National Corporation in whole, but
not in part, at a price of $0.01 per right, or exchanged.
F-17
<PAGE> 35
(10) INCOME TAXES
The income tax provision (benefit) for continuing operations
reflected in the accompanying consolidated statements of operations for
fiscal 1998, 1997 and 1996 are detailed below (000's omitted):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Currently payable -
Federal $ (5,922) $ (270) $ 7,245
State and local 1,486 1,705 2,010
Foreign 781 781 -
--------- --------- ---------
(3,655) 2,216 9,255
--------- --------- ---------
Deferred -
Federal 13,545 12,817 (16,194)
Foreign (544) 5 -
---------- --------- ---------
13,001 12,822 (16,194)
--------- --------- ---------
Income tax provision (benefit) $ 9,346 $ 15,038 $ (6,939)
========= ========= =========
</TABLE>
The income tax provision (benefit) for continuing operations
differs from the federal statutory rate as follows (000's omitted):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate $ 8,268 $ 12,240 $ (11,073)
Tax effect of -
Amortization of goodwill 1,234 1,176 897
State income taxes, net of federal
tax benefit 1,095 1,216 1,306
Nontaxable settlement (2,100) - -
Non-recurring charges 537 - 1,578
Other, net 312 406 353
--------- --------- ---------
Tax provision (benefit) $ 9,346 $ 15,038 $ (6,939)
========= ========= =========
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of Cole National Corporation's deferred tax assets
and deferred tax liabilities at January 30, 1999 and January 31, 1998
are as follows (000's omitted):
<TABLE>
<CAPTION>
1999 1998
-------- ------
<S> <C> <C>
Deferred tax assets:
Employee benefit accruals $ 3,540 $ 3,836
Restructure accruals 2,730 8,530
Other non-deductible accruals 9,910 17,986
State and local taxes 1,790 1,352
Net operating loss carryforwards 3,449 2,918
Intangibles 5,506 5,939
Contribution carryforward 4,440 -
Inventory reserves 2,348 2,633
Bad debt reserves 2,516 2,496
Other 967 928
--------- ---------
Total deferred tax assets 37,196 46,618
Valuation allowance (1,141) (1,141)
--------- ---------
Net deferred tax assets 36,055 45,477
--------- ---------
Deferred tax liabilities:
Depreciation and amortization (7,856) (4,353)
Other (1,728) (1,964)
---------- ---------
Total deferred tax liabilities (9,584) (6,317)
--------- ---------
Net deferred taxes $ 26,471 $ 39,160
========= =========
</TABLE>
F-18
<PAGE> 36
At January 30, 1999, Cole National Corporation has approximately
$8.3 million of tax net operating loss carryforwards acquired in
connection with the acquisition of American Vision Centers, which
expire between 2005 and 2010. Due to the change in ownership
requirements of the Internal Revenue Code, utilization of the American
Vision Centers net operating loss is limited to approximately $338,000
per year. A valuation allowance of $1.1 million has been established to
reduce the deferred tax asset related to the net operating loss to the
amount that will likely be realized.
No provision for United States federal and state income taxes
has been provided for the undistributed earnings of the Company's
foreign subsidiaries because those earnings are considered to be
indefinitely reinvested. Upon distribution of those earnings in the
form of dividends or otherwise, the Company would be subject to both
United States income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable.
(11) RETIREMENT PLANS
Cole National Corporation maintains a noncontributory defined
benefit pension plan that covers employees who have met eligibility
service requirements and are not members of certain collective
bargaining units. The pension plan calls for benefits to be paid to
eligible employees at retirement based primarily upon years of service
and their compensation levels near retirement.
Cole National Corporation's policy is to fund amounts necessary
to keep the pension 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 1998, 1997 and 1996 includes the
following components (000's omitted):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 1,446 $ 637 $ 646
Interest cost on the projected benefit obligation 1,582 1,490 1,467
Less:
Return on plan assets -
Actual (2,494) (2,424) (1,669)
Deferred 690 893 477
----------- ---------- ---------
(1,804) (1,531) (1,192)
Amortization of transition asset over 17.9 years (179) (179) (179)
----------- ----------- ---------
Net pension expense $ 1,045 $ 417 $ 742
=========== ========== =========
</TABLE>
F-19
<PAGE> 37
The following sets forth changes in the benefit obligation and
the plan assets during the year and reconciles the funded status of the
pension plan with the amounts recognized in the consolidated balance
sheets (000's omitted):
<TABLE>
<CAPTION>
1998 1997
----------- ------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of period $ 21,272 $ 19,046
Service cost 1,446 637
Interest cost 1,582 1,490
Actuarial gain 1,509 1,200
Benefits paid (917) (836)
Expenses paid (293) (265)
---------- ---------
Benefit obligation at end of period $ 24,599 $ 21,272
========== =========
Change in Plan Assets:
Fair value of plan assets at beginning of year $ 19,751 $ 16,774
Actual return on plan assets 2,494 2,808
Employer contributions 2,181 1,270
Benefits paid (917) (836)
Expenses paid (293) (265)
---------- ---------
Fair value of plan assets at end of year $ 23,216 $ 19,751
========== =========
Reconciliation of Funded Status:
Benefit obligation at end of period $ 24,599 $ 21,272
Fair value of plan assets, primarily money market and
equity mutual funds 23,216 19,751
---------- ---------
Funded status (1,383) (1,521)
Unrecognized prior service cost 81 111
Net unrecognized loss 2,052 1,204
Unamortized transition asset (1,057) (1,236)
---------- ---------
Pension liability included in accrued liabilities $ (307) $ (1,442)
========== =========
</TABLE>
The weighted average discount rate used to measure the projected
benefit obligation was 7.25% in 1998 and 7.5% in 1997. 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%.
Cole National Corporation has a defined contribution plan,
including features under Section 401(k) of the Internal Revenue Code,
which provides retirement benefits to its employees. Eligible employees
may contribute up to 17% of their compensation to the plan. Prior to
January 1, 1998, there was no mandatory matching of employee
contributions by Cole National Corporation; effective January 1, 1998,
the plan was amended to, among other things, provide for a mandatory
company match of 10% of employee contributions. Total company matches
of $757,000, $374,000 and $327,000 were recorded as expense for 1998,
1997 and 1996, respectively.
Prior to January 1, 1998, Cole National Corporation had separate
contributory profit-sharing plans for Pearle and American Vision
Centers employees meeting certain service requirements as defined in
the plans. Company contributions to the Pearle plan consisted of a
minimum matching contribution of $861,000 and $229,000 in 1997 and
1996, respectively. There were no company contributions required or
made in connection with the American Vision Centers plan in 1997.
Effective January 1, 1998, eligible employees of Pearle and American
Vision Centers became eligible to participate in Cole National
Corporation's defined contribution plan. The Pearle and American Vision
Centers plans will be merged into Cole National Corporation's plan.
Cole National Corporation has two Supplemental Executive
Retirement Plans that provide for the payment of retirement benefits to
participating executives supplementing amounts payable under Cole
National Corporation 's noncontributory defined benefit pension plan.
The first plan is an excess benefit plan designed to replace benefits
that would otherwise have been payable under the pension plan but that
were limited as a result of certain tax law changes. The second plan is
a defined contribution plan under which participants receive an annual
credit based on a percentage of base salary, subject to vesting
requirements. Expenses for these plans for fiscal 1998, 1997 and 1996
were $651,000, $541,000 and $468,000, respectively.
F-20
<PAGE> 38
(12) SEGMENT INFORMATION
Cole National Corporation has two reportable segments: Cole
Vision and Things Remembered. Most of Cole Vision's revenue is provided
by sales of prescription eyewear, accessories and services through its
Cole Licensed Brands and Pearle retail locations. Cole Vision's revenue
is also provided by sales of merchandise to franchisees and other
outside customers, by royalties based on sales, interest income on
notes receivable and initial franchise fees from franchisees and by
fees from managed vision care programs. The Cole Licensed Brands and
Pearle segments have been aggregated in accordance with SFAS No. 131
based on the similarity of their economic characteristics, nature of
products, services and production processes, types of customers,
distribution methods and regulatory environment. Things Remembered's
revenue is provided by sales of engravable gift merchandise,
personalization and other services primarily through retail stores and
kiosks.
The accounting policies of the segments are the same as those
described in the Summary of Significant Accounting Policies (see Note
1). Performance is evaluated based on operating income from operations
before interest, income taxes, and non-recurring or unusual charges.
The reportable segments are strategic business units that offer
different products and services. They are managed separately because
each business requires different technology and marketing strategies.
Cole Vision is subject to various state regulations related to the
dispensing of prescription eyewear and its relationship with the
doctors of optometry.
Reported segment revenue, depreciation and amortization, and
income or loss, with reconciliations to consolidated amounts are as
follows (000's omitted):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net revenue:
Cole Vision $ 826,235 $ 774,488 $ 407,504
Things Remembered 241,947 225,710 220,992
----------- ----------- -----------
Consolidated net revenue $ 1,068,182 $ 1,000,198 $ 628,496
=========== =========== ===========
Depreciation and amortization:
Cole Vision $ 21,745 $ 19,514 $ 9,445
Things Remembered 10,485 8,947 8,509
----------- ----------- -----------
Total segment depreciation and
amortization 32,230 28,461 17,954
Corporate 1,512 1,493 623
----------- ----------- -----------
Consolidated depreciation and
amortization $ 33,742 $ 29,954 $ 18,577
=========== =========== ===========
Income or loss:
Cole Vision $ 54,267 $ 65,995 $ 37,810
Things Remembered 17,647 11,504 18,480
----------- ----------- -----------
Total segment profit 71,914 77,499 56,290
Unallocated amounts:
Unusual and non-recurring items (23,120) (8,000) (61,091)
Corporate expenses (6,448) (6,635) (6,685)
------------ ----------- -----------
Consolidated operating income (loss) 42,346 62,864 (11,486)
Interest and other expense, net (18,724) (27,893) (20,151)
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes $ 23,622 $ 34,971 $ (31,637)
=========== =========== ===========
</TABLE>
F-21
<PAGE> 39
Reported segment assets, expenditures for capital additions
and systems developments costs and acquisitions of businesses, with
reconciliations to consolidated amounts, are as follows (000's
omitted):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Segment assets:
Cole Vision $ 443,089 $ 439,808 $ 364,123
Things Remembered 132,832 131,105 121,432
----------- ----------- -----------
Total segment assets 575,921 570,913 485,555
Elimination of intercompany receivables (36,440) (11,754) (14,777)
Corporate cash and temporary cash investments 34,506 54,872 64,522
Other corporate assets 54,037 37,353 26,705
Net assets of discontinued operations - - 16,451
----------- ----------- -----------
Consolidated assets $ 628,024 $ 651,384 $ 578,456
=========== =========== ===========
Expenditures for capital additions
and systems development costs:
Cole Vision $ 35,793 $ 34,833 $ 12,071
Things Remembered 8,228 20,496 13,392
----------- ----------- -----------
Total segment expenditures 44,021 55,329 25,463
Elimination of intercompany transfers - (5,300) -
Corporate 10,372 538 2,618
----------- ----------- -----------
Consolidated expenditures $ 54,393 $ 50,567 $ 28,081
=========== =========== ===========
Expenditures for acquisitions of
businesses, net of cash acquired:
Cole Vision $ 7,231 $ 27,926 $ 157,426
=========== =========== ===========
</TABLE>
Revenue from external customers of each group of similar products and
services is as follows (000's omitted):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales of optical products and services $ 759,232 $ 712,923 $ 403,496
Royalties, interest income and initial fees
from franchisees 21,518 19,743 4,008
Fees from managed vision care programs 45,485 41,822 -
----------- ----------- -----------
Total Cole Vision net revenue 826,235 774,488 407,504
Retail sales of gift merchandise and services 241,947 225,710 220,992
----------- ----------- -----------
Consolidated net revenue $ 1,068,182 $ 1,000,198 $ 628,496
=========== =========== ===========
</TABLE>
Prior to fiscal 1997, fees from managed vision care programs
were not captured separately, but were netted against operating
expenses.
Cole National Corporation operates primarily in the United
States. Net revenue attributable to Cole Vision's Canadian operations
was $27.5 million, $27.2 million and $5.6 million in fiscal 1998, 1997
and 1996, respectively. Long-lived assets located in Canada totaled
$2.2 million, $2.1 million and $2.2 million in fiscal 1998, 1997 and
1996, respectively. Cole National Corporation also has an investment in
and notes receivable from Pearle Europe (see Note 1).
F-22
<PAGE> 40
(13) COMMITMENTS
Cole National Corporation leases a substantial portion of its
facilities including laboratories, office and warehouse space, and
retail store locations. These leases generally have initial terms of up
to 10 years and often contain renewal options. Certain of the store
locations have been sublet to franchisees. In most leases covering
retail store locations, additional rents are payable based on store
sales. In addition, Cole Vision operates departments in various host
stores paying occupancy costs solely as a percentage of sales under
agreements containing short-term cancellation clauses. Generally, Cole
National Corporation is required to pay taxes and normal expenses of
operating the premises for laboratory, office, warehouse and 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 1998, 1997 and 1996 (000's
omitted):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Occupancy costs based on sales $ 54,563 $ 52,300 $ 46,058
All other rental expense 92,068 87,699 45,207
Sublease rental income (22,606) (21,725) (5,936)
----------- ----------- ----------
$ 124,025 $ 118,274 $ 85,329
=========== =========== ==========
</TABLE>
At January 30, 1999 and January 31, 1998, property under capital
leases consisted of $7,119,000 and $7,113,000 in equipment with
accumulated amortization of $2,887,000 and $1,610,000, respectively.
At January 30,1999, future minimum lease payments and sublease
income receipts under noncancellable leases, and the present value of
future minimum lease payments for capital leases are as follows (000's
omitted):
<TABLE>
<CAPTION>
Operating Leases
Capital --------------------------
Leases Payments Receipts
----------- ----------- -----------
<S> <C> <C> <C> <C>
1999 $ 1,733 $ 75,926 $ 12,941
2000 1,569 61,154 9,474
2001 444 48,867 7,031
2002 87 39,856 5,252
2003 - 31,433 3,481
2004 and thereafter - 71,873 5,601
----------- ----------- -----------
Total future minimum lease payments 3,833 $ 329,109 $ 43,780
=========== ===========
Amount representing interest (359)
-----------
Present value of future minimum lease payments $ 3,474
===========
</TABLE>
F-23
<PAGE> 41
(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly financial data for the
52 weeks ended January 30, 1999 and January 31, 1998. The fourth
quarter of fiscal 1998 includes net pretax charges of $23.1 million
related to restructuring and other unusual items, of which $5.2 million
relates to inventory markdowns that are included in cost of sales. The
third quarter of fiscal 1998 includes $6.0 million of income from cash
received in a nontaxable settlement of claims against the former owner
of Pearle. The third and fourth quarters of fiscal 1997 include pretax
charges of $1.1 million and $6.9 million, respectively, for business
integration charges related to American Vision Centers.
<TABLE>
<CAPTION>
Fiscal 1998
- ------------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share amounts)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $ 271,828 $ 267,611 $ 256,654 $ 272,089
Gross margin 181,539 178,479 171,744 172,330
Net income (loss) 6,112 9,800 9,062 (10,698)
Earnings (loss) per common share:
Basic - 0.41 0.66 0.61 (0.72)
Diluted - 0.40 0.64 0.60 (0.72)
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1997
- ------------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share amounts)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $ 239,686 $ 242,163 $ 252,744 $ 265,605
Gross margin 157,274 161,001 166,232 174,842
Income from continuing operations 3,354 7,228 3,535 5,816
Income (loss) from discontinued
operations, net (906) 130 (841) (12,350)
Extraordinary item, net -- -- (12,183) --
----------- ----------- ----------- -----------
Net income (loss) $ 2,448 $ 7,358 $ (9,489) $ (6,534)
=========== =========== =========== ===========
Earnings (loss) per common share:
Basic -
Income from continuing operations $ .28 $ .58 $ .24 $ .40
Income (loss) from discontinued
operations, net (.08) .01 (.05) (.84)
Extraordinary item, net -- -- (.83) --
----------- ----------- ----------- -----------
Net income (loss) $ .20 $ .59 $ (.64) $ (.44)
=========== =========== =========== ===========
Diluted -
Income from continuing operations $ .27 $ .56 $ .23 $ .38
Income (loss) from discontinued
operations, net (.07) .01 (.05) (.81)
Extraordinary item, net -- -- (.80) --
----------- ----------- ----------- -----------
Net income (loss) $ .20 $ .57 $ (.62) $ (.43)
=========== =========== =========== ===========
</TABLE>
F-24
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULES
To COLE NATIONAL CORPORATION:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Cole National Corporation
and Subsidiaries included in this Form 10-K and have issued our report thereon
dated March 17, 1999. Our audit was made for the purpose of forming an opinion
on those statements taken as a whole. The financial statement schedules are the
responsibility of Cole National Corporation's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the consolidated
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
March 17, 1999.
F-25
<PAGE> 43
SCHEDULE I
COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
================================================================================
COLE NATIONAL CORPORATION
CONDENSED BALANCE SHEETS
JANUARY 30, 1999 AND JANUARY 31, 1998
(Dollars in millions)
<TABLE>
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
Assets:
Receivable from subsidiaries $ 68.8 $ 89.1
Refundable income taxes 8.4 9.5
Investment in subsidiaries 48.4 27.7
Notes receivable and investment in Pearle Europe 16.9 7.8
Property and equipment, net 12.8 4.0
Other 5.7 1.4
---------- ---------
Total assets $ 161.0 $ 139.5
========== =========
Liabilities and Stockholders' Equity:
Accounts payable and accrued expenses $ 3.2 $ 3.9
Long-term debt 2.4 3.3
Deferred income taxes - .3
Other long term liabilities 10.0 -
Stockholders' equity 145.4 132.0
---------- ----------
Total liabilities and stockholders' equity $ 161.0 $ 139.5
========== =========
</TABLE>
F-26
<PAGE> 44
SCHEDULE I
(CONTINUED)
<TABLE>
<CAPTION>
COLE NATIONAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS AND CASH FLOWS
52 WEEKS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997
(Dollars in millions)
January 30, January 31, February 1,
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Dividends from subsidiaries $ - $ - $ 15.4
------- ------- ------
Services to affiliates 2.7 1.8 .6
Total revenue 2.7 1.8 16.0
Operating expenses (12.7) (1.8) (.8)
Interest income 1.4 .3 .8
------- ------- ------
Pre-tax income (loss) (8.6) .3 16.0
Income tax benefit (expense) 2.6 (.2) (.3)
------- ------- ------
Income (loss) before equity in undistributed
earnings (loss) of subsidiaries and
extraordinary item (6.0) .1 15.7
Equity in undistributed earnings (loss) of subsidiaries 20.3 (6.3) (43.4)
------- ------- ------
Income (loss) before extraordinary item 14.3 (6.2) (27.7)
Extraordinary loss -- -- (.6)
Net income (loss) 14.3 (6.2) (28.3)
------- ------- ------
Adjustments to reconcile net income
(loss) to cash provided (used) by
operating activities (14.2) (18.8) 43.9
------- ------- ------
Net cash provided (used) by operating
activities .1 (25.0) 15.6
------- ------- ------
Financing activities:
Repayment of long-term debt (.9) (1.0) (.3)
Proceeds from sale of common stock -- 115.9 26.2
Common stock repurchased (5.5) (.6) --
Proceeds from stock option exercises 2.0 2.9 .6
------- ------- ------
Net cash provided (used) by financing activities (4.4) 117.2 26.5
------- ------- ------
Investing activities:
Advances from (to) affiliates 21.2 (61.7) (35.0)
Purchase of property and equipment (9.7) -- --
Purchase of Cole National Group Notes -- -- (16.1)
Acquisition of business -- (27.8) --
Proceeds from sale of Cole National Group Notes -- -- 14.9
Investment in Pearle Europe (10.3) (2.8) (6.0)
Repayment of notes receivable 3.1 .1 .1
------- ------- ------
Net cash provided (used) by investing activities 4.3 (92.2) (42.1)
------- ------- ------
Net change in cash -- -- --
Cash, beginning of period -- -- --
------- ------- ------
Cash, end of period $ -- $ -- $ --
======= ======= ======
</TABLE>
F-27
<PAGE> 45
SCHEDULE I
(CONTINUED)
NOTE TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
===============================================================================
The accompanying financial information of Cole National Corporation is as
of January 30, 1999 and January 31, 1998, and for the 52 weeks ended January 30,
1999, January 31, 1998 and February 1, 1997. Cole National Corporation is a
holding company for its wholly-owned subsidiaries, including Cole National
Group, Inc. and consisted of no other operations.
This financial information should be read in connection with the
Consolidated Financial Statements and notes thereto of Cole National Corporation
and subsidiaries, contained on pages elsewhere in this Form 10-K.
F-28
<PAGE> 46
SCHEDULE II
COLE NATIONAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
52 WEEKS ENDED JANUARY 30, 1999, JANUARY 31, 1998 AND FEBRUARY 1, 1997 (DOLLARS
IN MILLIONS)
<TABLE>
<CAPTION>
Additions
-------------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- ------------------------------------ --------------- --------------- --------------- --------------- ----------------
JANUARY 30, 1999
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts $ 7.1 $ 0.9 $ - $ 0.(A) $ 7.2
Franchise Repurchase Reserve 6.7 - - 1.5(A) 5.2
Discontinued Operation Reserve 1.3 - - 1.3(B) -
JANUARY 31, 1998
Allowance for Doubtful Accounts 6.6 1.1 1.8(C) 2.4(A) 7.1
Franchise Repurchase Reserve 5.5 0.6 1.5(C) 0.9(A) 6.7
Discontinued Operation Reserve - 1.3 - - 1.3
FEBRUARY 1, 1997
Allowance for Doubtful Accounts 0.8 0.2 5.7(D) 0.1(A) 6.6
Franchise Repurchase Reserve - - 5.5(D) - 5.5
</TABLE>
(A) Receivable balances written off, net of recoveries.
(B) Discontinued operation charges taken against the reserve.
(C) Purchase price accounting reserves created as a result of the
acquisition of AVC.
(D) Purchase price accounting reserves created as a result of the
acquisition of Pearle.
Reserve balances presented in the Notes to Consolidated Financial Statements are
not represented in this schedule.
F-29
<PAGE> 47
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
3.1 (i) Restated Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 (i) of Cole National
Corporation's Annual Report on Form 10-K for the year ended
February 3, 1996 (File No. 1-12814).
3.1(ii) Certificate of Amendment of the Restated Certificate of
Incorporation, incorporated by reference to Exhibit 3.1(ii)
to Cole National Corporation's Annual Report on Form 10-K for
the period ended January 31, 1998 (File No. 1-12814).
3.2(ii) Amended and Restated By-Laws of the Company, incorporated by
reference to Exhibit 3.2(ii) of Cole National Corporation's
Annual Report on Form 10-K for the year ended February 3, 1996
(File No. 1-12814).
3.3 Certificate of Designations of Series A Junior Participating
Preferred Stock, incorporated by reference to Exhibit 3.3 of
Cole National Corporation's Annual Report on Form 10-K for the
year ended February 3, 1996 (File No. 1-12814).
4.1 Indenture dated November 15, 1996, by and among Cole National
Group, Inc. and Norwest Bank Minnesota, National Association, as
trustee, relating to the 9 7/8% Senior Subordinated Notes Due
2006 (the form of which Senior Subordinated Note is included in
such Indenture), incorporated by reference to Exhibit 4.1 of
Cole National Corporation's Report on Form 8-K, filed with the
Commission on December 2, 1996 (File No. 1-12814).
4.2 Indenture, dated August 22, 1997, between Cole National Group,
Inc. and Norwest Bank Minnesota, National Association, as
Trustee, relating to the 8-5/8% Senior Subordinated Notes Due
2007, incorporated by reference to Exhibit 4.4 of Cole National
Group, Inc.'s Registration Statement on Form S-1 (Registration
No. 333-34963).
4.3 Rights Agreement dated as of August 22, 1995 by and between the
Company and National City Bank as Rights Agent, incorporated by
reference to Exhibit 4.3 of Cole National Corporation's Annual
Report on Form 10-K for the year ended February 3, 1996 (File
No. 1-12814).
4.4 Amendment No. 1, dated as of August 21, 1997, to the Rights
Agreement, dated as of August 22, 1995, between the Company and
National City Bank, as Rights Agent, incorporated by reference
to Exhibit 4.1 of Cole National Corporation's current report on
Form 8-K, filed with the Securities and Exchange Commission on
August 22, 1997 (File No. 1-12814).
4.5 Cole National Corporation by this filing agrees, upon request,
to file with the Commission the instruments defining the rights
of holders of long-term debt of Cole National Corporation and
its subsidiaries where the total amount of securities authorized
thereunder does not exceed 10% of the total assets of Cole
National Corporation and its subsidiaries on a consolidated
basis.
10.1* Employment Agreement entered into as of December 17, 1998 by and
among Cole National Corporation, Cole National Group, Inc., Cole
Vision Corporation, Pearle, Inc., Things Remembered, Inc. and
Jeffrey A. Cole.
X-1
<PAGE> 48
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
10.2* Employment Agreement entered into as of April 1, 1996 by and
among Cole National Corporation, Cole National Group, Cole Gift
Centers, Inc., Cole Vision Corporation, Things Remembered, Inc.
and Brian B. Smith, incorporated by reference to Exhibit 10.2 of
Cole National Corporation's Annual Report on Form 10-K for the
year ended February 3, 1996 (File No. 1-12814).
10.3* Agreement dated March 27, 1993 between Cole National Corporation
and Joseph Gaglioti regarding termination of employment,
incorporated by reference to Exhibit 10.8 to CNG's Registration
Statement on Form S-1 (Registration No. 33-66342).
10.4* Agreement dated April 9, 1993 between Cole National Corporation
and Wayne L. Mosley regarding termination of employment,
incorporated by reference to Exhibit 10.9 to Cole National
Group, Inc.'s Registration Statement on Form S-1 (Registration
No. 33-66342).
10.5* 1992 Management Stock Option Plan, including forms of
Nonqualified Stock Option Agreement (Time Vesting) and
Nonqualified Stock Option Agreement (Performance Option), as
amended, and forms of promissory notes and pledge agreements,
incorporated by reference to Exhibit 10.11 to Cole National
Group, Inc.'s Registration Statement on Form S-1 (Registration
No. 33-66342).
10.6* Cole National Corporation 1993 Management Stock Option Plan,
including forms of Nonqualified Stock Option Agreement (1993
Time Vesting) and form of secured promissory notes and stock
pledge agreement, incorporated by reference to Exhibit 10.29 to
Cole National Group, Inc.'s Registration Statement on Form S-1
(Registration No. 33-66342).
10.7* Form of Option Agreement for Directors of the Company,
incorporated by reference to Exhibit 10.41 to Cole National
Corporation's Registration Statement on Form S-1 (Registration
No. 33-74228).
10.8* Amended and Restated Nonqualified Stock Option Plan for
Non-employee Directors, incorporated by reference to Exhibit A
to Cole National Corporation 's Proxy Statement for the 1997
Annual Meeting (File No. 1-12814).
10.9* Form of Nonqualified Stock Option Agreement for Non-employee
Directors, incorporated by reference to Exhibit 10.9 of Cole
National Corporation's Annual Report on Form 10-K for the year
ended February 3, 1996 (File No. 1-12814).
10.10* Cole National Corporation 1996 Management Stock Option Plan,
including forms of Nonqualified Stock Option Agreement (1996
Time Vesting), incorporated by reference to Exhibit 10.10 of
Cole National Corporation's Annual Report on Form 10-K for the
year ended February 3, 1996 (File No. 1-12814).
10.11* Management Incentive Bonus Program, incorporated by reference to
Exhibit 10.11 to Cole National Corporation's Annual Report on
Form 10-K for the period ended January 31, 1999 (File No.
1-12814).
10.12* Form of Nonqualified Stock Option Agreement (1997 Time Vesting),
incorporated by reference to Exhibit 10.12 to Cole National
Corporation's Annual Report on Form 10-K for the period ended
January 31, 1998 (File No. 1-12814).
10.13* Executive Life Insurance Plan of Cole National Corporation,
incorporated by reference to Exhibit 10.12 to Cole National
Group, Inc.'s Registration Statement on Form S-1 (Registration
No. 33-66342).
X-2
<PAGE> 49
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
10.14* Medical Expense Reimbursement Plan of Cole National Corporation
effective as of February 1, 1992, incorporated by reference to
Exhibit 10.13 to Cole National Group, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-66342).
10.15 Agreement for the Allocation of Federal Income Tax Liability and
Benefits among Members of the Parent Group dated August 23,
1985, as amended, incorporated by reference to Exhibit 10.26 to
Cole National Group, Inc.'s Registration Statement on Form S-1
(Registration No. 33-66342).
10.16 Assignment and Assumption Agreement dated as of September 30,
1993 between the Company and Cole National Group, incorporated
by reference to Exhibit 10.24 of Cole National Corporation's
Annual Report on Form 10-K for the year ended February 3, 1996
(File No. 1-12814).
10.17 Lease Agreement (Knoxville) dated as of November 28, 1979 by and
between Tommy Hensley, as agent for the real property of Mrs.
Don Siegel and Cole Vision Corporation, as amended and
supplemented, incorporated by reference to Exhibit 10.15 to Cole
National Group, Inc.'s Registration Statement on Form S-1
(Registration No. 33-66342).
10.18 Lease Agreement (Memphis) dated as of October 2, 1991 by and
between Shelby Distribution Park and Cole Vision Corporation,
incorporated by reference to Exhibit 10.16 to Cole National
Group, Inc.'s Registration Statement on Form S-1 (Registration
No. 33-66342).
10.19 Lease Agreement (Richmond) dated as of April 23, 1982 by and
between Daniel, Daniel & Daniel and Cole Vision Corporation, as
amended and supplemented, incorporated by reference to Exhibit
10.17 to Cole National Group, Inc.'s Registration Statement on
Form S-1 (Registration No. 33-66342).
10.20 Lease for Multi-Tenancy Space (Salt Lake) dated as of October
30, 1981 by and between East Centennial Joint Venture and Cole
Vision Corporation, as amended and supplemented, incorporated by
reference to Exhibit 10.18 to Cole National Group, Inc.'s
Registration Statement on Form S-1 (Registration No. 33-66342).
10.21 Lease Agreement (Knoxville) dated as of April 11, 1995 by and
between Richard T. Fox and Cole Vision Corporation, incorporated
by reference to Exhibit 10.29 of Cole National Corporation's
Annual Report on Form 10-K for the year ended February 3, 1996
(File No. 1-12814).
10.22 Form of Lease Agreement Finite 19518 dated as of December 29,
1988 between Sears, Roebuck and Co. and Cole Vision Corporation,
incorporated by reference to Exhibit 10.23 to Cole National
Group, Inc.'s Registration Statement on Form S-1 (Registration
No. 33-66342).
10.23 Master License Agreement dated as of October 2, 1986, between
Montgomery Ward & Co., Incorporated and Cole Vision Corporation,
as amended, incorporated by reference to Exhibit 10.21 to Cole
National Group, Inc.'s Registration Statement on Form S-1
(Registration No. 33-66342).
X-3
<PAGE> 50
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
10.24 Master License Agreement dated as of June 12, 1986, between
Montgomery Ward & Co., Incorporated and Bay Cities Optical
Company, as amended, incorporated by reference to Exhibit 10.22
to Cole National Group, Inc.'s Registration Statement on Form
S-1 (Registration No. 33-66342).
10.25 Form of License Agreement (Optical), incorporated by reference
to Exhibit 10.24 to Cole National Group, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-66342).
10.26 Form of License/Lease Agreement (Optical), incorporated by
reference to Exhibit 10.25 to Cole National Group, Inc.'s
Registration Statement on Form S-1 (Registration No. 33-66342).
10.27 Form of Indemnification Agreement for Directors of Cole National
Corporation, incorporated by reference to Exhibit 10.19 to Cole
National Group, Inc.'s Registration Statement on Form S-1
(Registration No. 33-66342).
10.28 Form of Indemnification Agreement for Officers of Cole National
Corporation, incorporated by reference to Exhibit 10.20 to Cole
National Group, Inc.'s Registration Statement on Form S-1
(Registration No. 33-66342).
10.29* Supplemental Retirement Benefit Plan of Cole National
Corporation, incorporated by reference to Exhibit 10.38 to Cole
National Corporation's Registration Statement on Form S-1
(Registration No. 33-74228).
10.30* Supplemental Pension Plan of Cole National Corporation,
incorporated by reference to Exhibit 10.48 to Cole National
Corporation 's Registration Statement on Form S-1 (Registration
No. 33-74228).
10.31 Warrant Agreement dated as of September 25, 1990 between Cole
National Corporation and the purchasers named therein,
incorporated by reference to Exhibit 10.36 to Cole National
Corporation 's Registration Statement on Form S-1 (Registration
No. 33-74228).
10.32 Lease agreement (Salt Lake) dated as of November 1, 1996 by and
between Gibbons Realty Company and Cole Vision Corporation,
incorporated by reference to Exhibit 10.01 of Cole National
Corporations Quarterly Report on Form 10-Q for the period ended
November 2, 1996 (File No. 1-12814).
10.33 Credit Agreement, dated as of November 15, 1996, among Cole
Vision Corporation, Things Remembered, Inc., Cole Gift Centers,
Inc., Pearle, Inc. and Pearle Service Corporation and Canadian
Imperial Bank of Commerce, incorporated by reference to Exhibit
99.1 of Cole National Corporation's Report on Form 8-K, filed
with the Commission on December 2, 1996 (File No. 1-12814).
10.34 First Amendment to the Credit Agreement, dated as of January 13,
1997, among Cole Vision Corporation, Things Remembered, Inc.,
Cole Gift Centers, Inc., Pearle, Inc., and Pearle Service
Corporation and Canadian Imperial Bank of Commerce, incorporated
by reference to Exhibit 10.33 of Cole National Group, Inc.'s
Registration Statement on Form S-1 (Registration No. 333-34963).
X-4
<PAGE> 51
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.35 Second Amendment to Credit Agreement, dated as of August 8,
1997, among Cole Vision Corporation, Things Remembered, Inc.,
Cole Gift Centers, Inc., Pearle, Inc. and Pearle Service
Corporation and Canadian Imperial Bank of Commerce, incorporated
by reference to Exhibit 10.34 of the Cole National Group, Inc.'s
Registration Statement on Form S-1 (Registration No. 333-34963).
10.36 Cole National Group, Inc. Guarantee and Cash Collateral
Agreement, dated as of November 15, 1996, by the Company and
Cole National Corporation, incorporated by reference to Exhibit
99.3 of Cole National Corporation's Report on Form 8-K, filed
with the Commission on December 2, 1996 (File No. 1-12814).
10.37 Guarantee and Collateral Agreement dated as of November 15,
1996, by Cole Vision Corporation, Things Remembered, Inc., Cole
Gift Centers, Inc., Pearle, Inc. and Pearle Service Corporation
and Canadian Imperial Bank of Commerce, Incorporated by
reference to Exhibit 99.4 of Cole National Corporation's Report
on Form 8-K, filed with the Commission on December 2, 1996 (File
No. 1-12814).
10.38 Form of Cole National Corporation 401(k) Savings Plan,
incorporated by reference to Exhibit 4.1 of Cole National
Corporation's Registration Statement on Form S-8, filed with the
Commission on November 20, 1997 (Registration No. 333-40609).
10.39* Agreement, dated August 4, 1997, between the Company and Leslie
D. Dunn regarding termination of employment, incorporated by
reference to Exhibit 10.37 of Cole National Group, Inc.'s
Registration Statement on Form S-1 (Registration No. 333-34963).
10.40* Form of Cole National Corporation Non Qualified Stock Option
Agreement (Non employee Directors), incorporated by reference to
Exhibit 10.5 of Cole National Corporation's Quarterly Report on
Form 10-Q for the period ended August 2, 1997 (File No.
1-12814).
10.41* Form of Cole National Corporation Non Employee Director Equity
and Deferred Compensation Plan, incorporated by reference to
Exhibit B to Cole National Corporation's definitive Proxy
Statement dated May 6, 1997 (File No. 1-12814).
10.42* Form of Cole National Corporation Non Employee Director Equity
and Deferred Compensation Plan Participation Agreement Plan Year
1997, incorporated by reference to Exhibit 10.7 of Cole National
Corporation's Quarterly Report on Form 10-Q for the period ended
August 2, 1997 (File No. 1-2814).
10.43 Form of Cole National Corporation's 1998 Equity and Performance
Incentive Plan, incorporated by reference to Exhibit A to Cole
National Corporation's definitive Proxy Statement dated May 1,
1998 (File No. 1-12814).
10.44 Third Amendment to the Credit Agreement, dated as of May 15,
1998, among Cole Vision Corporation and Canadian Imperial Bank
of Commerce, incorporated by reference to Exhibit 10.1 of Cole
National Corporation's Quarterly Report on Form 10-Q for the
period ended May 2, 1998 (File No. 1-12814).
10.45 Fourth Amendment to the Credit Agreement, dated as of March 5,
1999, among Cole Vision Corporation, Things Remembered, Inc. and
Pearle, Inc., and Canadian Imperial Bank of Commerce.
X-5
<PAGE> 52
EXHIBIT
NUMBER DESCRIPTION
-------- --------------
10.46* Nonqualified Stock Option Agreement between Cole National
Corporation and Jeffrey A. Cole dated as of December 17, 1998.
10.47* Nonqualified Stock Option Agreement between Cole National
Corporation and Brian B. Smith dated as of December 17, 1998.
10.48* Form of Nonqualified Stock Option Agreement for Executive
Officers (other than Messrs. Cole and Smith) under the Cole
National Corporation 1998 Equity Performance and Incentive Plan.
10.49* Restricted Stock Agreement between Cole National Corporation and
Jeffrey A. Cole dated as of December 17, 1998.
10.50* Restricted Stock Agreement between Cole National Corporation and
Brian B. Smith dated as of December 17, 1998.
10.51* Cole National Group, Inc. 1999 Supplemental Retirement Benefit
Plan dated as of December 17, 1998.
10.52* Instrument Designating Participants of the Cole National Group,
Inc. 1999 Supplemental Retirement Benefit Plan dated December
17, 1998.
10.53* Cole National Group, Inc. Deferred Compensation Plan effective
as of February 1, 1999.
10.54* Amendment No. 1, dated as of December 17, 1998, to the Cole
National Group, Inc. Supplemental Pension Plan.
21 Subsidiaries of Cole National Corporation.
24 Power(s) of Attorney.
27 Financial Data Schedule.
* Reflects management contract or other compensatory arrangement
required to be filed as an exhibit pursuant to Item 14(c) of
this Form 10-K.
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (as amended, modified or otherwise
supplemented from time to time, the "AGREEMENT") is entered into as of December
17, 1998 among Cole National Corporation, a Delaware corporation ("PARENT"),
Cole National Group, Inc., a Delaware corporation ("CNG"), Cole Vision
Corporation, a Delaware corporation ("COLE VISION"), Pearle, Inc., a Delaware
Corporation ("PEARLE"), Things Remembered, Inc., a Delaware corporation ("THINGS
REMEMBERED") (collectively, CNG, Cole Vision, Pearle and Things Remembered are
the "SUBSIDIARIES"), and Jeffrey A. Cole, an individual residing in the State of
Ohio ("COLE").
PRELIMINARY STATEMENTS:
A. Cole is currently serving as an employee of Cole Vision and
Things Remembered pursuant to an Employment Agreement dated April 1, 1996 among
Cole, the Parent and the Subsidiaries (the "EMPLOYMENT Agreement"), and
presently is the Chairman and Chief Executive Officer of the Parent and Chairman
of the Board of each of the Subsidiaries.
B. The parties desire to provide for the eventual transition
of Mr. Cole from his present positions to retirement.
C. Cole and the parties desire to terminate the Employment
Agreement and to enter into a new agreement providing for the employment of Cole
with the Subsidiaries.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
AGREEMENT:
1. EMPLOYMENT. Each of the Subsidiaries hereby employs Cole,
and Cole hereby accepts employment with each of the Subsidiaries, on the terms
and conditions set forth in this Agreement.
2. TERM. (a) The term (the "TERM") of Cole's employment under
this Agreement will be for three (3) years commencing on the date of this
Agreement (the "EFFECTIVE DATE") and ending on its third anniversary; PROVIDED,
HOWEVER, that on the first anniversary of the Effective Date and on each
succeeding anniversary of the Effective Date until and including the anniversary
that falls in the year in which Cole turns 65 years of age, the Term will be
automatically extended by an additional year, unless 60 days prior to any such
succeeding anniversary either Cole or the Subsidiaries has given the other
written notice to the contrary (which notice is not rescinded before such
anniversary date) or this Agreement has otherwise been terminated as provided in
this Agreement.
<PAGE> 2
(b) Cole's services to the Subsidiaries under this Agreement
will not be terminated by Cole or any of the Subsidiaries (while such entity
remains a subsidiary of Parent) unless such termination is with respect to his
services to all of the Subsidiaries.
3. POSITIONS AND DUTIES. (a) Cole will serve in such offices
or positions to which he is elected or appointed by the Board of Directors of
each of the Subsidiaries and the Parent. Cole initially will serve as Chairman
of the Board of Directors of each of the Subsidiaries and of Parent and as Chief
Executive Officer of CNG and Parent. Cole's service as an officer or director of
the Parent and of any of the direct or indirect, wholly or partially owned
subsidiaries of the Parent or of any of the Subsidiaries, will be encompassed
within any reference made in this Agreement to employment with the Subsidiaries.
(b) Cole will, subject to the powers and authority reserved in
or by the Board of Directors of the Parent and of the respective Subsidiaries,
have the authority and responsibility customarily attending each corporate
office held by him pursuant to Section 3(a). In addition, Cole will hold such
other offices in and perform such other executive and administrative duties for
the Parent as he and the Board of Directors of Parent agree are appropriate.
Cole shall devote his principal time, energy, and attention, consistent with
past practices, to the affairs and operations of the Parent and the
Subsidiaries, but may engage in any unrelated business and activities that are
not prohibited by Section 8 of this Agreement.
4. COMPENSATION. During the Term:
(a) SALARY. The Subsidiaries shall pay Cole an aggregate
annual base salary (from all of the Subsidiaries combined) not less than his
current aggregate base salary of $725,000, subject to such increases that the
Board of Directors of each of the Subsidiaries, with the concurrence of the
Board of Directors of the Parent, may grant to him as a result of merit,
performance, inflation or otherwise.
(b) BONUS. Cole will receive bonuses from time to time in
accordance with the existing bonus programs for senior management of the
Subsidiaries or Parent or any future bonus programs adopted for senior
management of the Subsidiaries or Parent. Cole will participate in such programs
at a level to be fixed from time to time by either (a) the Board of Directors of
each of the Subsidiaries, with the concurrence of the Board of Directors or
appropriate compensation committee of the Board of Directors of the Parent, or
(b) the Board of Directors or appropriate compensation committee of the Board of
Directors of the Parent. Such participation may be more favorable but will in no
event be less favorable than the participation of any other similarly situated
participant. In the event that Cole would be eligible to participate in more
than one bonus program for a particular year, Cole will participate in each such
program to the extent of his allocable salary with respect to such Subsidiary.
(c) EXPENSES AND ALLOWANCES. Cole is authorized, in carrying
out his responsibilities and duties under this Agreement, to incur reasonable
business expenses for the benefit of the Subsidiaries, including business
expenses for transportation, entertainment, travel, lodging, club memberships
and expenses and similar items, all of comparable types and at comparable levels
to those he has previously incurred in his employment with the Subsidiaries.
2
<PAGE> 3
Cole will be provided with a current model automobile, of comparable style and
quality to that which has previously been provided to him in his employment with
the Subsidiaries. All such expenses referred to above will either be paid
directly by the Subsidiaries or the Subsidiaries shall promptly reimburse Cole
for expenditures upon the submission, from time to time, of itemized accountings
for such expenditures. To the extent such expenses and allowances are not
attributable to duties performed on behalf of a single Subsidiary, such expenses
and allowance are to be allocated among the Subsidiaries on the basis described
in Section 10. Cole will also be permitted to make personal use of the corporate
aircraft consistent with current practice to the extent one is available and not
otherwise required for corporate business. Parent shall also reimburse Cole for
up to $15,000 per year for personal tax, estate and financial planning.
(d) VACATIONS. Cole will be entitled to 5 weeks of vacation in
each calendar year or such greater amount of vacation as may be permitted under
the employment policies of the Subsidiaries in effect from time to time;
PROVIDED, HOWEVER, that the Subsidiaries will not be obligated to provide, and
Cole will not be entitled to receive, in the aggregate, more vacation time than
that permitted under the most permissive employment policy of any of the
Subsidiaries in effect from time to time.
(e) INSURANCE AND EMPLOYEE BENEFIT PLANS. Cole will be
entitled to have group term and other term life insurance maintained on his life
by the Subsidiaries, the beneficiary of which Cole will be allowed to designate,
at least in such amounts as are currently maintained on his life on the
Effective Date. Such life insurance policy, or any successor policy or policies
thereto, will not be terminated by the Subsidiaries without first offering Cole
the right to purchase the same at the cash surrender value thereof, if any. Cole
will also be entitled to participate in any of the employee compensation and
pension and welfare benefit plans and arrangements in which senior management or
executive employees of the Subsidiaries participate from time to time (including
without limitation, retirement plans and supplemental arrangements; sick pay
plans and medical expense and medical reimbursement plans; disability benefit
and accident insurance plans; and employee discount and loan programs, employee
savings and investment plans and stock ownership plans (collectively, the
"EMPLOYEE PLANS")), as the same may be modified, supplemented or replaced
without material reduction in total value of the benefits to Cole. Cole will
participate in such Employee Plans at a level to be fixed from time to time by
the Board of Directors of each of the Subsidiaries, with the concurrence of the
Board of Directors of the Parent; such participation may be more favorable but
shall in no event be less favorable than the participation of any other
similarly situated participant. It is the Parent's current intention to obtain
(prior to June 30, 1999) collateral assignment split-dollar life insurance in
the amount of $4 million for Cole. When such split-dollar insurance has been put
into place, the obligation to maintain separate group term and other term life
insurance will terminate.
5. DEATH OR DISABILITY DURING EMPLOYMENT. (a) If Cole dies or
is disabled during the term of this Agreement, the Subsidiaries shall pay to
Cole, in lieu of the compensation described in Section 4(a) and 4(b) of this
Agreement, in case of his disability, or to the beneficiary or beneficiaries
designated by Cole in case of his death, or if Cole is legally incompetent or no
such designation of death beneficiary has been made, then to Cole's personal
representative, an amount (from all of the Subsidiaries combined), equal to the
greater of (i) the
3
<PAGE> 4
aggregate compensation that would otherwise be payable to Cole pursuant to
Section 4(a) and 4(b) of this Agreement for the full fiscal year in which his
death or disability occurred as if Cole were not dead or disabled, his
employment continued for the full fiscal year and his bonus were an amount equal
to the average of Cole's bonus for the five (5) consecutive fiscal years
preceding the fiscal year in which his death or disability occurred, or (ii) the
product of (A) seventy-five percent (75) of the amount determined pursuant to
clause (i) immediately preceding and (B) the number of years from the first day
of the month in which this death or disability occurs through the date of
termination of the remaining Term (the "TERMINATION DATE") (for which it will be
assumed that the automatic extension of the Agreement under Section 2(a) of this
Agreement will be discontinued upon such death or disability, if such automatic
extension has not already discontinued pursuant to Section 2(a)), prorated on
the basis of a 360 day year for partial years. The amount so determined will be
paid in equal monthly installments commencing in the month in which Cole's death
or disability occurs through the earlier of the Termination Date or the
cessation of his disability. The obligations of the Subsidiaries under this
Section 5(a) are to be offset by and reduced to the extent of any other
corresponding death or disability benefits (excluding life insurance), if any,
that the Parent or the Subsidiaries, or any of them, provide at their expense to
Cole under benefit plans or arrangements in place at the time of his death or
disability. Cole is entitled to receive, in the aggregate, the greater of (x)
the benefits specified in this Section 5(a) excluding any such offset or (y) the
benefits to which he would otherwise be entitled under other benefit plans or
arrangements.
(b) For the purpose of this Agreement, Cole will be considered
disabled only when and if (i) he is adjudicated legally incompetent by a court
of competent jurisdiction, or (ii) (A) a physician selected by Cole or his legal
guardian and reasonably satisfactory to the Board of Directors of the Parent
certifies that Cole suffers from a physical or mental disability; and (B) as a
result of such disability the Board of Directors of the Parent, in the exercise
of its reasonable judgment based on such physician's report, determines that
Cole is unable to perform his duties under this Agreement for at least ninety
(90) days out of a one hundred twenty (120) successive day period. For the
purpose of determining whether he is disabled, Cole agrees that, if requested by
Parent, he will submit to a physical examination not more frequently than once
every year during the Term by a physician mutually acceptable to Cole and the
Board of Directors of the Parent, the costs of such examination to be paid by
the Subsidiaries.
(c) In the event of Cole's disability during the term of this
Agreement, he will (i) continue to be treated as an active employee for purposes
of those Employee Plans that provide life insurance and medical insurance, and
will be entitled to continue participation in such Employee Plans at levels and
costs to him that are at least as favorable as those provided to other active
senior management or executive employees (other than any executive officers who
are named or employed, at any time following the commencement of Cole's
disability, to fill positions with the Subsidiaries of substantially equivalent
rank as the positions held by Cole immediately prior to the commencement of his
disability) and, in any case, that are no less favorable than the levels and
costs provided to Cole at the commencement of such disability; (ii) continue to
receive all the benefits and allowances provided in Section 4(c); and (iii)
continue to accrue benefit and vesting service under the Cole National
Corporation Retirement Plan and any supplemental retirement or supplemental
pension plan (the "RETIREMENT PLANS"), in either case, until the earlier of the
Termination Date or the cessation of his disability. With respect to the
benefits described in clause (iii) above, the Subsidiaries shall provide Cole
with a benefit equal to
4
<PAGE> 5
the difference between (x) the benefit he would otherwise have accrued under the
Retirement Plans if such additional service were actually credited to him under
the Retirement Plans (assuming for this purpose that the compensation earned by
Cole in the year prior to his disability), and (y) the benefit he actually
accrues under the Retirement Plans for the period of his disability. Such
benefit is to be provided from the Subsidiaries' general assets.
(d) In the event of Cole's death during the Term, the
Subsidiaries shall continue to provide Cole's eligible dependents with coverage
under those Employee Plans, if any, that then provide medical insurance at
levels and costs to such dependents that are no less favorable than the levels
and costs provided to such dependents at Cole's death for the period from Cole's
date of death until the date on which Cole would have attained age 65; PROVIDED,
HOWEVER, that the Subsidiaries will not be required to expend amounts for such
benefits in any year (expressed in terms of premium costs to the Subsidiaries)
in excess of the annual cost of such benefits at the time of Cole's death
increased over time by annual adjustments equal to the change in the Consumer
Price Index (or any replacement index) as published from time to time by the
United States government.
6. OTHER TERMINATION. (a) Upon the termination of Cole's
employment with the Subsidiaries except:
(i) a termination by reason of his death or disability as
provided in Section 5; or
(ii) his voluntary resignation (other than (x) a voluntary
resignation that occurs following Constructive Termination, or (y) such
resignation tendered pursuant to Section 6(c)); or
(iii) the expiration of the Term; or
(iv) termination "for cause";
the Subsidiaries shall pay Cole at the time of such termination, in a lump sum,
an amount equal to the sum of:
(A) three times (3x) Cole's aggregate annual base salary as
in effect under Section 4(a) at the time of such termination, plus
(B) three times (3x) an amount equal to the average of
Cole's bonus for the five (5) fiscal years preceding the fiscal year of such
termination (the "TERMINATION PAYMENT"), plus
(C) the average of Cole's bonus for the five (5)
consecutive fiscal years preceding the fiscal year of such termination prorated
for the months in the current fiscal year prior to the termination.
If such termination is "for cause," nothing will be payable
pursuant to this Section 6(a). For purposes of this Agreement, Cole's
termination will be "for cause" only if there
5
<PAGE> 6
is a final, non-appealable order in a proceeding before a court of competent
jurisdiction or a final order in an administrative proceeding before the
Securities and Exchange Commission (a "PROCEEDING") finding that Cole (i)
committed any willful misconduct, fraud or criminal activity (excluding traffic
violations or other minor offenses) which commission is materially inimical to
the interests of any of the Subsidiaries or the Parent, whether for his personal
benefit or in connection with his duties for the Parent or the Subsidiaries or
(ii) intentionally or knowingly violated any antifraud provision of the federal
or state securities laws ("ADVERSE FINAL ORDER"). Cole's employment under this
Agreement may be terminated immediately by the Board of Directors of each of the
Subsidiaries if such Boards reasonably believe that Cole has committed any of
the acts referred to in the previous sentence, PROVIDED THAT if Cole's
termination is alleged by the Subsidiaries to be for cause, the Subsidiaries
shall deposit, at the time of such termination, the amount otherwise payable to
Cole if said termination were not for cause, with an escrow agent reasonably
satisfactory to Cole and the Subsidiaries. Such amount is to be invested from
time to time in 90 day U.S. Treasury obligations or such other investments as
Cole and the Subsidiaries mutually may approve. The principal amount, plus
interest earned thereon, will be distributed by the escrow agent to the
Subsidiaries if an Adverse Final Order is entered, or to Cole on the earlier of
(i) the time when there has been entered in a Proceeding a final, non-appealable
order on the merits of the matter, which is not an Adverse Final Order or, (ii)
the expiration of sixty (60) days after Cole's termination if, at the end of
such period, there is not pending any Proceeding and no Adverse Final Order has
been entered. The fees of the escrow agent will be paid by Cole if an Adverse
Final Order is entered and otherwise by the Subsidiaries. Cole and the
Subsidiaries shall provide the escrow agent with customary indemnities and shall
jointly execute and deliver customary and reasonable escrow instructions.
(b) Upon the expiration of the Term and other termination of
Cole's employment without cause other than
(i) a termination by reason of his death as provided
in Section 5 or
(ii) his voluntary resignation (other than (x) a
voluntary resignation that occurs following
Constructive Termination, or (y) such resignation
tendered pursuant to Section 6(c)),
the Subsidiaries shall, for the period from the expiration of the Term or other
termination of Cole's employment without cause until his death:
(A) continue to provide Cole and his eligible dependents
with coverage under those Employee Plans that provide life insurance, medical
insurance, medical expense and reimbursement at levels and costs to the
beneficiary that are no less favorable than the levels and costs provided to
Cole immediately prior to the time of his termination of employment under this
Agreement; PROVIDED, HOWEVER, that the Subsidiaries will not be required to
expend amounts for such benefits in any year in excess of the annual cost of
such benefits at the time of such termination increased over time by annual
adjustments equal to the change in the Consumer Price Index (or any replacement
index) as published from time to time by the United States government, and
6
<PAGE> 7
(B) provide Cole with an office at the headquarters of
Parent, comparable to his office at the time of his termination, for his use,
and provide Cole with secretarial services substantially equivalent to those
provided to him prior to termination, and
(C) provide Cole with continuing financial, estate and tax
consulting services in an amount not to exceed $15,000 per year; and
(D) provide Cole with title to the automobile then
provided to him under the Subsidiaries' automobile leasing program; and
(E) for the period from Cole's termination of employment
to the earlier of his death or the occurrence of a change of control, provide
Cole with continuing access to the corporate aircraft, if any, for personal use
for a maximum of 50 flight hours per year and otherwise on a basis consistent
with the policy applicable to him prior to his termination of employment.
(F) Notwithstanding the foregoing provisions of this
Section 6(b), upon the expiration of the Term or other termination of employment
without cause other than
(i) a termination by reason of his death as provided
in Section 5 or
(ii) his voluntary resignation (other than (x) a
voluntary resignation that occurs following
Constructive Termination, or (y) such
resignation tendered pursuant to Section 6(c)),
Cole may elect at any time, by written notice to the Subsidiaries, to receive in
lieu of the benefits to be provided under (A), (B), (C), (D) and (E) of this
Section 6(b), a lump sum payment from the Subsidiaries in an amount equal to the
then present value of the benefits to be provided to Cole and his eligible
dependents under (A), (B), (C) and (E) of this Section 6(b). The foregoing sum
shall be referred to as the "Benefit Payment".
For purposes of this Section 6(b)(F), present value and life expectancy for
purposes of determining the Benefit Payment shall be determined using the
mortality tables and interest rates used on the date hereof under the Parent's
qualified defined benefit retirement plan, and such other factors as may be
determined by the actuary providing services with respect to such Plan on such
date, or such other actuary as may be selected by Cole and reasonably
satisfactory to the Subsidiaries.
(c) In the event of a "CHANGE OF CONTROL," which will be
deemed to have taken place upon the occurrence of any of the following:
(i) the Parent merges into itself, or is merged or
consolidated with, another corporation and as a
result of such merger or consolidation less than
51% of the voting power of the then-outstanding
voting securities of the surviving or resulting
corporation immediately after such transaction
are owned in the aggregate by the former
stockholders of the Parent immediately prior to
such transaction;
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(ii) all or substantially all the assets accounted
for on the Consolidated Balance Sheet of the
Parent are sold or transferred to one or more
corporations or persons, and as a result of such
sale or transfer less than 51% of the voting
power of the then-outstanding voting securities
of such corporation or person immediately after
such sale or transfer is directly or indirectly
beneficially held in the aggregate by the former
stockholders of the Parent immediately prior to
such transaction or series of transactions;
(iii) A person, within the meaning of Section 3(a)(9)
or 13(d)(3) (as in effect on the date of this
Agreement) of the Securities Exchange Act of
1934, become the beneficial owner (as defined in
Rule 13d-3 of the Securities and Exchange
Commission pursuant to the Securities Exchange
Act of 1934) of (i) 15% or more of the voting
power of the then outstanding voting securities
of the Parent or (ii) 35% or more of the voting
power of the then-outstanding voting securities
of the Parent; PROVIDED, HOWEVER, that the
foregoing does not apply to any such acquisition
that is made by (w) any subsidiary of the
Parent; (x) any employee benefit plan of the
Parent or any Subsidiary; or (y) any person or
group of which employees of the Parent or of any
Subsidiary control a greater than 25% interest
unless the Board of Directors of the Parent
determines that such person or group is making a
"hostile acquisition;" or (z) any person or
group of which Cole is an affiliate; or
(iv) a majority of the members of the Board of
Directors of the Parent or of any Subsidiary are
not Continuing Directors, where a "CONTINUING
DIRECTOR" is any member of the Board of
Directors of the Parent or, with respect to a
Subsidiary, of such Subsidiary who (x) was a
member of the Board of Directors of the Parent
or, with respect to a Subsidiary, of such
Subsidiary on the date of this Agreement or (y)
was nominated for election or elected to such
Board of Directors with the affirmative vote of
a majority of the Continuing Directors who were
members of such Board at the time of such
nomination or election;
Cole may terminate his employment with the Subsidiaries for any reason, or
without reason, during the ninety (90) day period commencing six (6) months
after such change of control, on which termination the Subsidiaries shall pay
Cole, in a lump sum, the sum of the Termination Payment, plus at the election of
Cole, to be made as provided in Section 6(b)(F), the Benefit Payment.
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<PAGE> 9
(d) The provisions of this Section 6 are in lieu of and not in
addition to, any benefits Cole would otherwise be entitled to receive under any
severance policy in effect or hereafter adopted by the Subsidiaries unless such
Employee Plan or policy specifically provides otherwise.
(e) As used in this Agreement, "Constructive Termination"
means either
(i) a substantial, nonconsensual adverse change in Cole's
employment duties (which will, however, not include the relinquishment of Cole's
status as Chief Executive Officer if he remains the Chairman of the Board of the
Parent), or
(ii) the moving of the Parent's executive headquarters
more than 50 miles from its present location without Cole's consent.
(f) Following Cole's termination of employment, if a change of
control occurs, and if Cole is then receiving the benefits and payments provided
for in Section 6(b)(A), (B), (C), (D), and (E), Cole may elect, in the manner
specified in Section 6(b)(F), the Benefit Payment.
7. EXCISE TAX GROSS-UP. (a) In the event that it is determined
(as provided in this Agreement) that any payment or distribution by the
Subsidiaries pursuant to or for the benefit of Cole pursuant to the terms of
this Agreement or otherwise (a "PAYMENT"), would be subject to the excise tax
imposed by Section 4999 (or any successor thereto) of the Internal Revenue Code
of 1986, as amended (the "CODE"), or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are collectively referred to as the "EXCISE TAX"), then Cole will be entitled to
receive an additional payment or payments (collectively, a "GROSS-UP PAYMENT").
The Gross-Up Payment will be in an amount such that, after payment by Cole of
all taxes (including any interest or penalties imposed with respect to such
taxes), including any Excise Tax imposed upon the Gross-Up Payment equal to the
Excise Tax, Cole retains a portion of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payment.
(b) Subject to the provisions of Section 7(e), all
determinations required to be made under this Section 7, including whether an
Excise Tax is payable by Cole and the amount of such Excise Tax, and whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment, will be
made be a nationally recognized firm of certified public accountants (the
"ACCOUNTING FIRM") selected by Cole and approved by the Parent (such approval
not to be unreasonably withheld). Cole shall direct the Accounting Firm to
submit its determination and detailed supporting calculations to both the
Subsidiaries and Cole within 15 calendar days after the effective date of Cole's
termination of employment, if applicable, or such earlier time or times as may
be requested by the Subsidiaries or Cole. If the Accounting Firm determines that
any Excise
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<PAGE> 10
Tax is payable by Cole, the Subsidiaries shall pay the required Gross-Up Payment
to Cole within five business days after receipt of the aforesaid determination
and calculations. If the Accounting Firm determines that no Excise Tax is
payable by Cole, it shall, at the same time as it makes such determination,
furnish Cole with an opinion that he has substantial authority not to report any
Excise Tax on his federal income tax return. Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment to be paid by the Subsidiaries
within such 15 calendar-day period will be binding upon the Subsidiaries and
Cole. As a result of the uncertainty in the application of Section 4999 (or any
successor thereto) of the Code at the time of the initial determination by the
Accounting Firm under this Agreement, it is possible that Gross-Up Payment that
will not have been made by the Subsidiaries should have been made
("UNDERPAYMENT"), or that Gross-Up Payments will be made that are subsequently
refunded as overpayments of the amounts actually due ("OVERPAYMENTS"),
consistent with the calculations required to be made under this Agreement. In
the event that the Subsidiaries exhaust their remedies pursuant to Section 7(e)
and Cole thereafter is required to make payment of any excise Tax, Cole shall
direct the Accounting Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed supporting calculations to
both the Subsidiaries and Cole as promptly as possible. Any such Underpayment
shall be promptly paid by the Subsidiaries to or for the benefit of Cole within
three calendar days after receipt of such determination and calculations. In the
event that Cole receives any refund of an Overpayment for which he has
previously been reimbursed by the Subsidiaries, Cole shall promptly pay an
amount equal to the amount of such refund to the Subsidiaries within three
calendar days after receipt of such determination and calculations.
(c) The Subsidiaries and Cole shall each cooperate with the
Accounting Firm in connection with the preparation and issuance of the
determination provided for in Section 7(b). Such cooperation will include,
without limitation, providing the Accounting Firm access to and copies of any
books, records and documents in the possession of the Subsidiaries or Cole, as
the case may be, that are reasonably requested by the Accounting Firm. Cole will
provide the Subsidiaries and the Accounting Firm, copies of portions of such
returns, other filings or correspondence relating to the payment of any Excise
Tax as the Subsidiaries and the Accounting Firm may reasonably request.
(d) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations provided for in
Section 7(b) shall be paid by Cole. The Subsidiaries shall reimburse Cole for
his payment of such costs and expenses within five business days after receipt
from Cole of a statement therefor and evidence of his payment thereof.
(e) Cole shall notify the Subsidiaries in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Subsidiaries of a Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than 10 business days after Cole receives
notice of such claim and shall apprise the Subsidiaries of the nature of such
claim and the date on which such
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<PAGE> 11
claim is requested to be paid. Cole shall not pay such claim prior to the
earlier of (i) the expiration of the 30 calendar-day period following the date
on which he gives such notice to the Subsidiaries or (ii) the date that any
payment of taxes with respect to such claim is due. If the Subsidiaries notify
Cole in writing prior to the expiration of such period that they desire to
contest such claim Cole shall:
(i) give the Subsidiaries any information reasonably requested
by the Subsidiaries relating to such claim;
(ii) take such action in connection with contesting such claim
as the Subsidiaries reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Subsidiaries;
(iii) cooperate with the Subsidiaries in good faith in order
effectively to contest such claim; and
(iv) permit the Subsidiaries to participate in any proceeding
relating to such claim;
PROVIDED, HOWEVER, that the Subsidiaries shall bear and pay directly all costs
and expenses (including additional interest and penalties incurred in connection
with such contest) and shall indemnify and hold Cole harmless, on an after-tax
basis, for any Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of such representation and payment of costs
and expenses. Without limitation of the foregoing provisions of this Section
7(e), the Subsidiaries will control all proceedings taken in connection with
such contest and, at their sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conference with the taxing
authority in respect of such claim (but Cole may participate therein at his own
cost and expense) and may, at their sole option, either direct Cole to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and Cole agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Subsidiaries determine; PROVIDED, HOWEVER, that if the
Subsidiaries direct Cole to pay the tax claimed and sue for a refund, the
Subsidiaries shall advance the amount of such payment to Cole on an
interest-free basis and shall indemnify and hold Cole harmless, on an after-tax
basis, from any Excise Tax or income tax, including interest or penalties with
respect thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and FURTHER PROVIDED that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of Cole with respect to which the contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the
Susidiaries' control of such contest will be limited to issues with respect to
which a Gross-Up Payment would be payable under this Agreement, and Cole will be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
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(f) If, after the receipt by Cole of an amount advanced by the
Subsidiaries pursuant to Section 7(e), Cole receives any refund with respect to
such claim, Cole shall (subject to the Subsidiaries' complying with the
requirements of Section 7(e)) promptly pay to the Subsidiaries the amount of
such refund (together with any interest paid or credited thereon after any taxes
applicable thereto). If, after the receipt by Cole of any amount advanced by the
Subsidiaries pursuant to Section 7(e), a determination is made that Cole is not
entitled to any refund with respect to such claim and the Subsidiaries do not
notify Cole in writing of their intent to contest such denial or refund prior to
the expiration of 30 calendar days after such determination, then such advance
will be forgiven and will not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
8. (a) CONFIDENTIALITY. During the Term and at any time
thereafter, Cole shall not disclose, furnish, disseminate, make available, or,
except in the ordinary course of performing his duties on behalf of the
Subsidiaries or the Parent, use any trade secrets or confidential business and
technical information of the Subsidiaries, the Parent, any direct or indirect,
wholly or partially owned subsidiaries of the Parent or any of the Subsidiaries,
or customers of any of the Subsidiaries, without limitation as to when it was
acquired by him or whether it was compiled or obtained by or furnished to him
while he was employed by the Subsidiaries. Such trade secrets and confidential
business and technical information are considered to include, without
limitation, the vendor lists, vendor terms and programs, merchandise costs,
financial statistics, research data, or any other statistics and plans contained
in monthly and annual review books, profit plans, capital plans, critical
issues, annual plans, strategic plans, or merchandising, marketing, real estate,
or store operations plans. Cole specifically acknowledges that all such
information, whether reduced to writing or maintained in his mind or memory and
whether compiled by the Subsidiaries and/or the Parent and/or him, derives
independent economic value from not being readily known to or ascertainable by
proper means by others who can obtain economic value from its disclosure or use,
that reasonable efforts have been put forth by the Subsidiaries or the Parent to
maintain the secrecy of such information, that such information is and will
remain the sole property of the Subsidiaries or the Parent and that any
retention and use of such information during or after the termination of his
employment relationship with the Subsidiaries or the Parent (except in the
course of performing his duties) under this Agreement will constitute a
misappropriation of the trade secrets of the Subsidiaries on the Parent;
PROVIDED, HOWEVER, that his restriction will not apply to information which is
in the public domain or otherwise made public by other through no fault of Cole,
or as may be required by law.
(b) NON-COMPETITION. Except as may otherwise be approved in
advance by the Parent's Board of Directors, during the Term and for the period
during which he receives consulting fees pursuant to Section 9(a), and for a
period of three (3) years after the termination of his employment either for
cause or by his voluntary
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resignation, Cole shall not compete, directly or indirectly with any of the
Subsidiaries or the Parent. Without limiting the generally of the foregoing,
Cole shall not:
(i) enter into or engage in any business which competes
with business of any of the Subsidiaries or the Parent;
(ii) solicit customers, business, patronage, or orders
for, or sell, any products in competition with, or for any business that
competes with, the business of any of the Subsidiaries or the Parent; or
(iii) divert, entice, or otherwise take away any
customers, business, patronage or orders of any of the Subsidiaries or the
Parent or attempt to do so; or
(iv) promote or assist, financially or otherwise, any
person, firm, association, partnership, corporation, or any other entity engaged
in any business which he competes with the business of any of the Subsidiaries
or the Parent.
For the purposes of this Section 8(b), Cole understands, acknowledges and agrees
that he will be competing if he engages in any or all of the activities set
forth in this Section 8(b) directly as an individual for his own account, or
indirectly as a partner, joint venture, employee, agent, salesman, consultant,
officer and/or director of any firm, association, corporation, or other entity,
or as a stockholder of any corporation in which he owns, directly or indirectly,
individually or in the aggregate, more than one percent (1%) of the outstanding
stock.
(c) NON-SOLICITATION. During the Term and for the period
during which he receives consulting fees pursuant to Section 9(a), and for a
period of three (3) years after the termination of his employment either for
cause or by his voluntary resignation, Cole shall not directly or indirectly
solicit or induce or attempt to solicit or induce any employee(s) or any sales
representative(s), agent(s) or consultant(s) of any of the Subsidiaries, the
Parent or any direct or indirect, wholly or partially owned subsidiaries of the
Parent or any of the Subsidiaries to terminate their employment, representation
or other association with such entity.
(d) COOPERATION AND ASSISTANCE. During the Term and
thereafter, Cole will provide reasonable cooperation to the Parent and the
Subsidiaries in litigation and regulatory matters that relate to events that
occurred during his periods of employment with the Parent, the Subsidiaries and
its or their predecessors, and will provide reasonable assistance to the Parent
and the Subsidiaries with matters relating to their corporate history from the
periods of his employment with them or their predecessors. Cole will be entitled
to reasonable additional compensation and reimbursement of reasonable costs and
expenses relating to any such cooperation or assistance that occurs following
the Term.
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(e) REMEDIES. Cole expressly acknowledges and agrees that the
remedy at law for any breach by him of his obligations under this Section 8 will
be inadequate and that the damages flowing from such breach are not readily
susceptible to being measured in monetary terms. Accordingly, he acknowledges
and agrees that upon his violation of any obligation in this Section 8, the
Subsidiaries and/or Parent will be entitled to immediate injunctive relief and
may obtain a temporary order restraining any threatened or further breach
without the necessity of proof of actual damage. Nothing in this Agreement will
be deemed to limit the remedies of the Subsidiaries or the Parent at law or in
equity for any breach by Cole of any of the obligations in this Section 8 that
may be pursued or availed of by the Subsidiaries or the Parent.
9. POST-RETIREMENT CONSULTING SERVICES. Upon expiration of the
Term or if Cole voluntarily resigns from all offices and positions he holds at
such time with Parent and Subsidiaries (other than (x) a voluntary resignation
that occurs following Constructive Termination, or (y) if such resignation is
tendered pursuant to Section 6(c)), Cole will provide consulting services to the
Parent and the Subsidiaries upon the following terms and provisions:
(a) until the earlier of Cole's death or the tenth
anniversary of Cole's termination of employment (but
in no event after the date on which he turns 75), the
Subsidiaries shall pay Cole a consulting fee of at
least $150,000 per year for the first three (3)
years; $100,000 for the next four (4) years, and $75,
000 for the next three (3) years of such consulting
period whether or not they use Cole's services
pursuant to Section 9(b); and
(b) Cole shall make himself available to provide such
reasonable consulting services as are agreed upon at
the time of such resignation or the expiration of the
Term, but not more than 30 days per year, such
services to be provided upon reasonable notice and
with all travel and other legitimate business
expenses to be reimbursed.; and
(c) Such other terms and conditions as may be agreed.
If, after Cole becomes a consultant under this Section 9, there is a change of
control as defined in Section 6(c), the obligations of Parent and Subsidiary for
the remaining term of the consulting arrangement under this Section 9 will
accelerate and will be paid immediately to Cole in a lump sum, and Cole's
obligations under this Section 9 will terminate.
10. DIVISION OF OBLIGATIONS. (a) Subject to Sections 10(b) and
10(c), the performance of the obligations of the Subsidiaries to Cole under this
Agreement is allocated among the Subsidiaries as follows:
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<PAGE> 15
(b) In the event that any of the Subsidiaries ceases to be a
direct or indirect subsidiary of the Parent, such Subsidiary will thereupon be
relieved of any obligations under this Agreement and the performance of the
Subsidiaries' obligations to Cole under this Agreement will be reallocated,
without reducing the amount of aggregated compensation or benefits payable under
this Agreement, by the Board of Directors of the Parent; PROVIDED, HOWEVER, that
in the event that both Cole Vision and Things Remembered cease to be direct or
indirect subsidiaries of the Parent, provision will be made, immediately prior
to such event, by such subsidiaries or by the Parent, to provide Cole with
financial assurances (which may include the establishment of an escrow or trust
fund, or the provision of letters of credit from financial institutions
reasonably to Cole) on terms reasonably acceptable to Cole for the fulfillment
of the monetary obligations of the Subsidiaries under this Agreement. Except for
such financial assurances, nothing in this Section 10 is to be construed as
restricting the Parents' right to dispose of its interests in the Subsidiaries
(except as may be provided in other agreements with Cole).
(c) With respect to any obligations of the Subsidiaries not
expressed directly in monetary terms, including, without limitation, those
described in Sections 4(c), 4(e), 5 and 6(b), each of the Subsidiaries shall
bear its proportionate percentage as provided in Sections 10(a) or 10(b), as
applicable.
(d) CNG hereby guarantees the performance by each of the
Subsidiaries of its obligations under this Agreement.
(e) Each of the obligations incurred under this Agreement by
the Subsidiaries will be borne PRO RATA by each Subsidiary in its proportionate
share as provided in this Section 10, and each of the Subsidiaries will be
entitled to contributions from the other Subsidiaries for any amounts paid in
connection with any of the obligations in excess of such Subsidiary's respective
proportionate share. This Section 10(e) is intended only to define the relative
rights of the Subsidiaries, and nothing set forth in this Section 10(e) is
intended to or will impair the obligations of the Subsidiaries to pay to Cole
amounts in connection with the obligations as and when the same become due and
payable under this Agreement in accordance with the terms of this Agreement.
(f) In the event that all of the Subsidiaries cease to be
direct or indirect subsidiaries of the Parent, the obligations of the
Subsidiaries to provide continuing health insurance and life insurance benefits
pursuant to any section of the Agreement must be satisfied by delivery to Cole
of any annuity in an amount and with terms reasonably acceptable to Cole (or his
dependents or legal guardian, as applicable) and to the Board of Directors of
the Parent.
11. TERMINATION OF EXISTING AGREEMENT. Immediately upon the
effectiveness of this Agreement, the Employment Agreement shall terminate. Such
termination shall not (a) prejudice any rights Cole many have under such
Employment
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Agreement relating to obligations to have been performed by the Parent or the
Subsidiaries prior to the date of this Agreement and (b) cause Cole to receive
or become eligible for any additional payments or rights that might otherwise be
triggered by a termination of the Employment Agreement or the termination of
Cole's employment under this Agreement.
12. CHARTER PROVISIONS. (a) The Certificates of Incorporation
and By-laws of each Parent and of the Subsidiaries with respect to
indemnification and limitations on liability of officers and directors may not
be amended insofar as they relate to Cole without his consent (which will not be
unreasonably withheld).
(b) During the Term and for a period of five years following
the termination of Cole's employment with the Subsidiaries (other than
termination for cause), Parent will not change its corporate name without the
consent of Cole. This Section 12(b) will not apply if Cole has been terminated
"for cause" or following a change of control. The Parent acknowledges and agrees
that the remedy at law to Cole from a breach by the Parent of this provision
will be inadequate and that the damages flowing from such breach are not readily
susceptible to being measured in monetary terms. Accordingly, the Parent
acknowledges and agrees that upon Parents' violation of this provision, (i) Cole
will be entitled to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach without the necessity of proof of
actual damage and in addition, (ii) Cole will be released from further
obligations under Section 8. Nothing in this Agreement will be deemed to limit
the remedies of Cole at law or in equity for any breach by Parent of any of the
obligations in this provision that may be pursued or availed of by Cole.
13. CHOICE OF LAW. This Agreement was entered into, and the
negotiations proceeding this Agreement were conducted in Cleveland, Ohio, and
this Agreement is intended to be performed within the State of Ohio, which is
the principal residence of Cole. Accordingly, the validity and interpretation of
this Agreement will be determined in accordance with the internal laws of the
State of Ohio.
14. NOTICES. Any notices required or permitted to the given
under this Agreement is to be in writing and either given by personal delivery
or deemed to be delivered three (3) days after deposit, postage pre-paid, in the
U.S. certified or registered mail, return receipt requested, addressed as
follows:
If to the Subsidiaries: Cole National Corporation
5915 Landerbrook Drive
Mayfield Hts., Ohio 44124
Attention: General Counsel
If to Cole: Jeffrey A. Cole
5200 Three Village Drive
Lyndhurst, Ohio 44124
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or at such other address as is specified in written notice given in the manner
required in this Agreement.
15. WAIVER OF BREACH. The waiver by either the Subsidiaries or
Cole of a breach of any provision of this Agreement will not operate or be
construed as a waiver of any subsequent breach by either party.
16. BINDING EFFECT. This Agreement will be binding upon and
shall inure to the benefit of both Cole and the Subsidiaries and their
respective successors, heirs and legal representatives, but neither this
Agreement nor any rights under this Agreement may be assigned by Cole or the
Subsidiaries without the written consent of the other.
17. SEVERABILITY. If any portion of this Agreement is invalid
or illegal, such invalidity or illegality will not render this Agreement invalid
or illegal as a whole but the invalid or illegal portions are to be stricken
herefrom and the remainder of this Agreement will be binding on the parties and
their successors and assigns as if such invalid or illegal provisions were never
included in this Agreement from the first instance.
18. AMENDMENTS. No amendment or variation of the terms of this
Agreement will be valid unless the same are in writing signed by all parties.
19. SECTION REFERENCES. Unless otherwise specified, all
references in this Agreement to section will be construed to refer to sections
of this Agreement.
20. SETOFF. The obligations to pay Cole following termination
of his employment may be setoff at the Parent's election by the amount of any
payments then owing to the Parent or any of its subsidiaries pursuant to loans
then outstanding from the Parent or any of its subsidiaries, but only to the
extent, and when and as, such payments become due in accordance with the terms
of such loans (including by any acceleration events). Cole may, from time to
time, elect to not make any payment under such loans when due by notifying the
lender in advance of the due date for such loan payment of his election to
forego a payment then due to him under this Agreement in the amount of such loan
payment.
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This Employment Agreement has been executed by the parties on
the date and year first above written.
COLE NATIONAL CORPORATION
By: /s/ Leslie D. Dunn
--------------------------------
Title: Sr. Vice President
COLE NATIONAL GROUP, INC.
By: /s/ Leslie D. Dunn
--------------------------------
Title: Sr. Vice President
PEARLE, INC.
By: /s/ Leslie D. Dunn
--------------------------------
Title: Sr. Vice President
COLE VISION CORPORATION
By: /s/ Leslie D. Dunn
--------------------------------
Title: Sr. Vice President
THINGS REMEMBERED, INC.
By: /s/ Leslie D. Dunn
--------------------------------
Title: Sr. Vice President
/s/ Jeffrey A. Cole
-----------------------------------
Jeffrey A. Cole
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<PAGE> 1
Exhibit 10.45
EXECUTION COPY
FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of March 5, 1999 (this
"AMENDMENT"), to the Credit Agreement, dated as of November 15, 1996 (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among COLE VISION CORPORATION, a Delaware corporation ("COLE
VISION"), THINGS REMEMBERED, INC., a Delaware corporation ("THINGS REMEMBERED")
and PEARLE, INC., a Delaware corporation ("PEARLE"; Cole Vision, Things
Remembered and Pearle each being referred to as a "BORROWER" and collectively as
the "BORROWERS"), the several banks and other financial institutions from time
to time parties thereto (collectively, the "LENDERS") and CANADIAN IMPERIAL BANK
OF COMMERCE, a Canadian-chartered bank acting through its New York Agency, as
administrative agent for the Lenders thereunder (in such capacity, the
"ADMINISTRATIVE AGENT").
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders and the Administrative
Agent are parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the Administrative
Agent and the Lenders amend the Credit Agreement as set forth herein; and
WHEREAS, the Administrative Agent and the Lenders are willing
to effect such amendment, but only upon the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Borrowers, the Lenders and the
Administrative Agent hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms
defined in the Credit Agreement shall have such meanings when used herein.
2. AMENDMENT TO SUBSECTION 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended by changing the definition of "EBITDA" to read in
its entirety as follows:
"`EBITDA': for any period, with respect to CNG and its
Subsidiaries on a consolidated basis, determined in accordance
with GAAP, an amount equal to the sum of (a) Net Income for
such period, plus (b) income taxes, excluding income taxes
(either positive or negative) attributable to extraordinary
and non-recurring gains or losses or sales or other
dispositions of assets permitted under subsection 8.6, plus
(c) Interest Expense for such period, plus (d) depreciation
for such period, plus (e)
<PAGE> 2
2
amortization for such period, plus (f) any other non-cash
items (including minority interests) reducing Net Income for
such period, plus (g) amortization of deferred financing costs
and expenses for such period, minus (h) all non-cash items
increasing Net Income for such period, minus (i) all cash
payments made in such period in respect of restructuring
charges deducted in calculating Net Income for such period or
any prior period (excluding any such cash payments made in
respect of (i) the $8,000,000 pre-tax business integration
charge associated with the AVC acquisition taken by CNG during
fiscal 1997, (ii) the $61,100,000 pre-tax charge for certain
unusual and non-recurring items related to the Pearle
acquisition taken by CNG in the fourth quarter of fiscal 1996
and (iii) the $25,000,000 pre-tax restructuring charge taken
by CNG in the fourth quarter of fiscal 1998).".
3. AMENDMENT TO SUBSECTIONS 8.1(a) AND 8.1(b). Subsections
8.1(a) and 8.1(b) of the Credit Agreement are hereby amended by deleting such
subsections in their entirety and substituting in lieu thereof the following:
"(a) LEVERAGE RATIO. Permit the Leverage Ratio as of the end
of each fiscal quarter of CNG ending on or about any of the dates set
forth below to be greater than the ratio set forth opposite such date
below:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING LEVERAGE RATIO
--------------------- --------------
<S> <C> <C>
January 31, 1997 3.85 to 1.00
April 30, 1997 3.75 to 1.00
July 31, 1997 3.60 to 1.00
October 31, 1997 3.45 to 1.00
January 31, 1998 3.25 to 1.00
April 30, 1998 3.10 to 1.00
July 31, 1998 2.95 to 1.00
October 31, 1998 2.80 to 1.00
January 31, 1999 2.80 to 1.00
April 30, 1999 2.80 to 1.00
July 31, 1999 2.80 to 1.00
October 31, 1999 2.80 to 1.00
January 31, 2000 2.80 to 1.00
Thereafter 2.80 to 1.00
</TABLE>
(b) ADJUSTED INTEREST COVERAGE RATIO. Permit the Adjusted
Interest Coverage Ratio as of the end of each fiscal quarter of CNG
ending on or about any of the dates set forth below to be less than the
ratio set forth opposite such date below:
<PAGE> 3
3
<TABLE>
<CAPTION>
ADJUSTED
FISCAL QUARTER ENDING INTEREST COVERAGE RATIO
<S> <C> <C>
January 31, 1997 1.40 to 1.00
April 30, 1997 1.50 to 1.00
July 31, 1997 1.55 to 1.00
October 31, 1997 1.60 to 1.00
January 31, 1998 1.65 to 1.00
April 30, 1998 1.70 to 1.00
July 31, 1998 1.75 to 1.00
October 31, 1998 1.80 to 1.00
January 31, 1999 1.75 to 1.00
April 30, 1999 1.75 to 1.00
July 31, 1999 1.75 to 1.00
October 31, 1999 1.75 to 1.00
January 31, 2000 1.75 to 1.00
Thereafter 1.75 to 1.00".
</TABLE>
4. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby
confirms, reaffirms and restates the representations and warranties made by it
in Section 5 of the Credit Agreement, PROVIDED that each reference to the Credit
Agreement therein shall be deemed to be a reference to the Credit Agreement
after giving effect to this Amendment. Each Borrower represents and warrants
that, after giving effect to this Amendment, no Default or Event of Default has
occurred and is continuing.
5. EFFECTIVENESS. This Amendment shall be effective upon
execution and delivery by each of the Borrowers, the Administrative Agent and
the Majority Lenders.
6. CONTINUING EFFECT OF CREDIT AGREEMENT. This Amendment shall
not constitute a waiver, amendment or modification of any other provision of the
Credit Agreement not expressly referred to herein and shall not be construed as
a waiver or consent to any further or future action on the part of the Borrowers
that would require a waiver or consent of the Lenders or the Administrative
Agent. Except as expressly amended or modified herein, the provisions of the
Credit Agreement are and shall remain in full force and effect.
7. COUNTERPARTS. This Amendment may be executed by one or more
of the parties to this Amendment on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of the
copies of this Amendment signed by all the parties shall be lodged with the
Borrowers and the Administrative Agent.
<PAGE> 4
4
8. PAYMENT OF EXPENSES. The Borrowers agree, jointly and
severally, to pay or reimburse the Administrative Agent for all of its
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of this Amendment and any other documents prepared in
connection herewith, and the consummation and administration of the transactions
contemplated hereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent.
9. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
COLE VISION CORPORATION
By: /s/ J. Gaglioti
---------------------------------
Title:
THINGS REMEMBERED, INC.
By: /s/ J. Gaglioti
---------------------------------
Title:
PEARLE, INC.
By: /s/ J. Gaglioti
---------------------------------
Title:
<PAGE> 5
5
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY,
as Administrative Agent
By: /s/ Katherine Bass
---------------------------
Title: Authorized Signatory
CIBC INC.
By: /s/ Katherine Bass
---------------------------
Title: Executive Director
<PAGE> 6
6
CREDIT SUISSE FIRST BOSTON
By: /s/ Joel Glodowski
--------------------------
Title: Managing Director
By: /s/ Robert Hetu
--------------------------
Title: Vice President
<PAGE> 7
8
FIRST UNION NATIONAL BANK
By: /s/ Anne Marie Fitzsimmons Hughes
-----------------------------------
Title: Vice President
<PAGE> 8
10
NATIONAL CITY BANK
By: /s/ Chris D. Thorton
---------------------------
Title: Vice President
<PAGE> 1
Exhibit 10.46
COLE NATIONAL CORPORATION
Nonqualified Stock Option Agreement
(1998 Plan/Time Vesting/Senior Executive)
This Nonqualified Stock Option Agreement (this "Agreement") is
entered into between the individual optionee named on the signature page hereof
(the "Optionee") and Cole National Corporation, a Delaware corporation (the
"Company"), as of the Grant Date shown on the signature page. Certain
capitalized terms used herein are defined in Paragraph 8.
WHEREAS, the Board of Directors of the Company has authorized
a grant of stock options on the terms hereof to the Optionee, who is employed in
the capacity shown on the signature page; and
WHEREAS, the stock option granted by this Agreement is
intended as a nonqualified stock option and will not be treated as an "incentive
stock option" within the meaning of that term under Section 422 of the Internal
Revenue Code of 1986.
NOW, THEREFORE, the Company hereby grants to the Optionee
options (the "Options") pursuant to the Company's 1998 Equity Performance and
Incentive Plan (the "Plan") to purchase the number of shares of Common Stock,
par value $.001 per share, of the Company ("Common Stock") shown as the Original
Award on the signature page hereof; and agrees to cause certificates for any
shares purchased hereunder to be delivered to the Optionee upon payment of the
purchase price in full, all subject, however, to the terms and conditions of the
Plan and the terms and conditions hereinafter set forth.
<PAGE> 2
2
1. EXERCISE. (a) Except as otherwise provided herein, the
Options (until terminated as hereinafter provided) will become vested and
exercisable as follows:
<TABLE>
<CAPTION>
AMOUNT VESTED DATE EXERCISABLE
------------- ----------------
<S> <C>
1/3 of the Original Award The first date commencing on or after the first
anniversary of the Grant Date on which the
Stock Price has averaged at least 133% of the
Exercise Price for a continuous period of 21
Trading Days ending on such date; and
1/3 of the Original Award The first date commencing on or after the first
anniversary of the Grant Date on which the
Stock Price has averaged at least 167% of the
Exercise Price for a continuous period of 21
Trading Days ending on such date; and
1/3 of the Original Award The first date commencing on or after the first
anniversary of the Grant Date on which the
Stock Price has averaged at least 200% of the
Exercise Price for a continuous period of 21
Trading Days ending on such date.
All Unvested Shares Fifth anniversary of the Grant Date
</TABLE>
To the extent exercisable, the Options may be exercised in whole or in part from
time to time.
(b) Upon the occurrence of a Change in Control prior
to the fifth anniversary of the date of this Agreement, the Options, in addition
to any vesting pursuant to the provisions of Paragraph 1(a) above, will become
exercisable in full as to any then Unvested Shares immediately prior to the
consummation of such Change in Control.
(c) If a Termination Event occurs prior to the fifth
anniversary of the Grant Date, the Options will, in addition to any prior
vesting pursuant to Paragraph 1(a) above, immediately become exercisable in full
with respect to all Unvested Shares.
<PAGE> 3
3
(d) If the Optionee dies or becomes permanently
disabled while in the employ of the Company or any Subsidiary, or the Optionee
with the consent of the Company's Board of Directors or the Compensation
Committee thereof (the "Compensation Committee") retires under a retirement plan
of the Company or any Subsidiary the Options will, in addition to any vesting
pursuant to Paragraph 1(a) above, immediately become exercisable in full with
respect to that portion of the Unvested Shares shown below:
Prior to the first anniversary of the Grant Date 1/3rd
On or after the first anniversary but prior to
the second anniversary of the Grant Date 2/3rds
Thereafter All
(e) Any exercise of the Options must be made in
writing by the Optionee delivered to the Secretary of the Company.
2. EXERCISE PRICE AND PAYMENT; RELOAD OPTIONS. (a) The
Options will be exercisable for Vested Shares (whether such vesting occurs
pursuant to Paragraph 1(a), 1(b), 1(c) or 1(d)) at the Exercise Price shown on
the signature page hereof.
(b) The Exercise Price for any shares may be paid
(i) in cash or by check, (ii) if approved by the Compensation Committee prior to
such exercise, by delivery to the Company of a promissory note or notes of the
Optionee; PROVIDED, HOWEVER, that the principal amount of such notes for all
optionees outstanding at any one time pursuant to the Plan, the Company's 1996
Management Stock Option Plan, the Company's 1993 Management Stock Option Plan
and the Company's 1992 Management Stock Option Plan shall not in the aggregate
exceed $3,000,000, (iii) by actual or constructive transfer to the Company of
Mature Shares, or (iv) by a combination of such methods of payment.
<PAGE> 4
4
(c) If the Optionee pays the Exercise Price of
shares by delivery of Mature Shares, additional option rights ("Reload Option
Rights") shall, subject to the provisions hereinafter set forth, be
automatically granted to the Optionee equal to the sum of (i) the number of
Mature Shares transferred to the Company with respect to such Exercise Price and
(ii) the number of shares of Common Stock surrendered to the Company in payment
of the Withholding Amount associated with the Options exercised through the
delivery of Mature Shares. Reload Option Rights shall be granted as set forth in
this Paragraph 2(c) with respect to Optionee's exercise of Options prior to
their termination pursuant to Paragraph 3. In no event, however, shall Reload
Option Rights be granted unless the remainder of the original ten (10) year term
of the option being exercised is greater than six (6) months at the time of such
exercise. Reload Option Rights will not be granted with respect to any Options
that have been transferred by the original Optionee. Reload Option Rights shall
not be exercisable during the six (6) month period immediately following the
date of grant of such Reload Option Rights. The Exercise Price of such Reload
Option Rights shall be one hundred (100) percent of the Stock Price per share on
the day of the exercise of the Options to which such Reload Option Rights
relate. Such Reload Option Rights shall terminate at such time as the Options
being exercised would have terminated had they not been exercised. Such Reload
Option Rights will be evidenced by an agreement in form substantially the same
as this Agreement, with appropriate changes.
3. TERMINATION. The Options will terminate and all Unvested
and Vested Options then outstanding will be forfeited on the earliest of the
following dates:
(a) On the date on which the Optionee voluntarily
resigns (unless otherwise provided in a written agreement relating to
employment) or ceases to be an employee of the Company or a Subsidiary by reason
of termination of employment for Cause;
<PAGE> 5
5
(b) Subject to possible extension pursuant to
Paragraph 3(c) below, five years after either (i) the date on which the Optionee
ceases to be an employee of the Company or a Subsidiary by reason of retirement
under a retirement plan of the Company or a Subsidiary at or after the earliest
voluntary retirement age provided for in such retirement plan or retirement at
an earlier age with the consent of the Company's Board of Directors or the
Compensation Committee or (ii) the date of permanent disability of the Optionee
if the Optionee becomes permanently disabled while an employee of the Company or
a Subsidiary;
(c) Five years after the date of the death of the
Optionee if the Optionee dies while an employee of the Company or a Subsidiary
or one year after the date of death of the Optionee if the Optionee dies during
the fifth year of the five year period referred to in Paragraph 3(b) above;
(d) One year after the date of a Termination Event;
or
(e) Ten years from the date on which these Options
were granted.
4. TRANSFERABILITY. Unless otherwise approved by the
Compensation Committee following a request from the Optionee or the Optionee's
guardian or legal representative, the Options are not transferable by the
Optionee otherwise than by will or the laws of descent and distribution if the
recipient of the Options enters into an agreement with the Company (in form and
substance acceptable to the Company) agreeing to be bound by the provisions of
this Agreement as if such transferee were the Optionee. If exercised during the
lifetime of the Optionee, the Options are exercisable only by the Optionee or by
the Optionee's guardian or legal representative or by any transferee authorized
as provided in this paragraph.
5. SECURITIES LAWS. The Options are not exercisable if such
exercise would involve a violation of any applicable federal, state or other
securities law, and the Company hereby
<PAGE> 6
6
agrees to make reasonable efforts to comply with such securities laws. The
Options are not exercisable unless under said laws at the time of exercise the
shares of Common Stock or other securities purchasable hereunder are exempt, are
the subject matter of an exempt transaction, or are registered in accordance
with such laws.
6. ADJUSTMENTS. (a) The Board of Directors or the
Compensation Committee shall make such adjustment in the option price and in the
number or kind of shares of Common Stock or other securities covered by the
Options as such Board or Committee may in good faith determine is equitably
required to prevent dilution or enlargement of the rights of the Optionee that
otherwise would result from (i) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, or (ii) any merger, consolidation, spin-off, split-off, spin-out, split
up, reorganization, partial or complete liquidation or other distribution of
assets, issuance of rights to purchase securities, or (iii) any distribution to
the holders of the Common Stock of rights or warrant to purchase equity
interests of the Company, or (iv) any other corporate transaction or event
having an effect similar to any of the foregoing. Moreover, in the event of any
such transaction or event, the Board of Directors or the Compensation Committee,
in its discretion, may provide in substitution for any or all outstanding awards
under the Options such alternative consideration as it, in good faith, may
determine to be equitable in the circumstances and may require in connection
therewith the surrender of all awards so replaced.
(b) In the event that any provision of this
Agreement would result in a calculation of a number of shares in amounts other
than a whole number, the number of shares so calculated will be reduced or
increased to the nearest whole number (rounding 0.50 up), with the effect of any
such rounding deemed to attach to the last group of shares to be so calculated
(with calculations to be conducted in alphabetical or numerical order, as
applicable).
<PAGE> 7
7
7. WITHHOLDING. If the Company is required to withhold any
federal, state, local or foreign tax in connection with the exercise of the
Options, it will be a condition to such exercise that the Optionee pay or make
provision satisfactory to the Company for payment of all such taxes. Upon
exercise of any Options, Optionee shall surrender to the Company, by the Company
withholding from the shares of Common Stock to be issued upon such exercise to
the Optionee in satisfaction of the Withholding Amount, shares of Common Stock
that have value in the aggregate that is equal to such Withholding Amount. In
the event that Optionee desires to have an amount greater than the Withholding
Amount withheld, the excess over the Withholding Amount must be paid to the
Company in cash.
8. DEFINITIONS. The following capitalized terms have meanings
as set forth below.
"Cause" means gross neglect of duty, dishonesty, conviction
of a felony, disloyalty, intoxication, drug addiction, or other similar
misconduct adverse to the best interests of the Company; PROVIDED THAT if the
Optionee is party to an employment agreement which contains a more restrictive
definition of "Cause" or "for cause," such more restrictive definition will
apply for purposes of this Agreement.
"Change in Control" means if at any time any of the following
events shall have occurred:
(a) the Company merges into itself, or is merged or
consolidated with, another corporation and as a result of such merger or
consolidation less than 51% of the voting power of the then-outstanding voting
securities of the surviving or resulting corporation immediately after such
transaction are directly or indirectly beneficially owned in the aggregate by
the former stockholders of the Company immediately prior to such transaction;
<PAGE> 8
8
(b) all or substantially all the assets accounted for on
the consolidated balance sheet of the Company are sold or transferred to one or
more corporations or persons, and as a result of such sale or transfer less than
51% of the voting power of the then-outstanding voting securities of such
corporation or person immediately after such sale or transfer is directly or
indirectly beneficially held in the aggregate by the former stockholders of the
Company immediately prior to such transaction or series of transactions;
(c) A person, within the meaning of Section 3(a)(9) or
13(d)(3) (as in effect on the date hereof) of the Securities Exchange Act of
1934, becomes the beneficial owner (as defined in Rule 13d-3 of the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934) of (i)
15% or more but less than 35% of the voting power of the then-outstanding voting
securities of the Company without the prior approval by the Board, or (ii) 35%
or more of the voting power of the then-outstanding voting securities of the
Company; PROVIDED, HOWEVER, that the foregoing does not apply to any such
acquisition that is made by (w) any subsidiary of the Company; (x) any employee
benefit plan of the Company or any Subsidiary or (y) any person or group of
which employees of the Company or of any Subsidiary control a greater than 25%
interest unless the Board of Directors of the Company determines that such
person or group is making a "hostile acquisition;"
(d) A majority of the members of the Board of Directors of
the Company or of any Subsidiary are not Continuing Directors, where a
"Continuing Director" is any member of the Board of Directors of the Company or,
with respect to a Subsidiary, of such Subsidiary who (x) was a member of the
Board of Directors of the Company or, with respect to a Subsidiary, of such
Subsidiary on the date hereof or (y) was nominated for election or elected to
such Board of
<PAGE> 9
9
Directors with the affirmative vote of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Exercise Price" means the exercise price per share
indicated as the Exercise Price per share on the signature page hereof.
"Grant Date" means the date of the Board or Compensation
Committee action awarding the Options to the Optionee as indicated on the
signature page hereof.
"Mature Shares" means (x) nonforfeitable, unrestricted shares
of Common Stock that have been owned by the Optionee for more than six (6)
months prior to the date of exercise, or (y) shares of Restricted Stock or other
shares of Common Stock that are forfeitable or subject to restrictions on
transfer, including, without limitation, shares of Common Stock issued pursuant
to the earn out of Performance Shares or Performance Units, in each instance
issued under the Plan, or (z) such other Company securities as the Company's
chief accounting officer, upon consultation with the Company's independent
accountants, determines will not adversely affect the Company's tax or
accounting position by accepting.
"Original Award" means the number of shares of Common Stock
indicated as the Original Award on the signature page hereof.
"Person" means any corporation, partnership, limited liability
company, association, firm, other entity or individual(s).
"Stock Price" means the closing price of the Common Stock on
the principal exchange on which the Common Stock is traded.
"Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations (or a group of corporations that themselves are Subsidiaries) other
than the last corporation in the unbroken chain owns stock
<PAGE> 10
10
possessing fifty percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. For purposes of
this Agreement, the continuous employment of the Optionee with the Company or a
Subsidiary will not be deemed interrupted, and the Optionee will not be deemed
to have ceased to be an employee of the Company or any Subsidiary, by reason of
the transfer of his employment among the Company and its Subsidiaries.
"Termination Event" means the Optionee's ceasing to be an
employee of the Company or its continuing Subsidiaries by reason of either (i)
termination of the Optionee's employment without Cause or (ii) following
Constructive Termination (as such term is defined in the Employment Agreement
Optionee, the Company and certain of the Company's subsidiaries entered into as
of the date of this Agreement).
"Trading Days" means days on which the principal exchange on
which the Common Stock is traded is open for trading, regardless of whether
actual trading in the Common Stock occurs.
"Unvested Shares" means, as of any given time, those shares of
Common Stock relating to the Options that are not, at the time in question,
otherwise permitted, under the terms of this Agreement, to be acquired pursuant
to the exercise of the Options.
"Vested Shares" means, as of any given time, those shares of
Common Stock relating to the Options that are, at the time in question,
otherwise permitted, under the terms of this Agreement, to be acquired pursuant
to the exercise of the Options.
"Withholding Amount" means the minimum amount of withholding
taxes, including Federal, state and local income taxes and social security and
medicare taxes required to be withheld by the Company by the applicable taxing
authorities as the result of the exercise of an Option.
<PAGE> 11
11
9. ACKNOWLEDGMENT. The undersigned Optionee hereby
acknowledges receipt of an executed original of this Agreement and accepts the
Options granted hereunder.
<PAGE> 12
Nonqualified Stock Option
Agreement (1998 Plan/Employee)
--------------------------------
EXECUTED at Cleveland, Ohio as of the date first set forth
above.
COLE NATIONAL CORPORATION
By /s/ LESLIE D. DUNN
--------------------------------
Title Senior Vice President
/s/ JEFFREY A. COLE
--------------------------------
OPTIONEE
Name of Optionee: Jeffrey A. Cole
------------------------------------
Name of Employer: Cole National Group, Inc.
------------------------------------
Position: Chairman and Chief Executive Officer
------------------------------------
Number of Shares
in the Original Award: 250,000
------------------------------------
Date of Board Resolution
authorizing this Option: December 17, 1998
------------------------------------
Exercise Price per Share: $15.45
------------------------------------
<PAGE> 1
Exhibit 10.47
COLE NATIONAL CORPORATION
Nonqualified Stock Option Agreement
(1998 Plan/Time Vesting/Senior Executive)
This Nonqualified Stock Option Agreement (this "Agreement") is
entered into between the individual optionee named on the signature page hereof
(the "Optionee") and Cole National Corporation, a Delaware corporation (the
"Company"), as of the Grant Date shown on the signature page. Certain
capitalized terms used herein are defined in Paragraph 8.
WHEREAS, the Board of Directors of the Company has authorized
a grant of stock options on the terms hereof to the Optionee, who is employed in
the capacity shown on the signature page; and
WHEREAS, the stock option granted by this Agreement is
intended as a nonqualified stock option and will not be treated as an "incentive
stock option" within the meaning of that term under Section 422 of the Internal
Revenue Code of 1986.
NOW, THEREFORE, the Company hereby grants to the Optionee
options (the "Options") pursuant to the Company's 1998 Equity Performance and
Incentive Plan (the "Plan") to purchase the number of shares of Common Stock,
par value $.001 per share, of the Company ("Common Stock") shown as the Original
Award on the signature page hereof; and agrees to cause certificates for any
shares purchased hereunder to be delivered to the Optionee upon payment of the
purchase price in full, all subject, however, to the terms and conditions of the
Plan and the terms and conditions hereinafter set forth.
<PAGE> 2
2
1. EXERCISE. (a) Except as otherwise provided herein, the
Options (until terminated as hereinafter provided) will become vested and
exercisable as follows:
<TABLE>
<CAPTION>
AMOUNT VESTED DATE EXERCISABLE
------------ ----------------
<S> <C>
1/3 of the Original Award The first date commencing on or after the first
anniversary of the Grant Date on which the
Stock Price has averaged at least 133% of the
Exercise Price for a continuous period of 21
Trading Days ending on such date; and
1/3 of the Original Award The first date commencing on or after the first
anniversary of the Grant Date on which the
Stock Price has averaged at least 167% of the
Exercise Price for a continuous period of 21
Trading Days ending on such date; and
1/3 of the Original Award The first date commencing on or after the first
anniversary of the Grant Date on which the
Stock Price has averaged at least 200% of the
Exercise Price for a continuous period of 21
Trading Days ending on such date.
All Unvested Shares Fifth anniversary of the Grant Date
</TABLE>
To the extent exercisable, the Options may be exercised in whole or in part from
time to time.
(b) Upon the occurrence of a Change in Control prior to
the fifth anniversary of the date of this Agreement, the Options, in addition to
any vesting pursuant to the provisions of Paragraph 1(a) above, will become
exercisable in full as to any then Unvested Shares immediately prior to the
consummation of such Change in Control.
(c) If a Termination Event occurs prior to the fifth
anniversary of the Grant Date, the Options will, in addition to any prior
vesting pursuant to Paragraph 1(a) above, immediately become exercisable in full
with respect to all Unvested Shares.
<PAGE> 3
3
(d) If the Optionee dies or becomes permanently disabled
while in the employ of the Company or any Subsidiary, or the Optionee with the
consent of the Company's Board of Directors or the Compensation Committee
thereof (the "Compensation Committee") retires under a retirement plan of the
Company or any Subsidiary the Options will, in addition to any vesting pursuant
to Paragraph 1(a) above, immediately become exercisable in full with respect to
that portion of the Unvested Shares shown below:
Prior to the first anniversary of the Grant Date 1/3rd
On or after the first anniversary but prior to
the second anniversary of the Grant Date 2/3rds
Thereafter All
(e) Any exercise of the Options must be made in writing
by the Optionee delivered to the Secretary of the Company.
2. EXERCISE PRICE AND PAYMENT; RELOAD OPTIONS. (a) The
Options will be exercisable for Vested Shares (whether such vesting occurs
pursuant to Paragraph 1(a), 1(b), 1(c) or 1(d)) at the Exercise Price shown on
the signature page hereof.
(b) The Exercise Price for any shares may be paid (i) in
cash or by check, (ii) if approved by the Compensation Committee prior to such
exercise, by delivery to the Company of a promissory note or notes of the
Optionee; PROVIDED, HOWEVER, that the principal amount of such notes for all
optionees outstanding at any one time pursuant to the Plan, the Company's 1996
Management Stock Option Plan, the Company's 1993 Management Stock Option Plan
and the Company's 1992 Management Stock Option Plan shall not in the aggregate
exceed $3,000,000, (iii) by actual or constructive transfer to the Company of
Mature Shares, or (iv) by a combination of such methods of payment.
<PAGE> 4
4
(c) If the Optionee pays the Exercise Price of shares by
delivery of Mature Shares, additional option rights ("Reload Option Rights")
shall, subject to the provisions hereinafter set forth, be automatically granted
to the Optionee equal to the sum of (i) the number of Mature Shares transferred
to the Company with respect to such Exercise Price and (ii) the number of shares
of Common Stock surrendered to the Company in payment of the Withholding Amount
associated with the Options exercised through the delivery of Mature Shares.
Reload Option Rights shall be granted as set forth in this Paragraph 2 (c) with
respect to Optionee's exercise of Options prior to their termination pursuant to
Paragraph 3. In no event, however, shall Reload Option Rights be granted unless
the remainder of the original ten (10) year term of the option being exercised
is greater than six (6) months at the time of such exercise. Reload Option
Rights will not be granted with respect to any Options that have been
transferred by the original Optionee. Reload Option Rights shall not be
exercisable during the six (6) month period immediately following the date of
grant of such Reload Option Rights. The Exercise Price of such Reload Option
Rights shall be one hundred (100) percent of the Stock Price per share on the
day of the exercise of the Options to which such Reload Option Rights relate.
Such Reload Option Rights shall terminate at such time as the Options being
exercised would have terminated had they not been exercised. Such Reload Option
Rights will be evidenced by an agreement in form substantially the same as this
Agreement, with appropriate changes
3. TERMINATION. The Options will terminate and all Unvested
and Vested Options then outstanding will be forfeited on the earliest of the
following dates:
(a) On the date on which the Optionee voluntarily resigns
(unless otherwise provided in a written agreement relating to employment) or
ceases to be an employee of the Company or a Subsidiary by reason of termination
of employment for Cause;
<PAGE> 5
5
(b) Subject to possible extension pursuant to Paragraph
3(c) below, five years after either (i) the date on which the Optionee ceases to
be an employee of the Company or a Subsidiary by reason of retirement under a
retirement plan of the Company or a Subsidiary at or after the earliest
voluntary retirement age provided for in such retirement plan or retirement at
an earlier age with the consent of the Company's Board of Directors or the
Compensation Committee or (ii) the date of permanent disability of the Optionee
if the Optionee becomes permanently disabled while an employee of the Company or
a Subsidiary;
(c) Five years after the date of the death of the
Optionee if the Optionee dies while an employee of the Company or a Subsidiary
or one year after the date of death of the Optionee if the Optionee dies during
the fifth year of the five year period referred to in Paragraph 3(b) above;
(d) One year after the date of a Termination Event; or
(e) Ten years from the date on which these Options were
granted.
4. TRANSFERABILITY. Unless otherwise approved by the
Compensation Committee following a request from the Optionee or the Optionee's
guardian or legal representative, the Options are not transferable by the
Optionee otherwise than by will or the laws of descent and distribution if the
recipient of the Options enters into an agreement with the Company (in form and
substance acceptable to the Company) agreeing to be bound by the provisions of
this Agreement as if such transferee were the Optionee. If exercised during the
lifetime of the Optionee, the Options are exercisable only by the Optionee or by
the Optionee's guardian or legal representative or by any transferee authorized
as provided in this paragraph.
5. SECURITIES LAWS. The Options are not exercisable if such
exercise would involve a violation of any applicable federal, state or other
securities law, and the Company hereby
<PAGE> 6
6
agrees to make reasonable efforts to comply with such securities laws. The
Options are not exercisable unless under said laws at the time of exercise the
shares of Common Stock or other securities purchasable hereunder are exempt, are
the subject matter of an exempt transaction, or are registered in accordance
with such laws.
6. ADJUSTMENTS. (a) The Board of Directors or the
Compensation Committee shall make such adjustment in the option price and in the
number or kind of shares of Common Stock or other securities covered by the
Options as such Board or Committee may in good faith determine is equitably
required to prevent dilution or enlargement of the rights of the Optionee that
otherwise would result from (i) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, or (ii) any merger, consolidation, spin-off, split-off, spin-out, split
up, reorganization, partial or complete liquidation or other distribution of
assets, issuance of rights to purchase securities, or (iii) any distribution to
the holders of the Common Stock of rights or warrant to purchase equity
interests of the Company, or (iv) any other corporate transaction or event
having an effect similar to any of the foregoing. Moreover, in the event of any
such transaction or event, the Board of Directors or the Compensation Committee,
in its discretion, may provide in substitution for any or all outstanding awards
under the Options such alternative consideration as it, in good faith, may
determine to be equitable in the circumstances and may require in connection
therewith the surrender of all awards so replaced.
(b) In the event that any provision of this Agreement
would result in a calculation of a number of shares in amounts other than a
whole number, the number of shares so calculated will be reduced or increased to
the nearest whole number (rounding 0.50 up), with the effect of any such
rounding deemed to attach to the last group of shares to be so calculated (with
calculations to be conducted in alphabetical or numerical order, as applicable).
<PAGE> 7
7
7. WITHHOLDING. If the Company is required to withhold any
federal, state, local or foreign tax in connection with the exercise of the
Options, it will be a condition to such exercise that the Optionee pay or make
provision satisfactory to the Company for payment of all such taxes. Upon
exercise of any Options, Optionee shall surrender to the Company, by the Company
withholding from the shares of Common Stock to be issued upon such exercise to
the Optionee in satisfaction of the Withholding Amount, shares of Common Stock
that have value in the aggregate that is equal to such Withholding Amount. In
the event that Optionee desires to have an amount greater than the Withholding
Amount withheld, the excess over the Withholding Amount must be paid to the
Company in cash.
8. DEFINITIONS. The following capitalized terms have meanings
as set forth below.
"Cause" means gross neglect of duty, dishonesty, conviction
of a felony, disloyalty, intoxication, drug addiction, or other similar
misconduct adverse to the best interests of the Company; PROVIDED THAT if the
Optionee is party to an employment agreement which contains a more restrictive
definition of "Cause" or "for cause," such more restrictive definition will
apply for purposes of this Agreement.
"Change in Control" means if at any time any of the following
events shall have occurred:
(a) the Company merges into itself, or is merged or
consolidated with, another corporation and as a result of such merger or
consolidation less than 51% of the voting power of the then-outstanding voting
securities of the surviving or resulting corporation immediately after such
transaction are directly or indirectly beneficially owned in the aggregate by
the former stockholders of the Company immediately prior to such transaction;
<PAGE> 8
8
(b) all or substantially all the assets accounted for on
the consolidated balance sheet of the Company are sold or transferred to one or
more corporations or persons, and as a result of such sale or transfer less than
51% of the voting power of the then-outstanding voting securities of such
corporation or person immediately after such sale or transfer is directly or
indirectly beneficially held in the aggregate by the former stockholders of the
Company immediately prior to such transaction or series of transactions;
(c) A person, within the meaning of Section 3(a)(9) or
13(d)(3) (as in effect on the date hereof) of the Securities Exchange Act of
1934, becomes the beneficial owner (as defined in Rule 13d-3 of the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934) of (i)
15% or more but less than 35% of the voting power of the then-outstanding voting
securities of the Company without the prior approval by the Board, or (ii) 35%
or more of the voting power of the then-outstanding voting securities of the
Company; PROVIDED, HOWEVER, that the foregoing does not apply to any such
acquisition that is made by (w) any subsidiary of the Company; (x) any employee
benefit plan of the Company or any Subsidiary or (y) any person or group of
which employees of the Company or of any Subsidiary control a greater than 25%
interest unless the Board of Directors of the Company determines that such
person or group is making a "hostile acquisition;"
(d) A majority of the members of the Board of Directors
of the Company or of any Subsidiary are not Continuing Directors, where a
"Continuing Director" is any member of the Board of Directors of the Company or,
with respect to a Subsidiary, of such Subsidiary who (x) was a member of the
Board of Directors of the Company or, with respect to a Subsidiary, of such
Subsidiary on the date hereof or (y) was nominated for election or elected to
such Board of
<PAGE> 9
9
Directors with the affirmative vote of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
"Exercise Price" means the exercise price per share indicated
as the Exercise Price per share on the signature page hereof.
"Grant Date" means the date of the Board or Compensation
Committee action awarding the Options to the Optionee as indicated on the
signature page hereof.
"Mature Shares" means (x) nonforfeitable, unrestricted shares
of Common Stock that have been owned by the Optionee for more than six (6)
months prior to the date of exercise, or (y) shares of Restricted Stock or other
shares of Common Stock that are forfeitable or subject to restrictions on
transfer, including, without limitation, shares of Common Stock issued pursuant
to the earn out of Performance Shares or Performance Units, in each instance
issued under the Plan, or (z) such other Company securities as the Company's
chief accounting officer, upon consultation with the Company's independent
accountants, determines will not adversely affect the Company's tax or
accounting position by accepting.
"Original Award" means the number of shares of Common Stock
indicated as the Original Award on the signature page hereof.
"Person" means any corporation, partnership, limited liability
company, association, firm, other entity or individual(s).
"Stock Price" means the closing price of the Common Stock on
the principal exchange on which the Common Stock is traded.
"Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations (or a group of corporations that themselves are Subsidiaries) other
than the last corporation in the unbroken chain owns stock
<PAGE> 10
10
possessing fifty percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. For purposes of
this Agreement, the continuous employment of the Optionee with the Company or a
Subsidiary will not be deemed interrupted, and the Optionee will not be deemed
to have ceased to be an employee of the Company or any Subsidiary, by reason of
the transfer of his employment among the Company and its Subsidiaries.
"Termination Event" means the Optionee's ceasing to be an
employee of the Company or its continuing Subsidiaries by reason of either (i)
termination of the Optionee's employment without Cause or (ii) following a
substantial nonconsensual adverse change in the Optionee's employment duties.
"Trading Days" means days on which the principal exchange on
which the Common Stock is traded is open for trading, regardless of whether
actual trading in the Common Stock occurs.
"Unvested Shares" means, as of any given time, those shares of
Common Stock relating to the Options that are not, at the time in question,
otherwise permitted, under the terms of this Agreement, to be acquired pursuant
to the exercise of the Options.
"Vested Shares" means, as of any given time, those shares of
Common Stock relating to the Options that are, at the time in question,
otherwise permitted, under the terms of this Agreement, to be acquired pursuant
to the exercise of the Options.
"Withholding Amount" means the minimum amount of withholding
taxes, including Federal, state and local income taxes and social security and
medicare taxes required to be withheld by the Company by the applicable taxing
authorities as the result of the exercise of an Option.
9. ACKNOWLEDGMENT. The undersigned Optionee hereby
acknowledges receipt of an executed original of this Agreement and accepts the
Options granted hereunder.
<PAGE> 11
Nonqualified Stock Option
AGREEMENT (1998 PLAN/EMPLOYMENT)
--------------------------------
EXECUTED at Cleveland, Ohio as of the date first set forth
above.
COLE NATIONAL CORPORATION
By /s/ LESLIE D. DUNN
--------------------------------
Title SR. VICE PRESIDENT
--------------------------------
/s/ BRIAN B. SMITH
--------------------------------
OPTIONEE
Name of Optionee: BRIAN B. SMITH
-------------------------------------
Name of Employer: COLE NATIONAL GROUP, INC.
-------------------------------------
Position: PRESIDENT AND CHIEF OPERATING OFFICER
-------------------------------------
Number of Shares
in the Original Award: 150,000
-------------------------------------
Date of Board Resolution
authorizing this Option: DECEMBER 17, 1998
-------------------------------------
Exercise Price per Share: $15.45
-------------------------------------
<PAGE> 1
Exhibit 10.48
COLE NATIONAL CORPORATION
Nonqualified Stock Option Agreement
(1998 Plan/Time Vesting/Senior Executive)
This Nonqualified Stock Option Agreement (this "Agreement") is entered
into between the individual optionee named on the signature page hereof (the
"Optionee") and Cole National Corporation, a Delaware corporation (the
"Company"), as of the Grant Date. Certain capitalized terms used herein are
defined in Paragraph 8.
WHEREAS, the board of Directors of the Company has authorized a grant
of stock options on the terms hereof to the Optionee, who is employed in the
capacity shown on the signature page; and
NOW, THEREFORE, the Company hereby grants to the Optionee options (the
"Options") pursuant to the Company's 1998 Equity Performance and Incentive Plan
(the "Plan") to purchase the number of shares of Common Stock, par value $.001
per share, of the Company ("Common Stock") shown as the Original Award on the
signature page hereof; and agrees to cause certificates for any shares purchased
hereunder to be delivered to the Optionee upon payment of the purchase price in
full, all subject, however, to the terms and conditions of the Plan and the
terms and conditions hereinafter set forth.
1. EXERCISE. (a) Except as otherwise provided herein, the Options
(until terminated as hereinafter provided) will become vested and exercisable as
follows:
<PAGE> 2
2
<TABLE>
<CAPTION>
Amount Vested Date Exercisable
------------- ----------------
----------------------------------- -----------------------------------------------------------
<S> <C>
1/4 of the Original Award The first anniversary of the Grant Date; and
----------------------------------- -----------------------------------------------------------
1/4 of the Original Award The second anniversary of the Grant Date; and
----------------------------------- -----------------------------------------------------------
1/4 of the Original Award The third anniversary of the Grant Date; and
----------------------------------- -----------------------------------------------------------
All Unvested Shares The fourth anniversary of the Grant Date
----------------------------------- -----------------------------------------------------------
</TABLE>
To the extent exercisable, the Options may be exercised in whole or in part from
time to time.
(b) Upon the occurrence of a Change in Control prior to the fourth
anniversary of the date of this Agreement, the Options, in addition to any
vesting pursuant to the provisions of Paragraph 1(a) above, will become
exercisable in full as to any then Unvested Shares immediately prior to the
consummation of such Change in Control.
(c) If a Termination Event occurs prior to the fourth anniversary
of the Grant Date, the Options will, in addition to any prior vesting pursuant
to Paragraph 1(a) above, immediately become exercisable in full with respect to
those Unvested Shares that would have vested on the next succeeding anniversary
of the Grant Date (if the Termination Event occurs on an anniversary of the
Grant Date, no additional Options will become exercisable besides those that
became exercisable as of that anniversary). Thereupon, all remaining Unvested
Options will be forfeited and cancelled.
(d) If a Sale Event occurs prior to the fourth anniversary of the
Grant Date and the Optionee is not a Full-Time Employee of the Company or a
continuing Subsidiary immediately after the Sale Event, the Options will, in
addition to any prior vesting pursuant to Paragraph 1(a) above, immediately
become exercisable in full with respect to those Unvested Shares that would have
vested on the next succeeding anniversary of the Grant Date (if the Sale
<PAGE> 3
3
Event occurs on an anniversary of the Grant Date, no additional Options will
become exercisable besides those that became exercisable as of that
anniversary). Thereupon, all remaining Unvested Options will be forfeited and
cancelled.
(e) If the Optionee dies or becomes permanently disabled while in
the employ of the Company or any Subsidiary, or the Optionee retires under a
retirement plan of the Company or any Subsidiary, the Options will, in addition
to any vesting pursuant to Paragraph 1(a) above, immediately become exercisable
in full with respect to those Unvested Shares that would have vested on the next
succeeding anniversary of the Grant Date (if the event occurs on an anniversary
of the Grant Date, no additional Options will become exercisable besides those
that became exercisable as of that anniversary). Thereupon, all remaining
Unvested Options will be forfeited and cancelled.
(f) Any exercise of the Options must be made in writing by the
Optionee delivered to the Secretary of the Company.
2. EXERCISE PRICE AND PAYMENT; RELOAD OPTIONS. (a) The Options will be
exercisable for Vested Shares (whether such vesting occurs pursuant to Paragraph
1(a), 1(b), 1(c), 1(d) or 1(e)) at the Exercise Price shown on the signature
page hereof.
(b) The Exercise Price for any shares may be paid (i) in cash or
by check, (ii) if approved by the Compensation Committee prior to such exercise,
by delivery to the Company of a promissory note or notes of the Optionee;
PROVIDED, HOWEVER, that the principal amount of such notes for all optionees
outstanding at any one time pursuant to the Plan, the Company's 1996 Management
Stock Option Plan, the Company's 1993 Management Stock Option Plan and the
Company's 1992 Management Stock Option Plan shall not in the aggregate
<PAGE> 4
4
exceed $3,000,000, (iii) by actual or constructive transfer to the Company of
Mature Shares, or (iv) by a combination of such methods of payment.
(c) If, at a time at which the Optionee is a Full-time Employee,
the Optionee pays the Exercise Price of shares by delivery of Mature Shares,
additional option rights ("Reload Option Rights") shall, subject to the
provisions hereinafter set forth, be automatically granted to the Optionee equal
to the sum of (i) the number of Mature Shares transferred to the Company with
respect to such Exercise Price and (ii) the number of shares of Common Stock
surrendered to the Company in payment of the Withholding Amount associated with
the Options exercised through delivery of Mature Shares. In no event, however,
shall Reload Option Rights be granted unless the remainder of the original ten
(10) year term of the option being exercised is greater than six (6) months at
the time of such exercise. Such Reload Option Rights shall not be exercisable
during the six (6) month period immediately following the date of grant of such
Reload Option Rights. The Exercise Price of such Reload Option Rights shall be
one hundred (100) percent of the Stock Price per share on the day of the
exercise of the Options to which such Reload Option Rights relate. Such Reload
Option Rights shall terminate at such time as the Options being exercised would
have terminated had they not been exercised. Such Reload Option Rights will be
evidenced by an agreement in form substantially the same as this Agreement, with
appropriate changes. Reload Option Rights will not be granted with respect to
any Options that have been transferred by the original Optionee.
3. TERMINATION. The Options will terminate and all Unvested and Vested
Options then outstanding will be forfeited on the earliest of the following
dates:
<PAGE> 5
5
(a) On the date on which the Optionee voluntarily resigns (unless
otherwise provided in a written agreement relating to employment) or ceases to
be an employee of the Company or a Subsidiary by reason of termination of
employment for Cause;
(b) Subject to possible extension pursuant to Paragraph 3(c)
below, five years after either (i) the date on which the Optionee ceases to be
an employee of the Company or a Subsidiary by reason of retirement under a
retirement plan of the Company or a Subsidiary at or after the earliest
voluntary retirement age provided for in such retirement plan or retirement at
an earlier age with the consent of the Company's Board of Directors or the
Compensation Committee or (ii) the date of permanent disability of the Optionee
if the Optionee becomes permanently disabled while an employee of the Company or
a Subsidiary;
(c) Five years after the date of the death of the Optionee if the
Optionee dies while an employee of the Company or a Subsidiary or one year after
the date of death of the Optionee if the Optionee dies during the fifth year of
the five year period referred to in Paragraph 3(b) above;
(d) One year after the date of a Termination Event;
(e) On the first anniversary of the date of a Sale Event if the
Optionee is not a Full-Time Employee of the Company or a continuing Subsidiary
immediately after the Sale Event;
(f) Immediately (x) upon the Optionee accepting employment with a
Competitor without the prior written approval of the Company's Chief Executive
Officer or (y)
<PAGE> 6
6
upon a material breach by the Optionee of any applicable agreement with the
Company or a Subsidiary relating to non-competition, non-solicitation or
maintaining of Company confidences; or
(g) Ten years from the Grant Date.
4. TRANSFERABILITY. Unless otherwise approved by the Compensation
Committee following a request from the Optionee or the Optionee's guardian or
legal representative, the Options are not transferable by the Optionee otherwise
than by will or the laws of descent and distribution. If another type of
transfer is approved by the Compensation Committee, a transfer will only be
effective when the transferee of the Options enters into an agreement with the
Company (in form and substance acceptable to the Company) agreeing to be bound
by the provisions of this Agreement as if such transferee were the Optionee. If
exercised during the lifetime of the Optionee, the Options are exercisable only
by the Optionee or by the Optionee's guardian or legal representative, or by an
transferee authorized as provided in this Paragraph.
5. SECURITIES LAWS. The Options are not exercisable if such exercise
would involve a violation of any applicable federal, state or other securities
law, and the Company hereby agrees to make reasonable efforts to comply with
such securities laws. The Options are not exercisable unless under said laws at
the time of exercise the shares of Common Stock or other securities purchasable
hereunder are exempt, are the subject matter of an exempt transaction, or are
registered in accordance with such laws.
6. ADJUSTMENTS. (a)The Board of Directors or the Compensation Committee
shall make such adjustment in the option price and in the number or kind of
shares of
<PAGE> 7
7
Common Stock or other securities covered by the Options as such Board or
Committee may in good faith determine is equitably required to prevent dilution
or enlargement of the rights of the Optionee that otherwise would result from
(i) any stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of the Company, or (ii) any merger,
consolidation, spin-off, split-off, spin-out, split up, reorganization, partial
or complete liquidation or other distribution of assets, issuance of rights to
purchase securities, or (iii) any distribution to the holders of the Common
Stock of rights or warrant to purchase equity interests of the Company, or (iv)
any other corporate transaction or event having an effect similar to any of the
foregoing. Moreover, in the event of any such transaction or event, the Board of
Directors or the Compensation Committee, in its discretion, may provide in
substitution for any or all outstanding awards under the Options such
alternative consideration as it, in good faith, may determine to be equitable in
the circumstances and may require in connection therewith the surrender of all
awards so replaced.
(b) In the event that any provision of this Agreement would result
in a calculation of a number of shares in amounts other than a whole number, the
number of shares so calculated will be reduced or increased to the nearest whole
number (rounding 0.50 up), with the effect of any such rounding deemed to attach
to the last group of shares to be so calculated (with calculations to be
conducted in alphabetical or numerical order, as applicable).
7. WITHHOLDING. If the Company is required to withhold any federal,
state, local or foreign tax in connection with the exercise of the Options, it
will be a condition to such exercise that the Optionee make provision
satisfactory to the Company for payment of all such taxes. Upon exercise of any
Options, Optionee shall surrender to the Company, by the Company
<PAGE> 8
8
withholding from the shares of Common Stock to be issued upon such exercise to
the Optionee, in satisfaction of the Withholding Amount, shares of Common Stock
that have value in the aggregate that is equal to such Withholding Amount. In
the event that the Optionee desires to have an amount greater than the
Withholding Amount withheld, the excess over the Withholding Amount must be paid
to the Company in cash.
8. DEFINITIONS. The following capitalized terms have meanings as set
forth below.
"Cause" means gross neglect of duty, dishonesty, conviction of a
felony, disloyalty, intoxication, drug addiction, or other similar misconduct
adverse to the best interests of the Company.
"Change in Control" means if at any time any of the following events
shall have occurred:
(a) the Company merges into itself, or is merged or consolidated
with, another corporation and as a result of such merger or consolidation less
than 51% of the voting power of the then-outstanding voting securities of the
surviving or resulting corporation immediately after such transaction are
directly or indirectly beneficially owned in the aggregate by the former
stockholders of the Company immediately prior to such transaction;
(b) all or substantially all the assets accounted for on the
consolidated balance sheet of the Company are sold or transferred to one or more
corporations or persons, and as a result of such sale or transfer less than 51%
of the voting power of the then-outstanding voting securities of such
corporation or person immediately after such sale or transfer is directly
<PAGE> 9
9
or indirectly beneficially held in the aggregate by the former stockholders of
the Company immediately prior to such transaction or series of transactions;
(c) A person, within the meaning of Section 3(a)(9) or 13(d)(3)
(as in effect on the date hereof) of the Securities Exchange Act of 1934,
becomes the beneficial owner (as defined in Rule 13d-3 of the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934) of (i) 15%
or more but less than 35% of the voting power of the then- outstanding voting
securities of the Company without the prior approval by the Board, or (ii) 35%
or more of the voting power of the then-outstanding voting securities of the
Company; PROVIDED, HOWEVER, that the foregoing does not apply to any such
acquisition that is made by (w) any subsidiary of the Company; (x) any employee
benefit plan of the Company or of any Subsidiary or (y) any person or group of
which employees of the Company or of any Subsidiary control a greater than 25%
interest unless the Board of Directors of the Company determines that such
person or group is making a "hostile acquisition;"
(d) A majority of the members of the Board of Directors of the
Company or of any Subsidiary are not Continuing Directors, where a "Continuing
Director" is any member of the Board of Directors of the Company or, with
respect to a Subsidiary, of such Subsidiary who (x) was a member of the Board of
Directors of the Company or, with respect to a Subsidiary, of such Subsidiary on
the date hereof or (y) was nominated for election or elected to such Board of
Directors with the affirmative vote of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
"Competitor" means any Person that competes with any then-existing
business of the Company or any Subsidiary.
<PAGE> 10
10
"Exercise Price" means the exercise price per share indicated as
the Exercise Price per share on the signature page hereof.
"Full-time Employee" means a person having the status of a
full-time employee of the Company or a Subsidiary working at least 20 hours a
week, including a person who is on a short-term disability, parental or other
leave under an applicable benefit plan or other approved leave.
"Grant Date" means the date of the Board or Compensation Committee
action awarding the Options to the Optionee as indicated on the signature page
hereof.
"Mature Shares" means (x) nonforfeitable, unrestricted shares of
Common Stock that have been owned by the Optionee for more than six (6) months
prior to the date of exercise, or (y) shares of restricted stock or other shares
of Common Stock that are forfeitable or subject to restrictions on transfer,
including, without limitation, shares of Common Stock issued pursuant to the
earn out of performance shares or performance units, which shares have been
owned by the Optionee for more than six (6) months and that the Company agrees
to accept as consideration, or (z) such other Company securities as the
Company's chief accounting officer, upon consultation with the Company's
independent accountants, determines will not adversely affect the Company's tax
or accounting position by accepting.
"Original Award" means the number of shares of Common Stock
indicated as the Original Award on the signature page hereof.
"Person" means any corporation, partnership, limited liability
company, association, firm, other entity or individual(s).
<PAGE> 11
11
"Sale Event" means the consummation of a sale or other event by
which the Subsidiary by which the Optionee is primarily employed ceases to be a
Subsidiary of the Company.
"Stock Price" means the closing price of the Common Stock on the
principal exchange on which the Common Stock is traded.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (or a group of corporations that themselves are Subsidiaries) other
than the last corporation in the unbroken chain owns stock possessing fifty
percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain. For purposes of this Agreement, the
continuous employment of the Optionee with the Company or a Subsidiary will not
be deemed interrupted, and the Optionee will not be deemed to have ceased to be
an employee of the Company or any Subsidiary, by reason of the transfer of his
employment among the Company and its Subsidiaries.
"Termination Event" means the Optionee's ceasing to be an employee
of the Company or its Subsidiaries by reason of termination by the employer of
the Optionee's employment without Cause.
"Trading Days" means days on which the principal exchange on which
the Common Stock is traded is open for trading, regardless whether actual
trading in the Common Stock occurs.
<PAGE> 12
12
"Unvested Shares" means, as of any given time, those shares of
Common Stock relating to the Options that are not, at the time in question,
otherwise permitted, under the terms of this Agreement, to be acquired pursuant
to the exercise of the Options.
"Vested Shares" means, as of any given time, those shares of
Common Stock relating to the Options that are, at the time in question,
otherwise permitted, under the terms of this Agreement, to be acquired pursuant
to the exercise of the Options.
"Withholding Amount" means the minimum amount of withholding taxes
including Federal, state and local income taxes and social security and Medicare
taxes required to be withheld by the Company by the applicable taxing
authorities, as the result of the exercise of an Option.
9. ACKNOWLEDGMENT. The undersigned Optionee hereby acknowledges receipt
of an executed original of this Agreement and accepts the Options granted
hereunder.
<PAGE> 13
13
Nonqualified Stock Option
Agreement (1998 Plan/Senior Executive)
--------------------------------------
EXECUTED at Cleveland, Ohio as of the date first set forth above.
COLE NATIONAL CORPORATION
By:____________________________________
Title:_________________________________
_______________________________________
OPTIONEE
Name of Optionee: _______________________________________
Name of Employer: _______________________________________
Position: _______________________________________
Number of Shares
in the Original Award: _______________________________________
Date of Board Resolution
authorizing this Option: _______________________________________
Exercise Price per Share: _______________________________________
<PAGE> 1
Exhibit 10.49
COLE NATIONAL CORPORATION
Restricted Stock Agreement
--------------------------
THIS RESTRICTED STOCK AGREEMENT (as amended, modified or supplemented
from time to time, this "AGREEMENT") is made by and between Cole National
Corporation, a Delaware corporation (the "COMPANY"), and Jeffrey A. Cole, an
individual residing in the State of Ohio (the "GRANTEE").
PRELIMINARY STATEMENTS:
A. The Grantee is an employee of Cole National Group, Inc., a Delaware
corporation, Cole Vision Corporation, a Delaware corporation, and Things
Remembered, Inc., a Delaware corporation; and
B. The execution of a restricted stock agreement in the form hereof has
been authorized by a resolution of the Special Compensation Committee (the
"COMMITTEE") of the Board of Directors of the Company (the "BOARD");
NOW, THEREFORE, in consideration of the Grantee's acceptance
of the terms and conditions of this Agreement, and subject to the terms of this
Agreement, the Company hereby grants to the Grantee 225,000 shares (together
with all other shares of Common Stock that become subject to this Agreement,
collectively, the "SHARES") of the Company's common stock, par value $.001 per
share ("COMMON STOCK"), 123,750 Shares (the "PLAN SHARES") of which are granted
pursuant to and are subject to the terms and conditions of the Company's 1998
Equity and Incentive Performance Plan (the "PLAN"),and 101,250 of which are to
be issued out of the Company's treasury solely pursuant to this Agreement (the
"NON-PLAN SHARES"):
AGREEMENT:
1. ISSUANCE OF COMMON STOCK. The Shares will be issued on the
date of this Agreement as fully paid and nonassessable shares and will be
represented by certificates registered in the name of the Grantee and bearing a
legend referring to the restrictions set forth in this Agreement.
2. RESTRICTION ON TRANSFER OF COMMON STOCK. The Shares may not
be transferred, sold, pledged, exchanged, assigned or otherwise encumbered or
disposed of by the Grantee, except to the Company, until they have become
nonforfeitable in accordance with Section 3 of this Agreement; PROVIDED,
HOWEVER, that the Grantee's interest in the Shares may be transferred at any
time by will or the laws of descent and distribution if the recipient of the
Shares enters into an agreement with the Company (in form and substance
acceptable to the Company) agreeing to be bound by the provisions of this
Agreement as if such transferee were the Grantee. Any purported transfer,
encumbrance or other disposition of the Shares that is in violation of this
Section 2 will be
<PAGE> 2
null and void, and the other party to any such purported transaction will not
obtain any rights to or interest in the Shares. When and as permitted by the
Plan, the Committee or the Board may waive the restrictions set forth in this
Section 2 with respect to all or any portion of the Shares granted under the
Plan.
3. VESTING OF COMMON STOCK. (a) Except as set forth in Section
4, the Non-Plan Shares are nonforfeitable. The Plan Shares will become
nonforfeitable upon the occurrence of the following:
<TABLE>
<CAPTION>
Amount Nonforfeitable Date Nonforfeitable
--------------------- -------------------
<S> <C>
1/3 of the Plan Shares On the first date on or after March 1,
2002 on which the Stock Price has
averaged at least 133% of the Initial
Price for a continuous period of 21
consecutive Trading Days ending on such
date.
1/3 of the Plan Shares On the first date on or after March 1,
2002 on which the Stock Price has
averaged at least 167% of the Initial
Price for a continuous period of 21
consecutive Trading Days ending on such
date.
1/3 of the Plan Shares On the first date on or after March 1,
2002 on which the Stock Price has
averaged at least 200% of the Initial
Price for a continuous period of 21
consecutive Trading Days ending on such
date.
All Plan Shares not otherwise March 1, 2004.
Nonforfeitable
</TABLE>
For purposes of this Agreement, the continuous employment of the Grantee with
the Company or a Subsidiary will not be deemed to have been interrupted, and the
Grantee will not be deemed to have ceased to be an employee of the Company or a
Subsidiary, by reason of the transfer of his employment among the Company and
its subsidiaries or a leave of absence approved by the Committee.
(b) Notwithstanding the provisions of Section 3(a), all of the Shares
will immediately become nonforfeitable if a Change in Control occurs after the
Grant Date. "CHANGE OF CONTROL" means if at any time any of the following events
has occurred:
(i) the Company merges itself, or is merged or consolidated with,
another corporation and as a result of such merger or
consolidation less than 51% of the voting power of the
then-outstanding voting securities of the surviving
corporation immediately after such transaction are directly or
indirectly
2
<PAGE> 3
beneficially owned in the aggregate by the former stockholders
of the Company immediately prior to such transaction;
(ii) all or substantially all the assets accounted for on the
Consolidated Balance Sheet of the Company are sold or
transferred to one or more corporations or persons, and as a
result of such sale or transfer less than 51% of the voting
power of the then-outstanding voting securities of such
corporation or person immediately after such sale or transfer
is directly or indirectly beneficially held in the aggregate
by the former stockholders of the Company immediately prior to
such transaction or series of transactions;
(iii) a person, within the meaning of Section 3(a)(9) or 13(d)(13)
(as in effect on the date of the award) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), becomes
the beneficial owner (as defined in Rule 13d-3 of the
Securities and Exchange Commission pursuant to the Exchange
Act) of (i) 15% or more but less than 35% of the voting power
of the then-outstanding voting securities of the Company
without prior approval of the Company's Board, or (ii) 35% or
more of the voting power of the then-outstanding voting
securities of the Company; PROVIDED, HOWEVER, that the
foregoing does not apply to any such acquisition that is made
by (w) any Subsidiary of the Company (x) any employee benefit
plan of the Company or any Subsidiary or (y) any person or
group of which employees of the Company or of any Subsidiary
control a greater than 25% interest unless the Board
determines that such person or group is making a "hostile
acquisition;"
(iv) a majority of the members of the Board or of any Subsidiary
are not Continuing Directors, where a "CONTINUING DIRECTOR" is
any member of the Board or, with respect to a Subsidiary, of
such Subsidiary who (x) was a member of the Board or, with
respect to a Subsidiary, of such Subsidiary on the date of the
award or (y) was nominated for election or elected to such
Board with the affirmative vote of a majority of the
Continuing Directors who were members of such Board at the
time of such nomination or election.
(c) Notwithstanding the provisions of Section 3(a), all of the Shares
will immediately become nonforfeitable if the Grantee (i) dies or becomes
disabled (as defined in the Plan) while in the employ of the Company or a
Subsidiary after the Grant Date, or (ii) with the consent of the Board or the
Committee, retires after the Grant Date from the Company or a Subsidiary under a
retirement plan of the Company of any Subsidiary, or (iii) suffers Constructive
Termination (as such term is defined in the Employment Agreement among Grantee,
the Company and certain of the Company's subsidiaries, entered into as of the
date of this Agreement), or (iv) the Term of such Employment Agreement ends
prior to March 1, 2004, or (v) Grantee's employment is terminated without cause.
3
<PAGE> 4
4. TERMINATION OF RIGHTS AND FORFEITURE OF COMMON STOCK. Except for
Shares that have become nonforfeitable, all of the Shares will be forfeited if
the Grantee ceases to be employed by the Company or a Subsidiary at any time
prior to the fifth anniversary of the Grant Date, unless the Committee
determines to provide otherwise at the time of the cessation of the Grantee's
employment. All of the Non-Plan Shares will be forfeited on the 31st day after
the Grant Date, if Grantee fails to comply with Section 14. In the event of a
forfeiture, any certificate(s) representing the Shares will be canceled.
5. DIVIDEND, VOTING AND OTHER RIGHTS. (a) Except as otherwise provided
in this Agreement, the Grantee will have all of the rights of a stockholder with
respect to the Shares, including the right to vote the Shares and receive any
dividends that may be paid thereon; provided, however, that any additional
shares of Common Stock or other securities that the Grantee may become entitled
to receive pursuant to a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, separation or reorganization or any
other change in the capital structure of the Company will be subject to the same
restrictions as the Shares.
(b) Cash dividends, if any, and any other distributions paid on the
Shares will be sequestered by the Company until such time as such Shares become
nonforfeitable in accordance with Section 3 and will, to the extent practicable,
be deemed to be reinvested (at the Stock Price on the dividend payment date) on
an immediate basis in additional shares of Common Stock from the Company's
treasury, which will be subject to the same restrictions as the underlying
Shares granted under this Agreement. If Shares are forfeited pursuant to Section
4, all dividends and other distributions, together with the earnings thereon,
with respect to such Shares will likewise be forfeited.
6. RETENTION OF STOCK CERTIFICATE(S) BY COMPANY. Any certificates
representing Shares will be held in custody by the Company together with a stock
power endorsed in blank by the Grantee with respect thereto, until those shares
have become nonforfeitable in accordance with Section 3.
7. COMPLIANCE WITH LAW. The Company shall make reasonable efforts to
comply with all applicable federal, state and other applicable securities laws;
provided, however, notwithstanding any other provision of this Agreement, the
Company will not be obligated to issue any securities pursuant to this Agreement
if the issuance thereof would result in a violation of any such law. Grantee
acknowledges that Grantee is an executive officer of the Company, has complete
access to the Company's financial and other information, is fully capable of
making an investment decision concerning the Company's Common Stock without
assistance of third parties, and has no intention to distribute any of the
Shares to third parties.
8. WITHHOLDING TAXES. If the Company is required to withhold any
federal, state, local or foreign tax in connection with any issuance of
restricted or nonrestricted shares of Common Stock or other securities pursuant
to this Agreement, the Grantee shall pay the tax or make provisions that are
satisfactory to the Company for the payment thereof.
4
<PAGE> 5
9. RIGHT TO TERMINATE EMPLOYMENT. No provision of this Agreement will
limit in any way whatsoever any right that the Company or a Subsidiary may
otherwise have to terminate the employment of the Grantee at any time.
10. RELATION TO OTHER BENEFITS. Any economic or other benefit to the
Grantee under this Agreement or the Plan shall not be taken into account in
determining any benefits to which the Grantee may be entitled under any
profit-sharing, retirement or other benefit or compensation plan maintained by
the Company or a Subsidiary and shall not affect the amount of any insurance
coverage available to any beneficiary under any insurance plan covering
employees of the Company or a Subsidiary.
11. AMENDMENTS. Any amendment to the Plan shall be deemed to be an
amendment to this Agreement to the extent that the amendment is applicable
hereto; provided, however, that no amendment shall adversely affect the rights
of the Grantee with respect to the Shares or other securities covered by this
Agreement without the Grantee's consent.
12. SEVERABILITY. In the event that one or more of the provisions of
this Agreement are invalidated for any reason by a court of competent
jurisdiction, any provision so invalidated will be deemed to be separable from
the other provisions hereof, and the remaining provisions hereof will continue
to be valid and fully enforceable.
13. GOVERNING LAW. This Agreement is made under, and will be construed
in accordance with, the laws of the State of Ohio without regard to conflict of
law principles of such state.
14. TAXES. Grantee will make a proper election under Section 83(b) of
the Internal Revenue Code of 1986, as amended, no later than 30 days after the
date of this Agreement with respect to all of the Shares.
15. DEFINITIONS. As used in this Agreement, the following terms have
the following meanings:
"GRANT DATE" means the date of the Board or Committee action awarding
the Shares to the Grantee as indicated on the signature page of this Agreement.
"INITIAL PRICE" means $15.45.
"STOCK PRICE" means the closing price of the Common Stock on the
principal exchange on which the Common Stock is traded.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of such
corporations (or a group of corporations that themselves are Subsidiaries) other
than the last corporation in the unbroken chain owns stock possessing fifty
percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
5
<PAGE> 6
"TRADING DAYS" means days on which the principal exchange on which the
Common Stock is traded is open for trading, regardless of whether actual trading
in the Common Stock occurs.
This Restricted Stock Agreement has been executed by the parties at
Cleveland, Ohio as of December 17, 1998.
COLE NATIONAL CORPORATION
By: /s/ Leslie D. Dunn
--------------------------
Name: Leslie D. Dunn
Tittle: Sr. Vice President
/s/ Jeffrey A. Cole
-------------------------------
Jeffrey A. Cole
<PAGE> 1
Exhibit 10.50
COLE NATIONAL CORPORATION
Restricted Stock Agreement
--------------------------
THIS RESTRICTED STOCK AGREEMENT (as amended, modified or supplemented
from time to time, this "AGREEMENT") is made by and between Cole National
Corporation, a Delaware corporation (the "COMPANY"), and Brian B. Smith, an
individual residing in the State of Ohio (the "GRANTEE").
PRELIMINARY STATEMENTS:
A. The Grantee is an employee of Cole National Group, Inc., a Delaware
corporation, Cole Vision Corporation, a Delaware corporation, and Things
Remembered, Inc., a Delaware corporation; and
B. The execution of a restricted stock agreement in the form hereof has
been authorized by a resolution of the Special Compensation Committee (the
"COMMITTEE") of the Board of Directors of the Company (the "BOARD");
NOW, THEREFORE, in consideration of the Grantee's acceptance of
the terms and conditions of this Agreement, and subject to the terms of this
Agreement, the Company hereby grants to the Grantee 100,000 shares (together
with all other shares of Common Stock that become subject to this Agreement,
collectively, the "SHARES") of the Company's common stock, par value $.001 per
share ("COMMON STOCK"), 55,000 Shares (the "PLAN SHARES") of which are granted
pursuant to and are subject to the terms and conditions of the Company's 1998
Equity and Incentive Performance Plan (the "PLAN"),and 45,000 of which are to be
issued out of the Company's treasury solely pursuant to this Agreement (the
"NON-PLAN SHARES"):
AGREEMENT:
1. ISSUANCE OF COMMON STOCK. The Shares will be issued on the
date of this Agreement as fully paid and nonassessable shares and will be
represented by certificates registered in the name of the Grantee and bearing a
legend referring to the restrictions set forth in this Agreement.
2. RESTRICTION ON TRANSFER OF COMMON STOCK. The Shares may not
be transferred, sold, pledged, exchanged, assigned or otherwise encumbered or
disposed of by the Grantee, except to the Company, until they have become
nonforfeitable in accordance with Section 3 of this Agreement; PROVIDED,
HOWEVER, that the Grantee's interest in the Shares may be transferred at any
time by will or the laws of descent and distribution if the recipient of the
Shares enters into an agreement with the Company (in form and substance
acceptable to the Company) agreeing to be bound by the provisions of this
Agreement as if such transferee were the Grantee. Any purported transfer,
encumbrance or other disposition of the Shares that is in violation of this
Section 2 will be
<PAGE> 2
null and void, and the other party to any such purported transaction will not
obtain any rights to or interest in the Shares. When and as permitted by the
Plan, the Committee or the Board may waive the restrictions set forth in this
Section 2 with respect to all or any portion of the Shares granted under the
Plan.
3. VESTING OF COMMON STOCK. (a) Except as set forth in Section
4, the Non-Plan Shares are nonforfeitable. The Plan Shares will become
nonforfeitable upon the occurrence of the following:
<TABLE>
<CAPTION>
Amount Nonforfeitable Date Nonforfeitable
--------------------- -------------------
<S> <C>
1/3 of the Plan Shares On the first date on or after March 1, 2002
on which the Stock Price has averaged at
least 133% of the Initial Price for a
continuous period of 21 consecutive Trading
Days ending on such date.
1/3 of the Plan Shares On the first date on or after March 1, 2002
on which the Stock Price has averaged at
least 167% of the Initial Price for a
continuous period of 21 consecutive Trading
Days ending on such date.
1/3 of the Plan Shares On the first date on or after March 1, 2002
on which the Stock Price has averaged at
least 200% of the Initial Price for a
continuous period of 21 consecutive Trading
Days ending on such date.
All Plan Shares not otherwise March 1, 2004.
Nonforfeitable
</TABLE>
For purposes of this Agreement, the continuous employment of the Grantee with
the Company or a Subsidiary will not be deemed to have been interrupted, and the
Grantee will not be deemed to have ceased to be an employee of the Company or a
Subsidiary, by reason of the transfer of his employment among the Company and
its subsidiaries or a leave of absence approved by the Committee.
(b) Notwithstanding the provisions of Section 3(a), all of the
Shares will immediately become nonforfeitable if a Change in Control occurs
after the Grant Date. "CHANGE OF CONTROL" means if at any time any of the
following events has occurred:
(i) the Company merges itself, or is merged or
consolidated with, another corporation and as a
result of such merger or consolidation less than 51%
of the voting power of the then-outstanding voting
securities of the surviving corporation immediately
after such transaction are directly or indirectly
2
<PAGE> 3
beneficially owned in the aggregate by the former
stockholders of the Company immediately prior to such
transaction;
(ii) all or substantially all the assets accounted for on
the Consolidated Balance Sheet of the Company are
sold or transferred to one or more corporations or
persons, and as a result of such sale or transfer
less than 51% of the voting power of the
then-outstanding voting securities of such
corporation or person immediately after such sale or
transfer is directly or indirectly beneficially held
in the aggregate by the former stockholders of the
Company immediately prior to such transaction or
series of transactions;
(iii) a person, within the meaning of Section 3(a)(9) or
13(d)(13) (as in effect on the date of the award) of
the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), becomes the beneficial owner (as
defined in Rule 13d-3 of the Securities and Exchange
Commission pursuant to the Exchange Act) of (i) 15%
or more but less than 35% of the voting power of the
then-outstanding voting securities of the Company
without prior approval of the Company's Board, or
(ii) 35% or more of the voting power of the
then-outstanding voting securities of the Company;
provided, however, that the -------- -------
foregoing does not apply to any such acquisition that
is made by (w) any Subsidiary of the Company (x) any
employee benefit plan of the Company or any
Subsidiary or (y) any person or group of which
employees of the Company or of any Subsidiary control
a greater than 25% interest unless the Board
determines that such person or group is making a
"hostile acquisition;"
(iv) a majority of the members of the Board or of any
Subsidiary are not Continuing Directors, where a
"CONTINUING DIRECTOR" is any member of the Board or,
with respect to a Subsidiary, of such Subsidiary who
(x) was a member of the Board or, with respect to a
Subsidiary, of such Subsidiary on the date of the
award or (y) was nominated for election or elected to
such Board with the affirmative vote of a majority of
the Continuing Directors who were members of such
Board at the time of such nomination or election.
(c) Notwithstanding the provisions of Section 3(a), all of the
Shares will immediately become nonforfeitable if the Grantee (i) dies or becomes
disabled (as defined in the Plan) while in the employ of the Company or a
Subsidiary after the Grant Date, or (ii) with the consent of the Board or the
Committee, retires after the Grant Date from the Company or a Subsidiary under a
retirement plan of the Company of any Subsidiary, or (iii) terminates his
employment following Constructive Termination (as such term is defined in
Section 15 hereof), or (iv) the Term of the Employment Agreement dated April 1,
1996 among the Grantee, the Company and certain Subsidiaries ends prior March 1,
2004 and no new employment agreement has been entered into, or (v) Grantee's
employment is terminated without cause.
3
<PAGE> 4
4. TERMINATION OF RIGHTS AND FORFEITURE OF COMMON STOCK.
Except for Shares that have become nonforfeitable, all of the Shares will be
forfeited if the Grantee ceases to be employed by the Company or a Subsidiary at
any time prior to the fifth anniversary of the Grant Date, unless the Committee
determines to provide otherwise at the time of the cessation of the Grantee's
employment. All of the Non-Plan Shares will be forfeited on the 31st day after
the Grant Date, if Grantee fails to comply with Section 14. In the event of a
forfeiture, any certificate(s) representing the Shares will be canceled.
5. DIVIDEND, VOTING AND OTHER RIGHTS. (a) Except as otherwise
provided in this Agreement, the Grantee will have all of the rights of a
stockholder with respect to the Shares, including the right to vote the Shares
and receive any dividends that may be paid thereon; provided, however, that any
additional shares of Common Stock or other securities that the Grantee may
become entitled to receive pursuant to a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, separation or
reorganization or any other change in the capital structure of the Company will
be subject to the same restrictions as the Shares.
(b) Cash dividends, if any, and any other distributions paid
on the Shares will be sequestered by the Company until such time as such Shares
become nonforfeitable in accordance with Section 3 and will, to the extent
practicable, be deemed to be reinvested (at the Stock Price on the dividend
payment date) on an immediate basis in additional shares of Common Stock from
the Company's treasury, which will be subject to the same restrictions as the
underlying Shares granted under this Agreement. If Shares are forfeited pursuant
to Section 4, all dividends and other distributions, together with the earnings
thereon, with respect to such Shares will likewise be forfeited.
6. RETENTION OF STOCK CERTIFICATE(S) BY COMPANY. Any
certificates representing Shares will be held in custody by the Company together
with a stock power endorsed in blank by the Grantee with respect thereto, until
those shares have become nonforfeitable in accordance with Section 3.
7. Compliance with Law. The Company shall make reasonable
efforts to comply with all applicable federal, state and other applicable
securities laws; provided, however, notwithstanding any other provision of this
Agreement, the Company will not be obligated to issue any securities pursuant to
this Agreement if the issuance thereof would result in a violation of any such
law. Grantee acknowledges that Grantee is an executive officer of the Company,
has complete access to the Company's financial and other information, is fully
capable of making an investment decision concerning the Company's Common Stock
without assistance of third parties, and has no intention to distribute any of
the Shares to third parties.
8. Withholding Taxes. If the Company is required to withhold
any federal, state, local or foreign tax in connection with any issuance of
restricted or nonrestricted shares of Common Stock or other securities pursuant
to this Agreement, the Grantee shall pay the tax or make provisions that are
satisfactory to the Company for the payment thereof.
4
<PAGE> 5
9. RIGHT TO TERMINATE EMPLOYMENT. No provision of this
Agreement will limit in any way whatsoever any right that the Company or a
Subsidiary may otherwise have to terminate the employment of the Grantee at any
time.
10. RELATION TO OTHER BENEFITS. Any economic or other benefit
to the Grantee under this Agreement or the Plan shall not be taken into account
in determining any benefits to which the Grantee may be entitled under any
profit-sharing, retirement or other benefit or compensation plan maintained by
the Company or a Subsidiary and shall not affect the amount of any insurance
coverage available to any beneficiary under any insurance plan covering
employees of the Company or a Subsidiary.
11. AMENDMENTS. Any amendment to the Plan shall be deemed to
be an amendment to this Agreement to the extent that the amendment is applicable
hereto; provided, however, that no amendment shall adversely affect the rights
of the Grantee with respect to the Shares or other securities covered by this
Agreement without the Grantee's consent.
12. SEVERABILITY. In the event that one or more of the
provisions of this Agreement are invalidated for any reason by a court of
competent jurisdiction, any provision so invalidated will be deemed to be
separable from the other provisions hereof, and the remaining provisions hereof
will continue to be valid and fully enforceable.
13. GOVERNING LAW. This Agreement is made under, and will be
construed in accordance with, the laws of the State of Ohio without regard to
conflict of law principles of such state.
14. TAXES. Grantee will make a proper election under Section
83(b) of the Internal Revenue Code of 1986, as amended, no later than 30 days
after the date of this Agreement with respect to all of the Shares.
15. DEFINITIONS. As used in this Agreement, the following
terms have the following meanings:
"CONSTRUCTIVE TERMINATION" means a substantial, nonconsensual
adverse change in Grantee's employment duties.
"GRANT DATE" means the date of the Board or Committee action
awarding the Shares to the Grantee as indicated on the signature page of this
Agreement.
"INITIAL PRICE" means $15.45.
"STOCK PRICE" means the closing price of the Common Stock on
the principal exchange on which the Common Stock is traded.
"SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of such
corporations (or a group of corporations that themselves are Subsidiaries) other
than the last corporation in the unbroken chain owns stock
5
<PAGE> 6
possessing fifty percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
"TRADING DAYS" means days on which the principal exchange on
which the Common Stock is traded is open for trading, regardless of whether
actual trading in the Common Stock occurs.
This Restricted Stock Agreement has been executed by the
parties at Cleveland, Ohio as of December 17, 1998.
COLE NATIONAL CORPORATION
By:
-------------------------------
Name:
Title:
/s/
------------------------------------
Brian B. Smith
6
<PAGE> 7
Addendum
to
Restricted Stock Agreement
between
Cole National Corporation
and
Brian B. Smith
dated
December 17, 1998
This Addendum ("Addendum") to Restricted Stock Agreement ("Restricted
Stock Agreement") between Cole National Corporation ("Company") and Brian B.
Smith ("Grantee") dated December 17, 1998 is made by Company and Grantee and is
a part of such Restricted Stock Agreement.
1. If and when Grantee should succeed Jeffery A. Cole as Chief
Executive Officer of the Company, the Company intends to grant Grantee an
additional 50,000 shares ("Additional Shares") of Company common stock, par
value $.001 per share ("Common Stock") on substantially the same terms and
conditions as the Shares granted pursuant to the Restricted Stock Agreement
except that:
(a) the date March 1, 2002 in Section 3 of the Restricted
Stock Agreement shall be changed to a date three (3)
years from the date of such future grant of
Additional Shares;
(b) the date March 1, 2004 in Section 3 of the Restricted
Stock Agreement shall be changed to a date five (5)
years from the date of such future grant of the
Additional Shares;
(c) "Initial Price" in Section 15 of the Restricted Stock
Agreement shall be defined to mean with respect to
the Additional Shares the closing price of the Common
Stock on the principal exchange on which the Common
Stock is traded on the date the Additional Shares are
granted in the future; and
(d) none of the terms of the restricted Stock Agreement
shall apply to the Additional Shares until such
Additional Shares are actually granted if and when
Grantee succeeds Jeffrey A. Cole as Chief Executive
Officer of the Company.
This Addendum to Restricted Stock Agreement has been executed by the
parties at Cleveland, Ohio as of December 17, 1998.
COLE NATIONAL CORPORATION
By
------------------------------
Name:
Title:
------------------------------
Brian B. Smith
7
<PAGE> 1
Exhibit 10.51
COLE NATIONAL GROUP, INC.
1999 SUPPLEMENTAL RETIREMENT BENEFIT PLAN
WHEREAS, Cole National Group, Inc. (the "Company") and certain
related corporations desire to provide supplemental retirement benefits for
certain highly compensated and management employees, in consideration of
services performed and to be performed by such employees for the Company and the
related corporations.
NOW, THEREFORE, the Company hereby adopts and publishes this
1999 Supplemental Retirement Benefit Plan, which shall contain the following
terms and conditions:
ARTICLE I
PREFACE
-------
SECTION 1.1. EFFECTIVE DATE. The effective date of this Plan is
January 1, 1999.
SECTION 1.2. PURPOSE OF THE PLAN. The purpose of this Plan is to
provide additional retirement benefits for certain management and highly
compensated employees of the Company (and other participating Employers).
SECTION 1.3. GOVERNING LAW. This Plan shall be regulated,
construed and administered under the laws of the State of Ohio, except when
preempted by federal law.
SECTION 1.4. GENDER AND NUMBER. For purposes of interpreting the
provisions of this Plan, the masculine gender shall be deemed to include the
feminine, the feminine gender shall be deemed to include the masculine, and the
singular shall include the plural, unless otherwise clearly required by the
context.
SECTION 1.5. SEVERABILITY. If any provision of this Plan or the
application thereof to any circumstances(s) or person(s) is held to be invalid
by a court of competent jurisdiction, the remainder of the Plan and the
application of such provision to other circumstances or persons shall not be
affected thereby.
ARTICLE II
DEFINITIONS
-----------
SECTION 2.1. The following words and phrases when used in this
Plan with initial capital letters shall have the following respective meanings,
unless the context clearly indicates otherwise.
<PAGE> 2
SECTION 2.1(1). "BENEFICIARY" shall mean such person or persons
(natural or otherwise) as may be designated by the Participant as his
Beneficiary under this Plan. Such a designation may be made, and may be revoked
or changed at any time including after the Participant is in pay status (without
the consent of any previously designated Beneficiary), only by an instrument (in
form acceptable to the Company) signed by the Participant and filed with the
Secretary of the Company prior to the Participant's death. In the absence of
such a designation and at any other time when there is no existing Beneficiary
designated by the Participant to whom payment is to be made pursuant to his
designation, his Beneficiary shall be his surviving spouse or, if none, his
estate. A person designated by a Participant as his Beneficiary who or which
ceases to exist shall not be entitled to any part of any payment thereafter to
be made to the Participant's Beneficiary unless the Participant's designation
specifically provided to the contrary. If two or more persons designated as a
Participant's Beneficiary are in existence, the amount of any payment to the
Beneficiary under this Plan shall be divided equally among such persons unless
the Participant's designation specifically provided to the contrary.
SECTION 2.1(2). "Cause" shall mean gross neglect of duty,
dishonesty, conviction of a felony, disloyalty, intoxication, drug addiction, or
other similar misconduct adverse to the best interests of the Company; provided
that if the Participant is party to an employment agreement which contains a
more restrictive definition of "Cause" or "for cause", such more restrictive
definition shall apply for purposes of this Plan.
SECTION 2.1(3). "CHANGE OF CONTROL" shall mean the occurrence of
any of the following events:
(a) the Parent merges into itself, or is merged or
consolidated with, another corporation and as a result of such merger
or consolidation less than 51% of the voting power of the
then-outstanding voting securities of the surviving or resulting
corporation immediately after such transaction are directly or
indirectly beneficially owned in the aggregate by the former
stockholders of the Parent immediately prior to such transaction;
(b) all or substantially all the assets accounted for on the
Consolidated Balance Sheet of the Parent are sold or transferred to one
or more corporations or persons, and as a result of such sale or
transfer less than 51% of the voting power of the then-outstanding
voting securities of such corporation or person immediately after such
sale or transfer is directly or indirectly beneficially held in the
aggregate by the former stockholders of the Parent immediately prior to
such transaction or series of transactions;
(c) A person, within the meaning of Section 3(a)(9) of
13(d)(3) (as in effect on the date hereof) of the Securities Exchange
Act of 1934, becomes the beneficial owner (as defined in Rule 13d-3 of
the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934) of (i) 15% or more but less than 35% of the
voting power of the then-outstanding voting securities of the Parent
without the prior approval by the Board, or (ii) 35% or more of the
voting power of the then-outstanding voting
<PAGE> 3
3
securities of the Parent; PROVIDED, HOWEVER, that the foregoing does
not apply to any such acquisition that is made by (w) any subsidiary of
the Parent; (x) any employee benefit plan of the Parent or any
Subsidiary or (y) any person or group of which employees of the Parent
or of any Subsidiary control a greater than 25% interest unless the
Board of Directors of the Parent determines that such person or group
is making a "hostile acquisition;"
(d) A majority of the members of the Board of Directors of the
Parent or of any Subsidiary are not Continuing Directors, where a
"Continuing Director" is any member of the Board of Directors of the
Parent or, with respect to a Subsidiary, of such Subsidiary who (x) was
a member of the Board of Directors of the Parent or, with respect to a
Subsidiary, of such Subsidiary on the date hereof or (y) was nominated
for or elected to such Board of Directors with the affirmative vote of
a majority of the Continuing Directors who were members of such Board
at the time of such nomination or election.
SECTION 2.1(4). "CODE" shall mean the Internal Revenue Code of
1986, as it has been and may be amended from time to time.
SECTION 2.1(5). "CONTROLLED GROUP" shall mean the Company and
each other entity, the employees of which, together with the employees of the
Company, are required to be treated as if they were employed by a single
employer under Section 414 of the Code.
SECTION 2.1(6). "DISABILITY" shall mean a disability as defined
under any long term disability plan maintained by an Employer.
SECTION 2.1(7). "EMPLOYER(S)" shall mean the Company and/or any
other member of the Controlled Group which shall adopt this Plan pursuant to
Section 6.4.
SECTION 2.1(8). "INSTRUMENT OF ADOPTION AND INSTRUMENT
DESIGNATING PARTICIPANTS" shall mean the Instruments referred to in Section 6.4
by which an Employer, among other things, evidences its adoption of the Plan.
SECTION 2.1(9). "PARENT" shall mean Cole National Corporation.
SECTION 2.1(10). "PARTICIPANT" shall mean each employee of an
Employer (a) who is either a highly compensated or a management employee, (b)
who is designated by the Board of Directors of the Company, on the
recommendation of the Chief Executive Officer of the Company, as a Participant
in this Plan and, (c) who as a result of such participation, is entitled to a
Supplemental Retirement Benefit hereunder. Each employee who is so designated as
a Participant under this Plan shall be notified in writing of such fact by the
Company. Once an employee has been designated as a Participant, he shall remain
a Participant unless and until the Board of Directors of the Company revokes his
Participant status. Upon the revocation of Participant status, a former
Participant shall remain as an inactive Participant until all vested
Supplemental Retirement Benefits have been paid to him or his Beneficiary.
<PAGE> 4
4
SECTION 2.1(11). "PENSION PLAN" shall mean the Cole National
Group, Inc. Retirement Plan, as such plan may be amended from time to time.
SECTION 2.1(12). "PLAN" shall mean this 1999 Cole National
Group, Inc. Supplemental Retirement Benefit Plan, as it may be amended from time
to time.
SECTION 2.1(13). "SUBSIDIARY" shall mean a corporation, company
or other entity (i) more than 50 percent of whose outstanding shares or
securities (representing the right to vote for the election of directors or
other managing authority) are, or (ii) which does not have outstanding shares or
securities (as may be the case in a partnership, joint venture or unincorporated
association), but more than 50 percent of whose ownership interest representing
the right generally to make decisions for such other entity is, now or
hereafter, owned or controlled, directly or indirectly, by the Company except
that for purposes of determining whether any person may be a Participant for
purposes of any grant of Incentive Stock Options, "Subsidiary" means any
corporation in which at the time the Company owns or controls, directly or
indirectly, more than 50 percent of the total combined voting power represented
by all classes of stock issued by such corporation.
SECTION 2.1(14). "SUPPLEMENTAL RETIREMENT BENEFIT" shall mean
the retirement benefit determined under Article III.
SECTION 2.1(15). "UNRELATED PARTY" shall mean any person, or
any group of persons acting together, other than (a) a member of the Controlled
Group, or its directors or officers, or (b) any nominee holder for any stock
exchange.
ARTICLE III
SUPPLEMENTAL RETIREMENT BENEFIT
-------------------------------
SECTION 3.1. AMOUNT OF SUPPLEMENTAL RETIREMENT BENEFIT. Each
Participant or Beneficiary of a deceased Participant shall be entitled to a
Supplemental Retirement Benefit, which shall be determined as set forth in the
Instrument Designating Participants applicable to the Participant.
SECTION 3.2. TIME OF PAYMENT. A Participant's (or Beneficiary's)
Supplemental Retirement Benefit shall commence at the same time and under the
same conditions as the benefits payable to the Participant (or Beneficiary)
under the Pension Plan.
SECTION 3.3. EARLY RETIREMENT REDUCTIONS. A Participant's
Supplemental Retirement Benefit shall be reduced or increased for early or
delayed retirement as provided for in the Instrument Designating Participants
applicable to the Participant.
<PAGE> 5
5
SECTION 3.4. FORM OF PAYMENT. The Supplemental Retirement
Benefit shall be payable in the same form and for the same duration as the
benefits payable to the Participant (or Beneficiary) under the Pension Plan.
<PAGE> 6
6
SECTION 3.5. LIABILITY FOR PAYMENT. The Employer by which the
Participant was employed at the time of his termination of employment with the
Controlled Group shall pay the Supplemental Retirement Benefit to the
Participant and/or his Beneficiary, but such Employer's liability hereunder
shall be limited to its proportionate share of such Supplemental retirement
benefit, determined as hereinafter provided. If the Participant's Pension
Benefits payable to the Participant and/or his Beneficiary under the Pension
Plan are based on the Participant's employment with more than one Employer, the
amount of the Supplemental Retirement Benefit shall be shared by all such
Employers (by reimbursement to the Employer making such payment) as may be
agreed to between them in good faith, taking into consideration the
Participant's credited service and annual compensation paid by each such
Employer and as will permit the deduction (for purposes of federal income taxes)
by each such Employer of its portion of the payments made and to be made
hereunder.
ARTICLE IV
VESTING
-------
SECTION 4.1. VESTING. A Participant shall be vested in his
Supplemental Retirement Benefit in accordance with the vesting provisions of the
Pension Plan.
ARTICLE V
MISCELLANEOUS
-------------
SECTION 5.1. LIMITATION ON RIGHTS OF PARTICIPANTS AND
BENEFICIARIES - NO LIEN. This Plan is an unfunded, nonqualified plan and the
entire cost of this Plan shall be paid from the general assets of one or more of
the Employers. No trust has been established for the Participants or
Beneficiaries. No liability for the payment of benefits under the Plan shall be
imposed upon any officer, director, employee, or stockholder of an Employer.
Nothing contained herein shall be deemed to create a lien in favor of any
Participant or Beneficiary on any assets of any Employer. The Employers shall
have no obligation to purchase any assets that do not remain subject to the
claims of the creditors of the Employers for use in connection with the Plan.
Each Participant and Beneficiary shall have the status of a general unsecured
creditor of the Employers and shall have no right to, prior claim to, or
security interest in, any assets of the Company or any Employer.
SECTION 5.2. NONALIENATION. No right or interest of a
Participant or his Beneficiary under this Plan shall be anticipated, assigned
(either at law or in equity) or alienated by the Participant or his Beneficiary,
nor shall any such right or interest be subject to attachment, garnishment,
levy, execution or other legal or equitable process or in any manner be liable
for or subject to the debts of any Participant or Beneficiary. If any
Participant or Beneficiary shall attempt to or shall alienate, sell, transfer,
assign, pledge or otherwise encumber his benefits under the Plan or any part
thereof, or if by reason of his bankruptcy or other event happening at any time
such benefits would devolve upon anyone else or would not be enjoyed by him,
then the
<PAGE> 7
7
Company may terminate his interest in any such benefit and hold or apply it to
or for his benefit or the benefit of his spouse, children or other person or
persons in fact dependent upon him, or any of them, in such a manner as the
Company may deem proper; PROVIDED, HOWEVER, that the provisions of this sentence
shall not be applicable to the surviving spouse of any deceased Participant if
the Company consents to such inapplicability, which consent shall not
unreasonably be withheld.
SECTION 5.3. EMPLOYMENT RIGHTS. Employment rights shall not be
enlarged or affected hereby. The Employers shall continue to have the right to
discharge or retire a Participant, with or without cause.
SECTION 5.4. INSTRUMENTS OF ADOPTION/INSTRUMENT DESIGNATING
PARTICIPANTS. Any member of the Controlled Group may become an Employer
hereunder with the written consent of the Company if it executes an "Instrument
of Adoption" evidencing its adoption of the Plan and files a copy thereof with
the Company. Such Instrument of Adoption may be subject to such terms and
conditions as the Company requires or approves and shall include a designation
of the Participants in the Plan. In addition, with the consent of the Company,
such Instrument of Adoption may contain specific provisions which apply to some
or all of the employees of an Employer. Any such specific provisions which apply
to the employees of the Company shall be specified in an Instrument Designating
Participants. An Employer who ceases to exist or who is no longer a member of
the Controlled Group shall automatically cease being a participating Employer
hereunder.
SECTION 5.5. ADMINISTRATION OF PLAN.
(a) The Company shall be responsible for the general
administration of the Plan and for carrying out the provisions hereof and, for
purposes of the Employee Retirement Income Security Act of 1974, as amended, the
Company shall be the plan sponsor and the plan administrator. The Chief
Executive Officer of the Company shall interpret where necessary, in his
reasonable and good faith judgment, the provisions of the Plan and, except as
otherwise provided in the Plan, shall determine the rights and status of
Participants and Beneficiaries hereunder (including, without limitation, the
amount of any Supplemental Retirement Benefit to which a Participant or
Beneficiary may be entitled under the Plan). Notwithstanding the foregoing, the
President of the Company or such other person designated by the Board of
Directors of the Company shall have the sole right to interpret the Plan with
respect to any matter that relates solely to the Chief Executive Officer.
(b) The Chief Executive Officer of the Company and the Company
each may, from time to time, delegate all or part of the administrative powers,
duties and authorities delegated to it under this Plan to such person or
persons, office or committee as it shall select.
SECTION 5.6. CLAIMS PROCEDURE. Whenever there is denied,
whether in whole or in part, a claim for benefits under the Plan filed by any
person (herein referred to as the "Claimant"), the plan administrator shall
transmit a written notice of such decision to the
<PAGE> 8
8
Claimant, which notice shall be written in a manner calculated to be understood
by the Claimant and shall contain a statement of the specific reasons for the
denial of the claim and statement advising the Claimant that, within 60 days of
the date on which he receives such notice, he may obtain review of such decision
in accordance with the procedures hereinafter set forth. Within such 60-day
period, the Claimant or his authorized representative may request that the claim
denial be reviewed by filing with the plan administrator a written request
therefor, which request shall contain the following information:
(a) the specific portions of the denial of his claim which the
Claimant requests the plan administrator to review;
(b) a statement by the Claimant setting forth the basis upon
which he believes the plan administrator should reverse the previous
denial of his claim for benefits and accept his claim as made; and
(c) any written material which the Claimant desires the plan
administrator to examine in its consideration of his position as stated
pursuant to Subsection (b) above.
Within 60 days of the date the Claimant files the written request for review,
the plan administrator shall designate a named fiduciary to conduct a full and
fair review of the decision denying the Claimant's claim for benefits. Within 60
days of the date of such review, the named fiduciary shall render its written
decision on review, written in a manner calculated to be understood by the
Claimant, specifying the reasons and Plan provisions upon which its decision was
based.
SECTION 5.7. EFFECT ON OTHER BENEFITS. Benefits payable to or
with respect to a Participant under any Employer sponsored (qualified or
nonqualified) plan, if any, are in addition to those provided under this Plan.
SECTION 5.8. PAYMENT TO GUARDIAN. If a benefit payable
hereunder is payable to a minor, to a person declared incompetent or to a person
incapable of handling the disposition of his property, the Company may direct
payment of such benefit to the guardian, legal representative or person having
the care and custody of such minor, incompetent or person. The Company may
require such proof of incompetency, minority, incapacity or guardianship as it
may deem appropriate prior to distribution of the benefit. Such distribution
shall completely discharge the Employers from all liability with respect to such
benefit.
ARTICLE VI
AMENDMENT AND TERMINATION
-------------------------
SECTION 6.1. AMENDMENT. The Board of Directors of the Company
does hereby reserve the right to amend, at any time, any or all of the
provisions of the Plan for all Employers, without the consent of any other
Employer or any Participant, Beneficiary or any
<PAGE> 9
9
other person. Any such amendment shall be expressed in an instrument executed by
the Chief Executive Officer of the Company and shall become effective as of the
date designated in such instrument or, if no such date is specified, on the date
of its execution.
SECTION 6.2. TERMINATION.
(a) The Board of Directors of the Company does hereby reserve
the right to terminate the Plan at any time for any or all Employers, without
the consent of any other Employer or of any Participant, Beneficiary or any
other person. Such termination shall be expressed in an instrument executed by
the Chief Executive Officer of the Company and shall become effective as of the
date designated in such instrument, or if no date is specified, on the date of
its execution. Any other Employer which shall have adopted the Plan may, with
the written consent of the Board of Directors of the Company, elect separately
to withdraw from the Plan and such withdrawal shall constitute a termination of
the Plan as to it, but it shall continue to be an Employer for the purposes
hereof as to Participants or Beneficiaries to whom it owes obligations
hereunder. Any such withdrawal and termination shall be expressed in an
instrument executed by an officer of the terminating Employer and shall become
effective as of the date designated in such instrument or, if no date is
specified, on the date of its execution. Notwithstanding the foregoing, if an
Employer ceases to exist or is no longer a member of the Controlled Group, such
action shall automatically constitute a termination of the Plan as to such
Employer.
(b) Upon any termination of the Plan, each affected
Participant's Supplemental Retirement Benefit shall be 100% vested and shall be
distributed to him (or his Beneficiary) as otherwise provided in Article III.
SECTION 6.3. LIMITATIONS ON AMENDMENT AND TERMINATION.
Notwithstanding the foregoing provisions of this Article, no amendment or
termination of the Plan shall, without the consent of the Participant (or, in
the case of his death, his Beneficiary), adversely affect the vested
Supplemental Retirement Benefit under the Plan of any Participant or Beneficiary
as such Supplemental Retirement Benefit exists on the date of such amendment or
termination.
IN WITNESS WHEREOF, Cole National Group, Inc. has executed this
Supplemental Retirement Benefit Plan this ___ day of ____________, 1998.
COLE NATIONAL GROUP, INC.
By: ___________________________________
Title:_________________________________
<PAGE> 1
Exhibit 10.52
INSTRUMENT DESIGNATING PARTICIPANTS
OF THE
COLE NATIONAL GROUP, INC.
1999 SUPPLEMENTAL RETIREMENT BENEFIT PLAN
1. PARTICIPANTS. Cole National Group, Inc. (the "Company")
hereby adopts the Cole National Group, Inc. 1999 Supplemental Retirement Benefit
Plan (the "Plan") effective as of January 1, 1999, for the benefit of the
following employee: Jeffrey A. Cole.
2. SPECIAL PROVISIONS. (a) For purposes of calculating the
benefit payable to Jeffrey A. Cole in accordance with the Plan, the benefit
formula used shall be the same as the formula used for purposes of calculating
benefits under the Cole National Group, Inc. Retirement Plan (the "Pension
Plan") except that instead of using final five year average salary, the sum of
base compensation and bonus for the calendar year during which the sum of base
compensation and bonus earned was the highest shall be used.
(b) For purposes of calculating the benefit payable to Jeffrey
A. Cole in accordance with the Plan, Jeffrey A. Cole shall be credited with
years of service equal to (i) the number of years of service he is credited with
under the Pension Plan, plus (ii) the number of years Jeffrey A. Cole served as
a non-employee director and paid consultant of the Company. For purposes of (ii)
in the previous sentence, the number of years Jeffrey A. Cole served as a
non-employee director and paid consultant of the Company is eight.
(c) For purposes of calculating the benefit payable to Jeffrey
A. Cole in accordance with the Plan, the minimum annual benefit payable to
Jeffrey A. Cole commencing on or after Jeffery A. Cole's attainment of age 65
shall be the amount determined by the formula "A-B," where:
A= the greater of:
(i) $474,000 or
(ii) the amount determined based on the Company's regular Pension
Plan formula but using Jeffrey A. Cole's salary and annual
bonus using the highest year commencing in 1998 or thereafter,
and reflecting service from 1969 on, and
B= the sum of (i) the annualized amounts, if any, payable to Jeffrey A.
Cole in accordance with the Pension Plan and the Cole National Group,
Inc. Supplemental Pension Plan, (ii) the installment payment to be paid
to Jeffrey A. Cole from the Cole National Group, Inc. Supplemental
Retirement Benefit Plan, and (iii) the annualized amount, if any,
payable to Jeffrey A. Cole's former spouse pursuant to any qualified
domestic relations order applicable to the Pension Plan and/or the Cole
National Group, Inc. Supplemental Pension Plan for the year for which
the benefit payable to Jeffrey A. Cole is being calculated in
accordance with the Plan.
<PAGE> 2
(d) The minimum annual benefit payable to Jeffrey A. Cole commencing
prior to Jeffrey A. Cole's attainment of age 65 shall be the amount determined
by the formula "(A-B) x C," where:
A= the greater of
(i) $474,000 or
(ii) the amount determined based on the Company's regular Pension
Plan formula but using Jeffrey A. Cole's salary and annual
bonus using the highest year commencing in 1998 or thereafter,
and reflecting service from 1969 on,
B= the sum of (i) the annualized amounts, if any, payable to Jeffrey A.
Cole in accordance with the Pension Plan and the Cole National Group,
Inc. Supplemental Pension Plan, (ii) the installment payment to be paid
to Jeffrey A. Cole from the Cole National Group, Inc. Supplemental
Retirement Benefit Plan, and (iii) the annualized amount, if any,
payable to Jeffrey A. Cole's former spouse pursuant to any qualified
domestic relations order applicable to the Pension Plan and/or the Cole
National Group, Inc. Supplemental Pension Plan for the year for which
the benefit payable to Jeffrey A. Cole is being calculated in
accordance with the Plan,
C= the early retirement reduction factors set forth in Attachment A to
this Instrument.
(e) In computing benefits under (c) and (d) above, (i) Jeffrey A. Cole
retires after he suffers a constructive termination, or (ii) there has been a
change of control (as each such term is defined in his Employment Agreement with
the Company and certain of its subsidiaries, dated the 17th day of December,
1998), then he will be credited with three additional years of service in making
the calculations above and his retirement will be deemed to have been made with
the consent of the Special Compensation Committee of the Company's Board of
Directors. Further, if Jeffrey A. Cole elects to receive payments under the Cole
National Group, Inc. Supplemental Retirement Benefit Plan in a form other than
annual installments over a ten-year period (as permitted by such plan) then the
calculations in (c) and (d) above shall be adjusted so that such payments under
the Plan will equal, on an actuarial present value basis, the payments that
otherwise would have been due him if he had elected the ten-year installment
payout of the Cole National Group, Inc. Supplemental Retirement Benefit Plan.
(f) Notwithstanding Section 3.4 of the Plan, Jeffrey A. Cole's
Supplemental Retirement Benefit shall be payable in a one time lump sum cash
payment, in a series of up to 20 annual installments with interest credited and
compounded quarterly on the unpaid balance at the interest rate specified from
time-to-time under the Cole National Group, Inc. Supplemental Retirement Benefit
Plan, but not less than such rate specified at the date of his termination of
employment or retirement, or in the same form and for the same duration as the
benefits payable to the Participant (or Beneficiary) under the Pension Plan, as
elected by Jeffrey A. Cole. Any form of payment of Jeffrey A. Cole's benefits
shall be actuarially equivalent to the minimum annual benefit calculated under
(c) and (d) above. Jeffrey A. Cole's election of the form of payment of his
benefits shall be made by written notice filed with the Company at least one
year prior to his voluntary termination of employment with, or retirement from,
the Company. Any
2
<PAGE> 3
such election may be changed by Jeffrey A. Cole at any time and from time to
time without the consent of any other person by filing a later signed written
election with the Company; provided that any election made less than one year
prior to his voluntary termination of employment or retirement shall not be
valid, and in such case payment shall be made in accordance with his prior
election. In the absence of any effective election, Jeffrey A. Cole's
Supplemental Retirement Benefit shall be payable in a one time lump sum cash
payment. Jeffrey A. Cole shall be permitted to designate a beneficiary or
beneficiaries for purposes of the Plan (on a form provided by the Company) to
receive a benefit in the event that (i) he dies prior to his commencement of
benefits under the Plan, or (ii) he dies after commencement of benefits under
the Plan but before any lump sum elected is paid, or with any remaining elected
installments unpaid. The benefit payable to Jeffrey A. Cole's beneficiary or
beneficiaries in the event that he dies prior to his commencement of benefits
under the Plan shall be a one time lump sum cash payment in an amount equal to
the then actuarial present value of the accrued benefit that would have been
payable to Jeffrey A. Cole as if he had commenced payment of his benefits under
the Plan on the day before the day he died and as if he had attained not less
than age 63, but counting service and compensation only through the date of his
death, and as if he had elected a one time lump sum cash payment.
Dated as of December 17, 1998 COLE NATIONAL GROUP, INC.
By:____________________________
Title:_________________________
3
<PAGE> 4
ATTACHMENT A TO THE INSTRUMENT
DESIGNATING PARTICIPANTS OF THE
COLE NATIONAL GROUP, INC. 1999
SUPPLEMENTAL RETIREMENT
BENEFIT PLAN FOR JEFFREY A. COLE
--------------------------------
If Jeffrey A. Cole retires before age 65, the following early retirement
reduction factors apply:
<TABLE>
<CAPTION>
----------------- --------------------------------------- ----------------------------------------
If retirement is with the consent of If retirement is without the consent
the Special Compensation Committee of of the Special Compensation Committee
Age at the Company's Board of of the Company's Board of
Retirement* Directors Directors
----------------- --------------------------------------- ----------------------------------------
<S> <C> <C>
57 0.28 0.28
----------------- --------------------------------------- ----------------------------------------
58 0.34 0.34
----------------- --------------------------------------- ----------------------------------------
59 0.40 0.40
----------------- --------------------------------------- ----------------------------------------
60 0.90 0.47
----------------- --------------------------------------- ----------------------------------------
61 0.92 0.56
----------------- --------------------------------------- ----------------------------------------
62 0.94 0.65
----------------- --------------------------------------- ----------------------------------------
63 0.96 0.96
----------------- --------------------------------------- ----------------------------------------
64 0.98 0.98
----------------- --------------------------------------- ----------------------------------------
65 1.00 (no reduction) 1.00 (no reduction)
----------------- --------------------------------------- ----------------------------------------
<FN>
* Add three additional years (maximum age is 65) if there has
been a Constructive Termination or a change of control.
</TABLE>
<PAGE> 1
Exhibit 10.53
COLE NATIONAL GROUP, INC.
DEFERRED COMPENSATION PLAN
FOR
EXECUTIVES AND OTHER SENIOR MANAGEMENT
EFFECTIVE FEBRUARY 1, 1999
<PAGE> 2
ARTICLE 1-- INTRODUCTION
1.1 PURPOSE OF PLAN
The Employer has adopted the Plan set forth herein to provide a means by which
certain employees may elect to defer receipt of designated percentages or
amounts of their Compensation and to provide a means for certain other deferrals
of Compensation.
1.2 STATUS OF PLAN
The Plan is intended to be "a plan that is unfunded and is maintained by an
employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of Sections 201(2) and 301(a)(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA") and shall be interpreted and administered to the extent
possible in a manner consistent with that intent.
ARTICLE 2 -- DEFINITIONS
Wherever used herein, the following terms have the meanings set forth below,
unless a different meaning is clearly required by the context:
2.1 ACCOUNT means, for each Participant, the account established for his or
her benefit under Section 5.1.
2.2 BENEFICIARY means the person or persons entitled, under Section 7.4, to
receive amounts payable under the Plan upon the death of the Participant.
2.3 CHANGE OF CONTROL means if at any time any of the following events
shall have occurred:
(a) the Company merges into itself, or is merged or consolidated
with, another corporation and as a result of such merger or
consolidation less than 51% of the voting power of the
then-outstanding voting securities of the surviving or
resulting corporation immediately after such transaction are
directly or indirectly beneficially owned in the aggregate by
the former stockholders of the Company immediately prior to
such transaction;
(b) all or substantially all the assets accounted for on the
consolidated balance sheet of the Company are sold or
transferred to one or more corporations or persons, and as a
result of such sale or transfer less than 51% of the voting
power of the then-outstanding voting securities of such
corporation or person immediately after such sale or transfer
is directly or indirectly beneficially held in the aggregate
by the former stockholders of the Company immediately prior to
such transaction or series of transactions;
<PAGE> 3
(c) A person, within the meaning of Section 3(a)(9) or 13(d)(3)
(as in effect on the date hereof) of the Securities Exchange
Act of 1934, becomes the beneficial owner (as defined in Rule
13d-3 of the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934) of (i) 15% or more but
less than 35% of the voting power of the then-outstanding
voting securities of the Company without the prior approval by
the Board, or (ii) 35% or more of the voting power of the
then-outstanding voting securities of the Company; PROVIDED,
HOWEVER, that the foregoing does not apply to any such
acquisition that is made by (w) any subsidiary of the Company;
(x) any employee benefit plan of the Company or any Subsidiary
or (y) any person or group of which employees of the Company
or of any Subsidiary control a greater than 25% interest
unless the Board of Directors of the Company determines that
such person or group is making a "hostile acquisition;"
(d) A majority of the members of the Board of Directors of the
Company or of any Subsidiary are not Continuing Directors,
where a "Continuing Director" is any member of the Board of
Directors of the Company or, with respect to a Subsidiary, of
such Subsidiary who (x) was a member of the Board of Directors
of the Company or, with respect to a Subsidiary, of such
Subsidiary on the date hereof or (y) was nominated for
election or elected to such Board of Directors with the
affirmative vote of a majority of the Continuing Directors who
were members of such Board at the time of such nomination or
election.
2.4 CODE means the Internal Revenue Code of 1986, as amended from time to
time. Reference to any section or subsection of the Code includes reference to
any comparable or succeeding provisions of any legislation that amends,
supplements or replaces such section or subsection.
2.5 COMPANY means Cole National Corporation, a Delaware corporation.
2.6 CNG means Cole National Group, Inc., a Delaware corporation.
2.7 COMPENSATION means: for an employee other than a self-employed
individual, the employee's earned income, wages, salaries, and fees for
professional services and other amounts received (without regard to whether or
not an amount is paid in cash) for personal services actually rendered in the
course of employment, including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, cash bonuses, fringe benefits, reimbursements or
other expense allowances under a non-accountable plan (as described in Section
1.62-2(c) of the Treasury Regulations) and elective deferrals and amounts
excluded from the gross income of the employee under Sections 125, 402(e)(3),
402(h) or 403(b) of the Code and excluding the following:
<PAGE> 4
(a) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for
the taxable year in which contributed, or contributions under
a "simplified employee pension" plan (within the meaning of
Section 408(k) of the Code) to the extent such contributions
are deductible by the Employee, or any distributions from a
plan of deferred compensation;
(b) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or other property) held by
the employee either becomes freely "transferable" or is no
longer subject to a "substantial risk of forfeiture" (both
quoted terms within the meaning of Section 83(a) of the Code);
(c) amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option;
(d) other amounts which received special tax benefits, or
contributions made (whether or not under a salary reduction
agreement) towards the purchase of an annuity described in
Section 403(b) of the Code (whether or not the amounts are
actually excludable from the gross income of the employee);
and
(e) Imputed life insurance income, moving costs, company car,
severance and educational assistance benefits.
2.8 DISCRETIONARY MATCHING CONTRIBUTION means a discretionary additional
contribution made by the Employer as described in Section 4.3.
2.9 EFFECTIVE DATE means February 1, 1999.
2.10 ELECTION FORM means the participation election form as approved and
prescribed by the Plan Administrator.
2.11 ELECTIVE DEFERRAL means the portion of Compensation that is deferred by
a Participant under Section 4.1.
2.12 ELIGIBLE EMPLOYEE means on the Effective Date or on any entry date
thereafter, each employee of the Employer who is an Executive who has completed
90 days of service with his Employer or who is an Executive or a senior
management person selected by the Compensation Committee of the Board of
Directors of CNG, in its sole discretion.
2.13 EMPLOYER means CNG, any successor to all or a major portion of CNG's
assets or business that assumes the obligations of CNG, and each other entity
that is affiliated with CNG, which adopts the Plan with the consent of CNG,
provided that CNG shall have the sole power to amend this Plan pursuant to
Section 9.1 and to terminate this Plan pursuant
<PAGE> 5
to Section 9.2 and shall be the Plan Administrator if no other person or entity
is so serving of any time.
2.14 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Reference to any section or subsection of ERISA
includes reference to any comparable or succeeding provisions of any legislation
that amends, supplements or replaces such section or subsection.
2.15 EXECUTIVE means an employee of an Employer at the position of director
or higher.
2.16 INSOLVENT means either (i) the Employer is unable to pay its debts as
they become due, or (ii) the Employer is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
2.17 MANDATORY MATCHING CONTRIBUTION means a contribution for the benefit of
a Participant as described in Section 4.2.
2.18 PARTICIPANT means any Eligible Employee who participates in the Plan in
accordance with Article 3.
2.19 PLAN means Cole National Group, Inc. Deferred Compensation Plan for
Executives and other Senior Management and all amendments thereto.
2.20 PLAN ADMINISTRATOR means the Chief Executive Officer of CNG or such
person or persons as he may, in his sole discretion, delegate.
2.21 PLAN YEAR means, for the first Plan Year, the 11-month period
commencing February 1, 1999 and ending December 31, 1999 and for each Plan Year
thereafter the 12-month period commencing January 1 and ending December 31.
2.22 SUBSIDIARY means a corporation, company or other entity (i) more than
50 percent of whose outstanding shares or securities (representing the right to
vote for the election of directors or other managing authority) are, or (ii)
which does not have outstanding shares or securities (as may be the case in a
partnership, joint venture or unincorporated association), but more than 50
percent of whose ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or controlled,
directly or indirectly, by the Company.
2.23 TOTAL AND PERMANENT DISABILITY means the total and permanent inability
to meet the requirements of the Participant's customary employment which can be
expected to last for a continuous period of not less than 12 months.
2.24 TRUST means the trust established by the Employer that identifies the
Plan as a plan with respect to which assets are to be held by the Trustee.
<PAGE> 6
2.25 TRUSTEE means the trustee or trustees under the Trust.
ARTICLE 3 - PARTICIPATION
3.1 COMMENCEMENT OF PARTICIPATION
Any Eligible Employee who elects to defer part of his or her Compensation in
accordance with Section 4.1 shall become a Participant in the Plan as of the
date such deferrals commence in accordance with Section 4.1.
3.2 CONTINUED PARTICIPATION
A Participant in the Plan shall continue to be a Participant so long as any
amount remains credited to his or her Account.
ARTICLE 4 -- ELECTIVE AND MATCHING DEFERRALS
4.1 ELECTIVE DEFERRALS
An individual who is an Eligible Employee on the Effective Date and who has
elected to defer the maximum amount permissible to the Cole National Corporation
401(k) Plan, the Cole National Corporation 401(k) Plan for Former NuVision
Locations or the Cole National Corporation 401(k) Plan for Employees of Pearle
Vision Centers may, by completing an Election Form and filing it with the Plan
Administrator prior to the Effective Date or within 30 days following the
Effective Date, elect to defer a percentage of between 1% and 100% or a dollar
amount of his Compensation for a Plan Year payable to the Participant with
respect to services performed after the Effective Date and after the date on
which the individual files the Election Form. Any individual who becomes an
Eligible Employee after the Effective Date may, by completing an Election Form
and filing it with the Plan Administrator within 30 days following the date on
which the Plan Administrator gives such individual written notice that the
individual is an Eligible Employee, elect to defer a percentage of between 1%
and 100% or a dollar amount of his Compensation for a Plan Year payable to the
Participant with respect to services performed after the date on which he files
the Election Form. Any Eligible Employee who has not otherwise initially elected
to defer Compensation in accordance with this paragraph 4.1 may elect to defer a
percentage of between 1% and 100% or a dollar amount of his Compensation for a
Plan Year commencing with Compensation paid in the next succeeding Plan Year, by
completing an Election Form prior to the first day of such succeeding Plan Year.
In addition, a Participant may defer all or part of the amount of any elective
deferral or matching contribution made on his or her behalf to the Cole National
Corporation 401(k) Plan, the Cole National Corporation 401(k) Plan for Former
NuVision locations or the Cole National Corporation 401(k) Plan for Employees of
Pearle Vision Centers for the prior Plan Year but treated as an excess deferral,
an excess contribution or otherwise limited by the application of the
limitations of sections 401(k), 401(m), 415 or 402(g) of the Code, so long as
the Participant so indicates on an Election Form.
<PAGE> 7
For purposes of any cash bonus paid to a Participant, such Participant may make
a special election of a different percentage or dollar amount of such cash bonus
than his election with regard to other Compensation. The special election
described in the preceding sentence must be made in the Plan Year prior to the
Plan Year for which the cash bonus is earned by a Participant.
A Participant's Compensation shall be reduced in accordance with the
Participant's election hereunder (including a special election with regard to
cash bonuses) and amounts deferred hereunder shall be paid by the Employer to
the Trust as soon as administratively feasible and credited to the Participant's
Account as of the date the amounts are received by the Trustee.
An election to defer a percentage or dollar amount of Compensation for any Plan
Year (including a special election with regard to cash bonuses) shall apply for
subsequent Plan Years unless changed or revoked. A Participant may change or
revoke his or her deferral election as of the first day of any Plan Year by
giving written notice to the Plan Administrator before such first day (or any
such earlier date as the Plan Administrator may prescribe). A Participant may
change or revoke his or her special deferral election with regard to cash
bonuses as of any date in a Plan Year that is prior to the Plan Year for which
the cash bonus is earned by the Participant.
4.2 MANDATORY MATCHING CONTRIBUTIONS
Following the end of each Plan Year, the Employer shall contribute to the Trust
Mandatory Matching Contributions equal to ten percent of the first ten percent
of Compensation deferred by each Participant who is employed by an Employer on
the last day of the Plan Year for which such contribution is being made or who
terminated employment with the Employer as a result of a Total and Permanent
Disability or who died or retired during the Plan Year for which such
contribution is being made pursuant to Section 4.1 during the preceding Plan
Year. Each Mandatory Matching Contribution will be credited, as of the later of
the date it is received by the Trustee or the date the Trustee receives from the
Plan Administrator such instructions as the Trustee may reasonably require to
allocate the amount received among the asset accounts maintained by the Trustee,
to the Participants' Accounts pro rata in accordance with the amount of Elective
Deferrals of each Participant, which are taken into account in calculating the
Mandatory Matching Contribution.
4.3 DISCRETIONARY MATCHING CONTRIBUTIONS
In addition to other contributions provided for under the Plan, the Employer
may, in its sole discretion, select one or more Eligible Employees to receive a
Discretionary Matching Contribution to his or her Account on such terms as the
Employer shall specify at the time it makes the contribution. For example, the
Employer may contribute an amount to a Participant's Account and condition the
payment of that amount and income,
<PAGE> 8
gain or loss thereon upon the Participant remaining employed by the Employer for
an additional specified period of time. The terms specified by the Employer
shall supersede any other provision of this Plan as regards Discretionary
Matching Contributions and earnings with respect thereto.
4.4 COLE NATIONAL CORPORATION COMMON STOCK
All Mandatory Matching Contributions and Discretionary Matching Contributions
shall be made by the Employer in notional Cole National Corporation Common Stock
unless otherwise determined by the Employer. All Mandatory Matching
Contributions and Discretionary Matching Contributions made in notional Cole
National Corporation Common Stock shall remain invested in notional Cole
National Corporation Common Stock until distributed pursuant to Article VII. If
any portion of a Participant's Account is invested in notional Cole National
Corporation Common Stock, such Participant shall have the right to instruct the
Trustee to vote the shares of Cole National Corporation Common Stock held for
such Participant under the Plan and Trust in accordance with the Participant's
directions. If a Participant fails to direct the Trustee, the Trustee shall vote
all shares for which it does not receive instructions in the same proportion as
the shares for which it did receive instructions. In the event of a tender
offer, a Participant whose Account is invested in notional Cole National
Corporation Common Stock shall have the right to instruct the Trustee as to
whether or not to tender the shares of Cole National Corporation Common Stock
held for such Participant under the Plan and Trust. If the Trustee receives no
instruction from a Participant, the Trustee will not tender the shares of Cole
National Common Stock held for such Participant under the Plan and Trust.
ARTICLE 5 -- ACCOUNTS
5.1 ACCOUNTS
The Plan Administrator shall establish an Account for each Participant
reflecting Elective Deferrals, Mandatory Matching Contributions and
Discretionary Matching Contributions made for the Participant's benefit together
with any adjustment for income, gain or loss and any payments from the Account.
The Plan Administrator may cause the Trustee to maintain and invest separate
asset accounts corresponding to each Participant's Account. As of the last
business day of each calendar quarter, the Plan Administrator shall provide the
Participant with a statement of his or her Account reflecting the income, gains
and losses (realized and unrealized), amounts of deferrals, and distributions of
such Account since the prior statement.
5.2 INVESTMENTS
The assets of the Trust shall be invested in such investments as the Trustee
shall determine. The Trustee may (but is not required to) consider the
Employer's or a Participant's investment preferences when investing the assets
attributable to a Participant's Account.
<PAGE> 9
ARTICLE 6 -- VESTING
6.1 VESTING SERVICE
For purposes of applying the vesting schedule set forth in Section 6.2, a
Participant's years of vesting service shall equal such Participant's years of
vesting service calculated under any one of the Cole National Corporation 401(k)
Plan, the Cole National Corporation 401(k) Plan for Former NuVision Locations or
the Cole National Corporation 401(k) Plan for Employees of Pearle Vision
Centers.
6.2 GENERAL
A Participant shall be immediately vested in, i.e., shall have a nonforfeitable
right to, all Elective Deferrals, and all income and gain attributable thereto,
credited to his or her Account. Unless the Employer elects, in its sole
discretion, to accelerate the vesting of the portion of a Participant's Account
attributable to Mandatory Matching Contributions and Discretionary Matching
Contributions and income and gain attributable thereto, a Participant shall
become vested in the portion of his or her Account attributable to Mandatory
Matching Contributions and Discretionary Matching Contributions and income and
gain attributable thereto in accordance with the following schedule subject to
earlier vesting in accordance with Sections 6.3, 6.4 and 6.5:
<TABLE>
<CAPTION>
years of vesting service percentage vested
<S> <C> <C>
1 25
2 50
3 75
4 100
</TABLE>
6.3 CHANGE OF CONTROL
A Participant shall become fully vested in his or her Account immediately prior
to a Change of Control of the Employer.
6.4 DEATH OR DISABILITY
A Participant shall become fully vested in his or her Account immediately prior
to termination of the Participant's employment by reason of the Participant's
death or Total and Permanent Disability. Whether a Participant's termination of
employment is by reason of the Participant's Total and Permanent Disability
shall be determined by the Plan Administrator in its sole discretion.
<PAGE> 10
6.5 INSOLVENCY
A Participant shall become fully vested in his or her Account immediately prior
to the Employer becoming Insolvent, in which case the Participant will have the
same rights as a general creditor of the Employer with respect to his or her
Account balance.
ARTICLE 7 -- PAYMENTS
7.1 RETIREMENT
A Participant shall elect (on a form approved by the Plan Administrator) the
date, which shall be coincident with or following his attainment of age 65, or
such earlier age which coincides with such Participant's early retirement under
the Cole National Group, Inc. Retirement Plan as shall be permitted by the
Employer in its sole discretion, at which the Elective Deferrals and vested
Mandatory Matching Contributions and Discretionary Matching Contributions
(including any earnings attributable thereto) will commence to be paid to the
Participant by CNG. The election described in the preceding sentence must be
made at least one year prior to the date elected by the Participant at which the
Elective Deferrals and vested Mandatory Matching Contributions and Discretionary
Matching Contributions (including any earnings attributable thereto) will
commence to be paid by CNG to such Participant. The Participant shall also elect
for payments to be paid by CNG in either:
A. a single lump-sum payment; or
B. annual installments over a period elected by the Participant, the
amount of each installment to equal the balance of his or her Account
immediately prior to the installment divided by the number of installments
remaining to be paid.
If a Participant terminates employment on or after his attainment of age 65 and
fails to make an election as set forth in this Section 7.1, his Account shall be
payable to him by CNG in a single lump sum payment.
7.2 CHANGE OF CONTROL
As soon as possible following a Change of Control, CNG shall pay each
Participant his or her entire Account balance (including any amount vested
pursuant to Section 6.3) in a single lump sum.
7.3 TERMINATION OF EMPLOYMENT
Upon termination of a Participant's employment for any reason other than death
and prior to the attainment of age 65, the vested portion of the Participant's
Account (including any portion vested pursuant to Section 6.4, as a consequence
of the Participant's Total and Permanent Disability) shall be paid by CNG to the
Participant in a single lump sum, as soon as practicable following the date of
such termination, unless the Participant elects to
<PAGE> 11
defer payment for up to a period of twelve months following the date of such
termination; provided, however, that the Plan Administrator in its sole
discretion may cause CNG to pay out a Participant's Account balance in annual
installments if the Participant's employment terminates by reason of the
Participant's Total and Permanent Disability.
7.4 DEATH
If a Participant dies prior to the complete distribution of his or her Account,
the balance of the Account shall be paid by CNG as soon practicable to the
Participant's Beneficiary.
Any designation of Beneficiary and form of payment to such Beneficiary shall be
made by the Participant on an Election Form filed with the Plan Administrator
and may be changed by the Participant at any time by filing another Election
Form containing the revised instructions. If no Beneficiary is designated or no
designated Beneficiary survives the Participant, payment shall be made to the
Participant's surviving spouse, or, if none, to the Participant's issue per
stirpes, in a single payment. If no spouse or issue survives the Participant,
payment shall be made in a single lump sum to the Participant's estate.
7.5 UNFORESEEN EMERGENCY
If a Participant suffers an unforeseen emergency, as defined herein, the Plan
Administrator, in its sole discretion, may cause CNG to pay to the Participant
only that portion, if any, of the vested portion of his or her Account that the
Plan Administrator determines is necessary to satisfy the emergency need,
including any amounts necessary to pay any federal, state or local income taxes
reasonably anticipated to result from the distribution. A Participant requesting
an emergency payment shall apply for the payment in writing in a form approved
by the Plan Administrator and shall provide such additional information as the
Plan Administrator may require. For purposes of this paragraph, "unforeseen
emergency" means an immediate and heavy financial need resulting from any of the
following:
a. expenses that are not covered by insurance and which the Participant or
his or her spouse or dependent has incurred as a result of, or is
required to incur in order to receive, medical care;
b. the need to prevent eviction of a Participant from his or her principal
residence or foreclosure on the mortgage of the Participant's principal
residence;
c. expenses associated with the purchase (excluding mortgage payments) of
a principal residence of the Participant;
d. payment of tuition and related educational fees for the next 12 months
of post-secondary education for the Participant, his or her Spouse,
children or dependents; or
<PAGE> 12
e. any other circumstance that is determined by the Plan Administrator in
its sole discretion to constitute an unforeseen emergency that is not
covered by insurance.
7.6 IN-SERVICE DISTRIBUTIONS
A Participant may elect to receive a lump sum distribution from CNG of all or
any portion of his vested Account, provided that, the amount elected by the
Participant shall be reduced by ten percent of such amount and such ten percent
shall be forfeited and shall be used to satisfy the Employer's obligation to
make contributions to the Trust under the Plan. The remaining ninety percent
shall be distributed to the Participant.
7.7 FORFEITURE OF NON-VESTED AMOUNTS
To the extent that any amounts credited to a Participant's Account are not
vested at the time such amounts are otherwise payable under Sections 7.1 or 7.3,
such amount shall be forfeited and shall be used to satisfy the Employer's
obligation to make contributions to the Trust under the Plan.
7.8 TAXES
All federal, state or local taxes that the Plan Administrator determines are
required to be withheld from any payments made pursuant to this Article 7 shall
be withheld.
7.9 GUARANTEE BY EMPLOYERS
The Company and each Employer, other than CNG, jointly and severally guaranty
the performance by CNG of its obligations under the Plan.
ARTICLE 8 -- PLAN ADMINISTRATOR
8.1 PLAN ADMINISTRATION AND INTERPRETATION
The Plan Administrator shall oversee the administration of the Plan. The Plan
Administrator shall have the sole and absolute discretion to (a) interpret the
provisions of the Plan (including without limitation, by supplying omissions
from, correcting deficiencies in, or resolving inconsistencies or ambiguities
in, the language of the Plan), (b) to make factual findings with respect to any
issue arising under the Plan, (c) to determine the rights and status under the
Plan of Participants and other persons, (d) to decide disputes arising under the
Plan and to make determinations and findings (including factual findings) with
respect to the benefits payable thereunder and the persons entitled thereto as
may be required for the purposes of the Plan. In furtherance thereof, but
without limiting the foregoing, the Plan Administrator is granted the following
specific authorities, which it shall discharge in its sole and absolute
discretion in accordance with the terms of the Plan (as interpreted to the
extent necessary by the Plan Administrator): (a) to resolve all questions
(including factual questions) arising
<PAGE> 13
under the Plan as to any individual's entitlement to become a Participant and
(b) to determine the amount of benefits, if any, payable with respect to any
person under the Plan (including to the extent necessary, making any factual
findings with respect thereto). All decisions of the Plan Administrator as to
the facts of any case and the application thereof to any case, as to the
interpretation of any provision of the Plan or its application to any case, and
as to any other interpretive matter or other determination or questions related
to the Plan shall be final and binding on all parties affected thereby.
Any individual serving as Plan Administrator who is a Participant will not vote
or act on any matter relating solely to himself or herself. When making a
determination or calculation, the Plan Administrator shall be entitled to rely
on information furnished by a Participant, a Beneficiary, the Employer or the
Trustee. The Plan Administrator shall have the responsibility for complying with
any reporting and disclosure requirements of ERISA.
8.2 POWERS, DUTIES, PROCEDURES, ETC.
The Plan Administrator shall have such powers and duties, may adopt such rules
and tables, may act in accordance with such procedures, may appoint such
officers or agents, may delegate such powers and duties, may receive such
reimbursements and compensation, and shall follow such claims and appeal
procedures with respect to the Plan as it may establish.
8.3 INFORMATION
To enable the Plan Administrator to perform its functions, the Employer shall
supply full and timely information to the Plan Administrator on all matters
relating to the compensation of Participants, their employment, retirement,
death, termination of employment, and such other pertinent facts as the Plan
Administrator may require.
8.4 INDEMNIFICATION OF THE PLAN ADMINISTRATOR
The Employer agrees to indemnify and to defend to the fullest extent permitted
by law any officer(s) or employee(s) who serve as Plan Administrator (including
any such individual who formerly served as Plan Administrator) against all
liabilities, damages, costs and expenses (including attorneys' fees and amounts
paid in settlement of any claims approved by the Employer) occasioned by any act
or omission to act in connection with the Plan, if such act or omission is in
good faith. This indemnification obligation is supplemental to, and does not
reduce, any other indemnity or insurance available to the Plan Administrator,
whether under the Employer's charter documents, applicable corporate law,
obligations of third parties or otherwise.
<PAGE> 14
ARTICLE 9 -- AMENDMENT AND TERMINATION
9.1 AMENDMENTS
The Employer shall have the right to amend the Plan from time to time, subject
to Section 9.3, by an instrument in writing that has been executed on the
Employer's behalf by its duly authorized officer.
9.2 TERMINATION OF PLAN
This Plan is strictly a voluntary undertaking on the part of the Employer and
shall not be deemed to constitute a contract between the Employer and any
Eligible Employee (or any other employee) or a consideration for, or an
inducement or condition of employment for, the performance of the services by
any Eligible Employee (or other employee). The Employer reserves the right to
terminate the Plan at any time, subject to Section 9.3, by an instrument in
writing that has been executed on the Employer's behalf by its duly authorized
officer. Upon termination, the Employer may (a) elect to continue to maintain
the Trust to pay benefits hereunder as they become due as if the Plan had not
terminated or (b) direct the Trustee to pay promptly to Participants (or their
Beneficiaries) the vested balance of their Accounts. For purposes of the
preceding sentence, in the event the Employer chooses to implement clause (b),
the Account balances of all Participants who are in the employ of the Employer
at the time the Trustee is directed to pay such balances shall become fully
vested and nonforfeitable. After Participants and their Beneficiaries are paid
all Plan benefits to which they are entitled, all remaining assets of the Trust
attributable to Participants who terminated employment with the Employer prior
to termination of the Plan and who were not fully vested in their Accounts under
Article 6 at that time shall be returned to the Employer. Each other entity that
is affiliated with the Employer which adopts the Plan shall have the right to
terminate the Plan with regard to such entity's employees.
9.3 EXISTING RIGHTS
No amendment or termination of the Plan, except as provided in Section 9.2,
shall adversely affect the rights of any Participant with respect to amounts
that have been credited to his or her Account prior to the date of such
amendment or termination.
ARTICLE 10 -- MISCELLANEOUS
10.1 NO FUNDING
The Plan constitutes a mere promise by the Employer to make payments in
accordance with the terms of the Plan and Participants and Beneficiaries shall
have the status of general unsecured creditors of the Employer. Nothing in the
Plan will be construed to give any employee or any other person rights to any
specific assets of the Employer or of any other person. In all events, it is the
intent of the Employer that the Plan be treated as unfunded for tax purposes and
for purposes of Title I of ERISA.
<PAGE> 15
10.2 NON-ASSIGNABILITY
None of the benefits, payments, proceeds or claims of any Participant or
Beneficiary shall be subject to any claim of any creditor of any Participant or
Beneficiary and, in particular, the same shall not be subject to attachment or
garnishment or other legal process by any creditor of such Participant or
Beneficiary, nor shall any Participant or Beneficiary have any right to
alienate, anticipate, commute, pledge, encumber or assign any of the benefits or
payments or proceeds that he or she may expect to receive, contingently or
otherwise, under the Plan.
10.3 LIMITATION ON PARTICIPANT'S RIGHTS
Nothing contained in the Plan shall confer upon any person a right to be
employed or to continue in the employ of the Employer, or interfere in any way
with the right of the Employer to terminate the employment of a Participant in
the Plan at any time, with or without cause.
10.4 PARTICIPANTS BOUND
Any action with respect to the Plan taken by the Plan Administrator or the
Employer or the Trustee or any action authorized by or taken at the direction of
the Plan Administrator, the Employer or the Trustee shall be conclusive upon all
Participants and Beneficiaries entitled to benefits under the Plan.
10.5 RECEIPT AND RELEASE
Any payment to any Participant or Beneficiary in accordance with the provisions
of the Plan shall, to the extent thereof, be in full satisfaction of all claims
against the Employer, the Plan Administrator and the Trustee under the Plan, and
the Plan Administrator may require such Participant or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect. If any Participant or Beneficiary is determined by the Plan
Administrator to be incompetent by reason of physical or mental disability
(including minority) to give a valid receipt and release, the Plan Administrator
may cause the payment or payments becoming due to such person to be made to
another person for his or her benefit without responsibility on the part of the
Plan Administrator, the Employer or the Trustee to follow the application of
such funds.
10.6 GOVERNING LAW
The Plan shall be construed, administered, and governed in all respects under
and by internal laws, and not the laws of conflicts, of the State of Ohio. If
any provision shall be held by a court of competent jurisdiction to be invalid
or unenforceable, the remaining provisions hereof shall continue to be fully
effective.
<PAGE> 16
10.7 HEADINGS AND SUBHEADINGS
Headings and subheadings in this Plan are inserted for convenience only and are
not to be considered in the construction of the provisions hereof.
EXECUTED this ____ day of __________________, 1999.
COLE NATIONAL GROUP, INC.
By:___________________________
Title:________________________
Acknowledged and agreed to for
purposes of Section 7.9 of the Plan. COLE NATIONAL CORPORATION
By: __________________________
Title: _______________________
<PAGE> 1
Exhibit 10.54
AMENDMENT NO. 1
TO THE
COLE NATIONAL GROUP, INC.
SUPPLEMENTAL PENSION PLAN
Cole National Group, Inc. (the "Company") hereby adopts this
Amendment No. 1 to the Cole National Group, Inc. Supplemental Pension Plan (the
"Plan") effective as of December 17, 1998. Words and phrases used here with
initial capital letters that are defined in the Plan are used herein as so
defined.
I.
Section 5.4 of the Plan is hereby amended in its entirety to
read as follows:
"SECTION 5.4. INSTRUMENTS OF ADOPTION/INSTRUMENTS DESIGNATING
PARTICIPANTS. Any member of the Controlled Group may become an Employer
hereunder with the written consent of the Company if it executes an
"Instrument of Adoption" evidencing its adoption of the Plan and files
a copy thereof with the Company. Such Instrument of Adoption may be
subject to such terms and conditions as the Company requires or
approves and shall include a designation of the Participants in the
Plan. In addition, with the consent of the Company, such Instrument of
Adoption may contain specific provisions which apply to some or all of
the employees of an Employer. The Company shall designate its employees
as Participants in an Instrument Designating Participants. The
Company's Instrument Designating Participants may contain specific
provisions which apply to some or all of the employees of the Company
whether or not consistent with the terms of this Plan. An Employer who
ceases to exist or who is no longer a member of the Controlled Group
shall automatically cease being a Participating Employer hereunder."
EXECUTED as of the 17th day of December, 1998.
COLE NATIONAL GROUP, INC.
By: _______________________
Title: ____________________
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF COLE NATIONAL CORPORATION
<TABLE>
<CAPTION>
State of Names Subsidiaries
Corporation Name Incorporation Do Business Under
- ----------------- ------------- ----------------------
<S> <C> <C>
Cole National Group, Inc. Delaware
Cole Managed Vision, Inc. Delaware
Bay Cities Optical Company California Ward's Optical
Cole Lens Supply, Inc. Delaware Contact Lens Supply
Contact Lens Supply Co.
Cole Vision Corporation Delaware Sears Optical
Ward's Optical
BJ's Optical Department
Target Optical
Optical Factory Outlet
Cole Vision Canada, Inc. New Brunswick, Canada Sears Optical
Vision Club
Pearle Vision Center
Cole Vision Services, Inc. Delaware
Western States Optical, Inc. Washington Sears Optical
Things Remembered, Inc. Delaware Things Remembered
Things Remembered Engraved Gifts
Things Engraved
HQ Gifts
Gifts Remembered
Pearle, Inc. Delaware
Pearle VisionCare, Inc. California Pearle Vision (HMO)
Pearle Vision Center of Commonwealth of Puerto Rico Pearle Vision Center
Puerto Rico, Inc. Pearle Vision Express
Pearle Express
Pearle Vision, Inc. Delaware Pearle Vision
Pearle Vision Center
Pearle Vision Express
Pearle Eyelab Express
Pearle Eye-Tech Express
Pearle Express
Pearle Vision Managed Care
HMO of Texas, Inc. Texas
American Vision Centers, Inc. Delaware American Vision Centers
Eyes First
NuVision, Inc. Michigan Pearle Vision
Vision Maintenance Organization, Inc. Michigan
</TABLE>
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
COLE NATIONAL CORPORATION
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of Cole National Corporation, a Delaware corporation, hereby constitutes
and appoints Jeffrey A. Cole, Wayne L. Mosley and Joseph Gaglioti, and each of
them, as the true and lawful attorney or attorneys-in-fact, with full power of
substitution and revocation, for the undersigned and in the name, place and
stead of the undersigned, to sign on behalf of the undersigned an Annual Report
on Form 10-K for the fiscal year ended January 30, 1999, pursuant to Section 13
of the Securities Exchange Act of 1934 and to sign any and all amendments to
such Annual Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting to said attorney or attorneys-in-fact, and each of them, full power and
authority to do so and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that said attorney or attorneys-in-fact or any of them or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Executed as of the 18th day of March, 1999.
/s/ George H. Bernstein, Jr.
--------------------------
George H. Bernstein, Jr.
Executive Vice President of Strategic Planning
and Chief Financial Officer
(Principal Financial Officer)
/s/ Timothy F. Finley
--------------------------
Timothy F. Finley
Director
/s/ Irwin N. Gold
--------------------------
Irwin N. Gold
Director
/s/ Peter V. Handal
--------------------------
Peter V. Handal
Director
/s/ Brian B. Smith
--------------------------
Brian B. Smith
President and Director
/s/ Charles A. Ratner
--------------------------
Charles A. Ratner
Director
--------------------------
Walter J. Salmon
Director
/s/ Jeffrey A. Cole
--------------------------
Jeffrey A. Cole
Chairman and Chief Executive
Officer and Director
(Principal Executive Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS
PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 51,057
<SECURITIES> 0
<RECEIVABLES> 55,457
<ALLOWANCES> 7,189
<INVENTORY> 119,881
<CURRENT-ASSETS> 251,392
<PP&E> 261,605
<DEPRECIATION> 135,731
<TOTAL-ASSETS> 628,024
<CURRENT-LIABILITIES> 182,697
<BONDS> 276,013
0
0
<COMMON> 15
<OTHER-SE> 145,345
<TOTAL-LIABILITY-AND-EQUITY> 628,024
<SALES> 1,068,182
<TOTAL-REVENUES> 1,068,182
<CGS> 364,090
<TOTAL-COSTS> 1,025,836
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,724
<INCOME-PRETAX> 23,622
<INCOME-TAX> 9,346
<INCOME-CONTINUING> 14,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,276
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.94
</TABLE>
