<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12.
</TABLE>
COLE NATIONAL CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
COLE NATIONAL CORPORATION
5915 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
------------------
NOTICE OF ANNUAL MEETING
------------------
The Annual Meeting of the stockholders of Cole National Corporation will be
held on June 10, 1999 at 10:00 a.m., at the headquarters of Cole Vision
Corporation, 1925 Enterprise Parkway, Twinsburg, Ohio. The principal business of
the meeting will be:
(1) To elect seven directors.
(2) To approve Cole National's 1999 Employee Stock Purchase Plan.
(3) To amend Cole National's 1998 Equity and Performance Incentive Plan.
(4) To confirm the selection of Arthur Andersen LLP as the independent
certified public accountants of Cole National for fiscal year 1999.
(5) To transact any other business that may properly come before the
meeting.
Only stockholders of record on April 21, 1999 will be entitled to notice
of, and to vote at, the Annual Meeting and at any adjournments or postponements
of the meeting. If you own shares through a nominee and you want to have your
vote counted, you must instruct your nominee to vote.
By Order of the Board of Directors
/s/ Leslie D. Dunn
LESLIE D. DUNN
Secretary
May 3, 1999
YOUR VOTE IS IMPORTANT
PLEASE PROMPTLY COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED FORM OF PROXY
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES. RETURNING A SIGNED PROXY WILL NOT PREVENT YOU FROM ATTENDING
THE MEETING AND VOTING IN PERSON, IF YOU WISH TO DO SO.
------------------
ALSO ENCLOSED IS A COPY OF OUR ANNUAL REPORT FOR THE YEAR ENDED JANUARY 30,
1999. THE ANNUAL REPORT CONTAINS FINANCIAL AND OTHER INFORMATION ABOUT COLE
NATIONAL. HOWEVER, THE ANNUAL REPORT IS NOT INCORPORATED INTO THE PROXY
STATEMENT AND IS NOT A PART OF THE PROXY SOLICITING MATERIAL.
<PAGE> 3
COLE NATIONAL CORPORATION
5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
------------------
PROXY STATEMENT FOR COLE NATIONAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
Your Board of Directors is furnishing this proxy statement to you in
connection with our solicitation of proxies for use at the Annual Meeting of the
stockholders of Cole National Corporation. This meeting will be held on June 10,
1999. This proxy statement and the related form of proxy was first mailed to
stockholders on approximately May 3, 1999.
If you sign and return the enclosed proxy card, your shares will be voted
as indicated on the card. Without affecting any vote previously taken, you may
revoke your proxy by delivering to us a new, later dated proxy for the same
shares. You may also revoke your proxy by giving us written notice before or at
the meeting. Your presence at the meeting will not by itself revoke your proxy
appointment.
At the close of business on April 21, 1999, the record date for the
determination of those stockholders who are entitled to notice of, and to vote
at, the Annual Meeting, there were 14,879,243 shares of Cole National common
stock outstanding. Each share of our common stock is entitled to one vote on
each matter brought before the meeting.
We will bear the costs of soliciting proxies from our stockholders. In
addition to the use of the mails, our directors, officers and employees may
solicit proxies through personal interviews, telephone, facsimile or telegram.
Directors, officers and employees will not be paid for their solicitation
efforts, except for reimbursement of any out-of-pocket expenses. We have also
engaged Morrow & Co. to assist in the solicitation of proxies for an estimated
fee of $14,000. We have made arrangements with brokerage houses and other
custodians, nominees and fiduciaries to distribute solicitation material to the
beneficial owners of the common stock held of record by those persons. We will
reimburse those brokerage houses, custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses.
For us to take action at the Annual Meeting, the holders of a majority of
our common stock must be present in person at the Annual Meeting or represented
by proxy. The nominees for election as directors who receive the greatest number
of votes will be elected directors. Under New York Stock Exchange rules,
approval of the 1999 Employee Stock Purchase Plan and the amendment of the 1998
Equity and Performance Incentive Plan will require an affirmative majority of
the votes cast on the proposal. To approve either of these proposals, the total
votes cast on each proposal -- whether "for," "against" or "abstain," -- must
represent a majority of our common stock outstanding and entitled to vote at the
meeting. Confirmation of the selection of our independent certified public
accountants requires approval by a majority of the votes cast at the meeting.
Abstentions to any proposal will be counted as votes cast on that proposal.
BECAUSE OF THESE REQUIREMENTS, WE URGE YOU TO VOTE "FOR" EACH PROPOSAL. YOU ARE
URGED TO MAIL YOUR SIGNED, DATED PROXY CARD IN THE ENCLOSED ENVELOPE AS SOON AS
POSSIBLE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE ANNUAL MEETING. IF YOU
HOLD SHARES IN NOMINEE NAME THROUGH BROKERS, WE URGE YOU TO INSTRUCT YOUR
NOMINEES TO VOTE "FOR" EACH PROPOSAL. To ensure that your broker receives your
instructions, we suggest that you send your instructions to your broker by fax,
overnight delivery service, or by certified mail, return receipt requested. You
should also call your broker to make sure your instructions were received.
1
<PAGE> 4
If you receive multiple copies of our Annual Report, you may call our
Stockholder Services department at 440/449-4100 to request that one copy be sent
to you for all of your accounts. Stockholders owning shares beneficially may
give permission to their nominees to request the discontinuance of multiple
mailings. You may resume mailing of an Annual Report to an account by calling
our Stockholder Services department.
2
<PAGE> 5
ELECTION OF DIRECTORS
ITEM NO. 1
Votes will be cast according to the authority granted by the enclosed proxy
for the election of the seven nominees listed below. Each elected director's
term of office is one year, or until a successor is elected. All of the nominees
listed below currently serve as directors. If, in the judgment of the proxy
holders, an unexpected occurrence makes it necessary to substitute some other
person for any of the nominees, shares will be voted for the other person that
proxy holders select.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey A. Cole................................. 57 Chairman, Chief Executive Officer and
Director
Brian B. Smith.................................. 46 President, Chief Operating Officer
and Director
Timothy F. Finley............................... 55 Director
Irwin N. Gold................................... 42 Director
Peter V. Handal................................. 56 Director
Charles A. Ratner............................... 57 Director
Walter J. Salmon................................ 68 Director
</TABLE>
MR. COLE has been a director of Cole National or its predecessor since
1969. He has been Chairman since 1992, Chief Executive Officer since 1984 and
was Chief Financial Officer from 1991 until 1999. He is also a director of
Hartmarx Corporation; Edison Brothers Stores, Inc.; Pearle Europe BV and Cole
National Group, Inc., a wholly owned subsidiary of Cole National.
MR. SMITH has been a director of Cole National since 1994, and has been
President and Chief Operating Officer since 1992. Mr. Smith serves and has
served in other executive capacities with Cole National's subsidiaries since
1986. He is also a director of Cole National Group.
MR. FINLEY has been a director of Cole National since 1992. Mr. Finley has
been Chairman and Chief Executive Officer of Jos. A. Bank Clothiers, Inc., a
clothing retailer, since 1990. He is also a director of Jos. A. Bank Clothiers,
Inc.; Venture Stores, Inc. and Cole National Group.
MR. GOLD has been a director of Cole National since 1992. Mr. Gold is a
Senior Managing Director of Houlihan Lokey Howard & Zukin, a specialty
investment banking firm, where he has been employed since 1988. He is also a
director of Advantica Restaurant Group, Inc.; The Bibb Company and Cole National
Group.
MR. HANDAL has been a director of Cole National since 1992. Currently, Mr.
Handal is President of COWI International Group, a consulting company; President
of J4P Associates, a real estate firm; and President of Fillmore Leasing
Company. Previously, Mr. Handal served as the President of Victor B. Handal and
Bro., Inc., an apparel manufacturer and distributor. He is also a director of
Jos. A. Bank Clothiers, Inc.; Factory 2U Stores, Inc. and Cole National Group.
MR. RATNER has been a director of Cole National since March 1995. Since
1993, Mr. Ratner has served as President and Chief Executive Officer of Forest
City Enterprises, Inc., a national real estate development and management
company. Mr. Ratner is Chairman of Forest City Rental Properties Corporation, a
subsidiary of Forest City Enterprises, Inc., a position he has held for over
five years. He is also a director of Forest City Enterprises, Inc. and Cole
National Group.
3
<PAGE> 6
MR. SALMON has been a Director of Cole National since June 1997. Mr. Salmon
is the Stanley Roth Sr., Professor of Retailing, Emeritus at the Harvard
University Graduate School of Business Administration, where he has been a
member of the faculty since 1956. Mr. Salmon also served as Senior Associate
Dean and Director of External Relations from 1989 to 1994. Mr. Salmon previously
served as a director of Cole National's predecessor from 1961 to 1984. He is
also a director of Circuit City Stores, Inc.; Hannaford Bros. Co.; Harrah's
Entertainment, Inc.; Luby's Cafeterias, Inc.; The Neiman Marcus Group; The
Quaker Oats Company; PetsMart, Inc. and Cole National Group.
Your Board of Directors held six meetings during fiscal 1998. Each director
attended at least 75% of those meetings and the meetings of any committee of
which he is a member.
BOARD COMMITTEES
Your Board of Directors has an Audit Committee, a Compensation Committee
and a Special Compensation Committee. During fiscal 1998, the members of the
Audit Committee were Timothy F. Finley, Irwin N. Gold and Walter J. Salmon; the
members of the Compensation Committee were Peter V. Handal and Charles A.
Ratner; and the members of the Special Compensation Committee were Peter V.
Handal and Timothy F. Finley.
The Audit Committee had two formal meetings in 1998. The Audit Committee
performs the following functions:
- recommends to the Board of Directors, subject to your approval, the
selection of Cole National's independent public accountants;
- discusses with the independent public accountants the overall scope and
specific plans for their audit; and
- meets with the independent public accountants to discuss the results of
their audit, their evaluation of Cole National's internal controls and
financial reporting.
The Compensation Committee held eight formal meetings during fiscal 1998,
in addition to a number of informal meetings. The Compensation Committee
performs the following functions:
- reviews executive compensation;
- fixes compensation of the executive officers and incentive compensation;
- recommends the adoption of, and administers, all benefit plans; and
- grants stock options.
The Special Compensation Committee held seven formal meetings in 1998. The
Special Compensation Committee reviews executive compensation in those instances
that may involve Section 162(m) of the Internal Revenue Code, which limits the
deductibility of executive compensation that exceeds $1 million in certain
circumstances.
4
<PAGE> 7
COMPENSATION OF DIRECTORS
CASH COMPENSATION
We pay directors who are not employees of Cole National or any of its
subsidiaries an annual fee of $25,000 plus reasonable out-of-pocket expenses.
Members of the Audit Committee and the Compensation Committee also receive $750
for each day of attendance at a committee meeting that is not held on the same
day as a meeting of the Board of Directors. In addition, the chairpersons of the
Audit Committee and the Compensation Committee receive an additional $2,500 and
$5,000 per year, respectively.
STOCK-BASED COMPENSATION
In 1997, our stockholders approved the Nonemployee Director Equity and
Deferred Compensation Plan. This plan allows nonemployee directors to receive
their annual retainer and other fees in the form of shares of our common stock.
The plan also allows nonemployee directors to defer the payment and therefore
the recognition as income for federal income tax purposes of all or part of
their annual retainer and other fees paid to them as directors. During 1998,
Messrs. Handal, Ratner and Salmon elected to defer a portion of their fees and
received credits payable in shares of our common stock as follows: Mr. Handal,
1,363 shares; Mr. Ratner, 1,105 shares; and Mr. Salmon, 417 shares.
Our Nonqualified Stock Option Plan for Nonemployee Directors provides for
the granting of stock options for up to an aggregate of 100,000 shares of our
common stock to directors who are not employees of Cole National or any of its
subsidiaries. This plan was approved by our stockholders prior to our initial
public offering in April 1994, and amendments to the plan were approved by our
stockholders in 1997. As amended, this plan provides for the automatic grant of
a nonqualified option to purchase 2,500 shares of our common stock to each newly
elected or appointed nonemployee director on January 1 of the year immediately
following the year in which the director is elected or appointed, and on each
January 1 thereafter for as long as the director continues to serve. Nonemployee
directors serving at the time of the adoption of the plan became eligible for
option grants beginning on January 1, 1997. Options granted under the plan
generally vest on the first anniversary of the date of grant of the option,
provided that the optionee is still serving as a nonemployee director at that
time. The exercise price per share for options granted under the plan is the
average of the high and low selling prices of our common stock on the New York
Stock Exchange on the last trading date on which such prices are quoted prior to
the date of grant. Messrs. Finley, Gold, Handal, Ratner and Salmon each received
an automatic grant of options for 2,500 shares on January 1, 1999 with an
exercise price of $16.9375.
5
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding ownership of our
common stock as of April 21, 1999, except as otherwise noted, by:
- each of those persons owning of record or known to us to be the
beneficial owner of more than five percent of our common stock;
- each of our directors;
- each of our executive officers named in the Summary Compensation Table;
and
- all of our directors and executive officers as a group.
The number of shares of common stock outstanding on April 21, 1999 was
14,879,243. Except as noted, all information with respect to beneficial
ownership has been furnished by each director or officer or is based on filings
with the Securities and Exchange Commission. Unless otherwise indicated below,
voting and investment power of shares reported in this table is not shared with
others. Beneficial ownership of our common stock has been determined according
to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, which
provide that a person is deemed to be the beneficial owner of shares of stock if
the person, directly or indirectly, has or shares the voting or investment power
of that stock, or has the right to acquire ownership of the stock within 60
days.
<TABLE>
<CAPTION>
OUTSTANDING NO. OF TOTAL NUMBER
SHARES IMMEDIATELY OF SHARES PERCENT
BENEFICIALLY EXERCISABLE BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED OPTIONS OWNED CLASS
------------------------ ------------ ----------- ------------ -------
<S> <C> <C> <C> <C>
FMR Corp.(1) 1,065,000 0 1,065,000 7.18%
82 Devonshire Street
Boston, MA 02109-3614
HAL International N.V.(2) 2,102,100 0 2,102,100 14.17%
c/o HAL Holding NV
5 Avenue des Citronniers
MC 98000 Monaco
Lazard Freres & Co. LLC(3) 1,013,000 0 1,013,000 6.83%
30 Rockefeller Plaza
New York, NY 10020
Pioneer Investment Management 856,500 0 856,500 5.77%
Inc.,(4)
60 State Street
Boston, MA 02109
T. Rowe Price Associates, Inc.(5) 1,550,200 0 1,550,200 10.45%
100 E. Pratt Street
Baltimore, MD 21202
Wellington Management Company, 759,000 0 759,000 5.12%
LLP(6)
75 State Street
Boston, MA 02109
Jeffrey A. Cole(7) 300,678 196,657 497,335 3.31%
Timothy F. Finley 3,341 12,500 15,931 *
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
OUTSTANDING NO. OF TOTAL NUMBER
SHARES IMMEDIATELY OF SHARES PERCENT
BENEFICIALLY EXERCISABLE BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED OPTIONS OWNED CLASS
------------------------ ------------ ----------- ------------ -------
<S> <C> <C> <C> <C>
Irwin N. Gold 14,230 12,500 26,730 *
Peter V. Handal(8) 11,337 12,500 23,837 *
Charles A. Ratner(8) 5,390 3,500 8,890 *
Brian B. Smith(9) 205,579 220,822 426,401 2.82%
Joseph Gaglioti 2,261 20,166 22,427 *
Wayne L. Mosley 3,318 29,166 31,484 *
Leslie D. Dunn 1,000 4,000 5,000 *
Walter J. Salmon(8) 1,920 2,500 4,420 *
All directors and executive officers
as a group (11 persons) 563,499 517,061 1,080,560 7.02%
</TABLE>
- ---------------
* Less than one percent
(1) Stock ownership is based on an amended Schedule 13G dated February 1, 1999.
Fidelity Management & Research Company, a wholly owned subsidiary of FMR
Corp. and an investment adviser registered under the Investment Advisers Act
of 1940, is the beneficial owner of the shares indicated as a result of
acting as investment adviser to several investment companies registered
under the Investment Company Act of 1940.
The ownership of one investment company, Fidelity Low-Priced Stock Fund,
amounted to 1,065,000 shares or 7.18% of Cole National's outstanding common
stock. Fidelity Low-Priced Stock Fund has its principal business office at
82 Devonshire Street, Boston, Massachusetts 02109.
Edward C. Johnson 3d, FMR Corp. (through its control of Fidelity Management
& Research Company), and the Fidelity Low-Priced Stock Fund each have sole
power to dispose of the 1,065,000 shares owned by the Fidelity Low-Priced
Stock Fund. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR
Corp., has the sole power to vote or direct the voting of the shares owned
directly by the Fidelity Low-Priced Stock Fund. This power resides with the
fund's Board of Trustees. Fidelity carries out the voting of the shares
under written guidelines established by the fund's Board of Trustees.
Members of the Edward C. Johnson 3d family and trusts for their benefit are
the predominant owners of the shares of FMR Corp.'s Class B common stock,
representing approximately 49% of the voting power of FMR Corp. Mr. Johnson
3d owns 12.0% and Abigail P. Johnson owns 24.5% of the aggregate outstanding
voting stock of FMR Corp. Mr. Johnson 3d is Chairman, and Abigail P. Johnson
is a Director, of FMR Corp. The Johnson family group and all other Class B
stockholders have entered into a stockholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Accordingly, through their ownership of voting common stock
and the execution of the stockholders' voting agreement, members of the
Johnson family may be deemed, under the Investment Company Act of 1940, to
form a controlling group with respect to FMR Corp.
(2) Stock ownership is based on a Schedule 13G filed on January 12, 1999 on
behalf of HAL Holding NV and HAL International NV. All of the shares listed
are directly owned by HAL International NV. HAL Holding NV owns all the
outstanding shares of HAL International NV. All decisions regarding voting
and disposition of the shares are made by HAL International NV through its
board of directors and HAL Holding NV through its executive board. As such,
HAL Holding NV may be deemed to have shares voting and disposition power
over the shares that are or may be deemed to be beneficially owned by HAL
International NV but disclaims such beneficial ownership. HAL Trust holds
all shares of HAL Holding BV. The trustees of HAL
7
<PAGE> 10
Trust act in accordance with the instructions of the stockholders of HAL
Trust. Mr. M. van der Vorm and Mr. O.J. van der Vorm may be deemed to
control two entities that together control a majority of the voting power of
the shares of the HAL Trust. They disclaim beneficial ownership of the
shares that are or may be deemed to be beneficially owned by HAL
International NV.
(3) Stock ownership is based on a Schedule 13G dated February 16, 1999. The
report indicates that it has the sole power to dispose or to direct the
disposition of all of the reported shares and the sole power to vote 952,000
of the reported shares.
(4) Stock ownership is based on a Schedule 13G dated January 8, 1999.
(5) Stock ownership is based on a Schedule 13G dated February 12, 1999. These
securities are owned by various individual and institutional investors
(including the T. Rowe Price New America Growth Fund whose principal offices
are located at 100 E. Pratt Street, Baltimore, MD 21202, which owns 940,000
shares, representing 6.34% the shares outstanding), for which T. Rowe Price
Associates, Inc. serves as investment adviser with power to direct
investments and/or vote the securities. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, T. Price Associates,
Inc. is deemed to be a beneficial owner of such securities; however, T.
Price Associates, Inc disclaims that it is, in fact, the beneficial owner of
such securities.
(6) Stock ownership is based on a Schedule 13G filed on February 9, 1999.
Wellington Management Company, LLP, in its capacity as investment adviser,
may be deemed to beneficially own 759,000 shares that are held of record by
its clients. It has shared power to vote or direct the vote as to 419,000 of
these shares, and shared power to dispose or to direct the disposition of
all of the reported shares.
(7) Includes 123,750 shares of restricted stock. See note (3) to the Summary
Compensation Table.
(8) Includes share equivalents held through the Nonemployee Director Equity and
Deferred Compensation Plan, which have no voting rights, as follows: Mr.
Handal, 1,719 shares; Mr. Ratner, 1,390 shares; and Mr. Salmon, 570 shares.
(9) Includes 2,240 shares of common stock held by his son and 1,000 shares of
Common Stock held by his wife, as to which shares he disclaims beneficial
ownership. Also includes 55,000 shares of restricted stock. See note (3) to
the Summary Compensation Table.
8
<PAGE> 11
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF EXECUTIVE COMPENSATION
The table below shows the before-tax compensation for the years shown for
Cole National's Chief Executive Officer and the four next highest paid executive
officers at the end of 1998. Other annual compensation did not exceed the lesser
of $50,000 or 10% of the salary plus bonus of any of the executive officers for
any of the years listed.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL ------------------------
COMPENSATION RESTRICTED SECURITIES
------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS COMPENSATION(1)
--------------------------- ---- -------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Cole -- 1998 $716,346 None $3,360,938(2)(3) 250,000 $87,906
Chairman, Chief Executive 1997 $668,942 $283,500 None None 82,444
Officer and Chief 1996 $636,539 $553,752 None 240,000(4) 80,404
Financial Officer
Brian B. Smith -- 1998 $549,808 None $1,493,750(2)(5) 150,000 50,341
President and Chief 1997 $510,289 $220,500 None None 47,102
Operating Officer 1996 $435,673 $282,207(6) $ 124,344(7) 180,000 39,845
Leslie D. Dunn -- 1998 $211,543 $ 50,000(8) None 22,500 28,283
Senior Vice President -- 1997 $ 81,274 36,427 None 16,000 6,771
Business Development,
General Counsel and
Secretary (8)
Joseph Gaglioti -- 1998 $157,404 None None 15,000 18,724
Vice President and 1997 $142,923 $ 60,900 None None 14,708
Treasurer 1996 $131,269 $ 85,309(6) $ 37,580(7) 20,000 12,366
Wayne L. Mosley -- 1998 $157,404 None None 15,000 16,468
Vice President and 1997 $142,923 $ 60,900 None None 13,204
Controller 1996 $131,269 $ 85,309(6) $ 37,580(7) 20,000 11,704
</TABLE>
- ---------------
(1) The amounts listed for fiscal 1998 consist of:
- payments by Cole National pursuant to an agreement between Cole National and
an insurance company that provides for reimbursements to the named executive
officers in amounts up to $20,000 per year for certain medical expenses for
themselves and their families not otherwise covered by Cole National's group
medical insurance plan as follows: Mr. Cole ($856), Mr. Smith ($1,483), Ms.
Dunn ($4,399), Mr. Gaglioti ($3,718), and Mr. Mosley ($1,813);
- payments under Cole National's 401(k) Plan to match pre-tax elective deferral
contributions as follows: Mr. Cole ($1,500), Mr. Smith ($1,500), Ms. Dunn
($418), Mr. Gaglioti ($651), and Mr. Mosley ($651);
- the value of life insurance provided by Cole National for the benefit of the
executive officers as follows: Mr. Cole ($13,050), Mr. Smith ($2,958), Ms.
Dunn ($2,166), Mr. Gaglioti ($1,555), and Mr. Mosley ($1,204); and
9
<PAGE> 12
- contribution credits in fiscal 1998 provided under Cole National Group's
Supplemental Retirement Benefit Plan as follows: Mr. Cole ($72,500), Mr.
Smith ($44,400), Ms. Dunn ($21,300), Mr. Gaglioti ($12,800), and Mr. Mosley
($12,800). See "Supplemental Executive Retirement Plans" below.
(2) Reflects the dollar value of awards of shares of restricted common stock,
calculated by multiplying the number of shares granted by $14.9375, the
closing price of the common stock on the New York Stock Exchange on December
17, 1998, the date of award.
(3) On December 17, 1998, the Company awarded Mr. Cole 225,000 shares of
restricted common stock, of which 123,750 shares were issued under the
Company's 1998 Equity and Incentive Performance Plan and 101,250 shares were
issued out of the Company's treasury. On January 4, 1999, the Company
repurchased 101,250 shares of the restricted common stock awarded to Mr.
Cole at a purchase price of $14.78125 per share, which in the aggregate
equaled the taxes withheld by the Company on behalf of Mr. Cole on the award
of 225,000 shares of restricted common stock. The 123,750 shares of
restricted common stock that remain outstanding will vest in full on the
fifth anniversary of their award, with accelerated vesting as follows: (a)
1/3rd will vest on the first day after March 1, 2002 on which the closing
price of the common stock, as reported on the New York Stock Exchange for 21
consecutive trading days, exceeds $20.55, (b) an additional 1/3rd of the
original award will vest on the first day after March 1, 2002 on which the
closing price of the common stock, as reported on the New York Stock
Exchange for 21 consecutive trading days, exceeds $25.80, and (c) the
remaining shares will vest on the first day after March 1, 2002 on which the
closing price of the common stock, as reported on the New York Stock
Exchange for 21 consecutive trading days, exceeds $30.90. The shares are
subject to transfer restrictions and would be forfeited if Mr. Cole
voluntarily leaves the Company's employment before vesting occurs, and
vesting will accelerate in the event of Mr. Cole's death, disability or
retirement, or upon a change of control. The shares of restricted common
stock would be eligible to receive dividends if any were to be paid.
(4) Mr. Cole has transferred options with respect to an aggregate of 30,000
shares of the shares shown pursuant to a divorce settlement concluded in
February 1998, and Mr. Cole no longer retains any interest in those options.
(5) On December 17, 1998, the Company awarded Mr. Smith 100,000 shares of
restricted common stock, of which 55,000 shares were issued under the
Company's 1998 Equity and Incentive Performance Plan and 45,000 shares were
issued out of the Company's treasury. On January 4, 1999, the Company
repurchased 45,000 shares of the restricted common stock awarded to Mr.
Smith at a purchase price of $14.78125 per share, which in the aggregate
equaled the taxes withheld by the Company on behalf of Mr. Smith on the
award of 100,000 shares of restricted common stock. The shares that remain
outstanding have the same vesting, dividend, forfeiture and transfer
provisions as Mr. Cole's shares described in note (3).
(6) In part reflects a portion of incentive compensation awarded on March 20,
1997 as shares of Cole National's common stock as follows: Mr. Smith
($62,188), Mr. Gaglioti ($18,806), and Mr. Mosley ($18,806), based on the
value of unrestricted shares of our common stock on that date.
(7) Reflects March 20, 1998 awards pursuant to Cole National's Management
Incentive Bonus Program as follows: (i) Mr. Smith (1,951 shares that vested
March 20, 1998 and 1,950 shares that vested March 20, 1999), (ii) Mr.
Gaglioti (590 shares that vested March 20, 1998 and 589 shares that vested
March 20, 1999), and (iii) Mr. Mosley (590 shares that vested March 20, 1998
and 589 shares that vested March 20, 1999). Although such shares were issued
with restrictions and subject to a risk of forfeiture, the value of such
awards shown is based on the value of unrestricted shares of our common
stock as of March 20, 1997.
(8) Ms. Dunn's bonus for 1998 was guaranteed at the beginning of her employment
with Cole National on September 2, 1997.
10
<PAGE> 13
CERTAIN AGREEMENTS
We have employment agreements with Jeffrey A. Cole and Brian B. Smith. The
agreements were modified December 17, 1998 with respect to Mr. Cole and April 1,
1996 for Mr. Smith. The agreements provide for a three-year term that
automatically extends for an additional year on the first anniversary of the
agreement and each successive anniversary thereafter, up to and including the
year in which Messrs. Cole and Smith, respectively, reach age 65, unless notice
to the contrary has been furnished in accordance with the provisions of the
agreements. The agreements provide for an annual base salary of at least
$725,000 for Mr. Cole and $440,000 for Mr. Smith, along with participation in
bonus programs and other customary benefits and perquisites. For 1999, Mr.
Cole's salary has been fixed at $725,000 and Mr. Smith's salary at $555,000. The
agreements provide for payments upon involuntary termination of their employment
without cause or self-termination in a window period following a change of
control or, in Mr. Cole's case, after a constructive termination. Mr. Smith is
entitled to receive a lump sum payment equal to three times the sum of (a) his
salary at the time of termination and (b) his average bonus for the last five
fiscal years. Mr. Cole's agreement provides for the same payment, plus a
prorated bonus for the year of termination. They would also be entitled to
continuation of some benefits and perquisites. Mr. Smith's benefits will also
terminate upon expiration of his agreement's term; Mr. Cole will continue to
receive his benefits following the expiration of his agreement. Mr. Cole may
elect to take a lump sum payment in lieu of his benefits and prerequisites. The
agreements also contain provisions with respect to compensation, bonus and
benefits in the event of their death or disability. The agreements provide that,
in the event that any payments received by Messrs. Cole and Smith under the
agreements or otherwise are subject to an excise tax, they will be entitled to a
gross-up payment.
Mr. Cole's agreement contains provisions for Mr. Cole to provide consulting
services to the Company and its principal subsidiaries, until the earlier of 10
years or age 75, upon the expiration of his employment term or if Mr. Cole
voluntarily resigns (other than under circumstances that would have triggered
the 3 year payment described above) from all of the offices and positions he
holds with the Company and its principal subsidiaries. Under the consulting
arrangement, Mr. Cole would be paid consulting fees of $150,000 per year for the
first three years; $100,000 per year for the next four years, and $75,000 per
year for the last three years.
COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
The Cole National Group Retirement Plan (the "RETIREMENT PLAN") provides
non-contributory benefits integrated with Social Security benefits, based upon
an employee's years of credited service and highest average annual base salary
for any five consecutive years in the last ten years of service. Compensation
covered by the Retirement Plan consists only of an employee's base salary, and
does not include bonuses or any other form of compensation. Under the Internal
Revenue Code, the maximum retirement benefit payable under the Retirement Plan
and the maximum amount of annual compensation that can be taken into
consideration in the calculation of pension benefits under the Retirement Plan
are limited. At retirement, based on years of service and current salary levels,
it is estimated that the retirement benefits payable to Jeffrey A. Cole, Brian
B. Smith and Leslie D. Dunn will be reduced because of those limits.
Credited service under the Retirement Plan for each of the individuals
named in the Summary Compensation Table is as follows: Jeffrey A. Cole -- 20
years; Brian B. Smith -- 15 years; Leslie D. Dunn -- 0 years; Joseph
Gaglioti -- 17 years; and Wayne L. Mosley -- 12 years.
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<PAGE> 14
Participants in the Retirement Plan may elect payment of retirement
benefits under several different formulae. The following table shows the
estimated annual retirement benefits which will be payable to participating
employees under the Retirement Plan's normal retirement formula upon retirement
at age 65 after selected periods of service. The benefits as presented below do
not take into account any reduction for joint and survivor payments.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
--------------------------------------------------
REMUNERATION 10 15 20 25 30
- ------------ ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000 $ 7,901 $11,851 $ 15,802 $ 19,752 $ 23,702
125,000 10,151 15,226 20,302 25,377 30,452
150,000 12,401 18,601 24,802 31,002 37,202
175,000 (2) 14,651 21,976 29,302 36,627 43,952
200,000 (2) 16,901 25,351 33,802 42,252 50,702
225,000 (2) 19,151 28,726 38,302 47,877 57,452
250,000 (2) 21,401 32,101 42,802 53,502 64,202
300,000 (2) 25,901 38,851 51,802 64,752 77,702
350,000 (2) 30,401 45,601 60,802 76,002 91,202
400,000 (2) 34,901 52,351 69,802 87,252 104,702
500,000 (2) 43,901 65,851 87,802 109,752 131,702
600,000 (2) 52,901 79,351 105,802 132,252 158,702
700,000 (2) 61,901 92,851 123,802 154,752 185,702
725,000 (2) 64,151 96,226 128,302 160,377 192,452
</TABLE>
- ---------------
(1) Based on retirement in 1999.
(2) The Internal Revenue Code places certain limitations on the amount of
compensation that may be taken into account in calculating pension benefits
and on the amount of pensions that may be paid under federal income tax
qualified plans. For benefits accruing in plan years beginning after
December 31, 1993, no more than $150,000 (indexed for inflation) in annual
compensation can be taken into account. However, under the Pension Plan SERP
(as defined below under the caption "Supplemental Executive Retirement
Plans"), participating executives will receive the amounts to which they
otherwise would have been entitled under the Retirement Plan, provided they
have five years of service with the Company.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS
We have several supplemental executive retirement plans (the "SERPS") that
provide for payment of benefits in addition to the benefits under the Retirement
Plan to the participating executives (who include officers named in the Summary
Compensation Table).
The Cole National Group, Inc. Supplemental Pension Plan (the "PENSION PLAN
SERP") is an excess benefit plan that replaces benefits that would otherwise
have been payable under the Retirement Plan but that are limited due to Internal
Revenue Code limitations. Participants in the Pension Plan SERP will vest in the
excess benefits
12
<PAGE> 15
after five years of service (with credit for past service). Benefits under the
Pension Plan SERP will be payable on the same basis as the Retirement Plan
benefits.
The Cole National Group, Inc. Supplemental Retirement Benefit Plan (the
"BENEFIT PLAN SERP") is a defined contribution plan under which participants
will receive an annual credit based on a percentage of base salary and an
earnings assumption to be determined on an annual basis. Participants in the
Benefit Plan SERP will be fully vested in the defined contribution benefits
after ten years of service (with credit given for a year of actual past service
prior to 1994 and for each year of future service). Benefits under the Benefit
Plan SERP will generally be payable upon retirement (age 55 and older) in ten
annual installments or in another form elected by the participant prior to
retirement. The following contribution credits were provided in 1998 under the
Benefit Plan SERP to the named individuals and are included in "All Other
Compensation" in the Summary Compensation Table: Mr. Cole -- $72,500; Mr.
Smith -- $44,400; Ms. Dunn -- $21,300; Mr. Gaglioti -- $12,800; and Mr.
Mosley -- $12,800.
The Cole National Group, Inc. 1999 Supplemental Retirement Benefit Plan
(the "1999 SERP") is a defined benefit plan designed to provide additional
retirement benefits for certain management and highly compensated employees.
Participants in the 1999 SERP will vest in the defined benefit under the 1999
SERP after five years of service (with credit for past service). Benefits under
the 1999 SERP will generally be payable on the same basis as the Retirement Plan
benefits. Mr. Cole is currently the only participant in the 1999 SERP. Assuming
retirement at age 65, Mr. Cole's total annual retirement benefits under the 1999
SERP, the Retirement Plan, the Pension Plan SERP and the Benefit Plan SERP will
be equal to $474,000. His level of benefits will be reduced if he retires before
age 65. The benefits under the 1999 SERP are payable to Mr. Cole's beneficiary
in the event of his death prior to complete payment of benefits.
STOCK OPTION PLANS
Our 1992 Management Stock Option Plan (the "1992 PLAN") provided for the
granting of stock options for up to 555,556 shares of our common stock to the
officers or key employees of the Company and its subsidiaries. There were no
grants made under the 1992 Plan in fiscal 1998. As of the date of this Proxy
Statement, approximately 500 shares remained available for new option grants
under this plan, and 29,683 shares were subject to outstanding options.
The 1993 Management Stock Option Plan (the "1993 PLAN") provided for the
granting of stock options for up to 600,000 shares of common stock to the
officers or key employees of the Company and its subsidiaries. There were no
grants made under the 1993 Plan in fiscal 1998. As of the date of this Proxy
Statement, approximately 2,950 shares remained available for new option grants
under this plan, and 418,468 shares were subject to outstanding options.
Our 1996 Management Stock Option Plan (the "1996 PLAN") provided for the
granting of stock options for up to 884,000 shares of common stock. There were
grants for 25,000 shares made under the 1996 Plan in fiscal 1998. As of the date
of this Proxy Statement, approximately 15,500 shares remained available for new
option grants under the 1996 Plan, and 789,750 shares were subject to
outstanding options.
Our 1998 Equity and Incentive Performance Plan (the "1998 PLAN") authorized
awards of (i) options to purchase shares of our common stock, (ii) performance
stock and performance units, (iii) restricted stock and (iv) deferred stock. An
aggregate of 884,000 (subject to increase upon the surrender of shares by
optionees to exercise options or to pay withholding taxes) shares were
authorized for issuance under the 1998 Plan. There were grants of options for
568,000 shares made and 178,750 shares of restricted stock issued under the 1998
Plan in fiscal 1998; additional option grants for 20,000 shares have been made
in fiscal 1999. As of the date of this
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<PAGE> 16
Proxy Statement, approximately 117,250 shares remained available for new awards
under the 1998 Plan (subject to adjustment), 588,000 shares were subject to
outstanding options and 178,750 shares of restricted stock have been issued.
The 1992 Plan and the 1993 Plan were approved by our stockholders when we
were a private company and prior to our 1994 initial public offering. The 1996
Plan was approved by our stockholders at the 1996 annual meeting and the 1998
Plan was approved by our stockholders at the 1998 annual meeting.
The stock options remaining outstanding under the 1992 Plan and the 1993
Plan generally have vested. Many of the options under the 1996 Plan that were
granted to persons other than senior executives have also vested. Those options
remaining unvested generally provide for vesting over four or five years, with
early vesting of all or a portion of the unvested options in the case of certain
events, such as after a change in control of the Company and following certain
terminations of employment with the Company.
The following table contains information concerning options granted under
the 1998 Plan during fiscal 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION(1)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#) IN FISCAL YEAR (%) ($/SH) DATE 5% 10%
---- ---------- ------------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Cole 250,000(2) 31.6% $15.45 12/17/2008 $2,429,105 $6,155,830
Brian B. Smith 150,000(2) 18.9% 15.45 12/17/2008 1,457,463 3,693,498
Leslie D. Dunn 22,500(3) 2.8% 16.625 01/25/2009 235,246 596,159
Joseph Gaglioti 15,000(3) 1.9% 16.625 01/25/2009 156,831 397,440
Wayne L. Mosley 15,000(3) 1.9% 16.625 01/25/2009 156,831 397,440
</TABLE>
- ---------------
(1) The value, if any, the optionee may realize upon the exercise of a stock
option depends on the excess of the then current market value per share over
the exercise price per share. There is no assurance that the values to be
realized upon exercise of the stock options listed above will be at or near
the amounts shown.
(2) The stock options to Messrs. Cole and Smith, granted under the 1998 Plan
will vest in five years, with early vesting of all or a portion of the
unvested options in the case of certain events, such as after a change in
control of the Company or following certain terminations of employment with
the Company. In addition, the options granted to Messrs. Cole and Smith
provide for early vesting as follows: (a) 1/3 will vest on or after December
17, 1999 if the closing price of the common stock, as reported on the New
York Stock Exchange for 21 consecutive trading days, exceeds $20.55, (b) an
additional 1/3 of the original award will vest on or after December 17, 1999
if the closing price of the common stock, as reported on the New York Stock
Exchange for 21 consecutive trading days, exceeds $25.80, and (c) the
remaining shares will vest on or after December 17, 1999 if the closing
price of the common stock, as reported on the New York Stock Exchange for 21
consecutive trading days, exceeds $30.90. Each option also provides for the
re-grant of an additional option, with the same expiration date but at the
then-current market price of the common stock, for each share of common
stock that is surrendered to the Company in payment of withholding taxes and
the exercise price if the option is exercised by the surrender of qualifying
shares of common stock.
14
<PAGE> 17
(3) These stock options, granted under the 1998 Plan, provide for periodic
vesting in equal annual installments over four years, with early vesting of
all or a portion of the unvested options in the case of certain events, such
as after a change in control of the Company or following certain
terminations of employment with the Company. Each option also provides for
the re-grant of an additional option, with the same expiration date but at
the then-current market price of the common stock, for each share of common
stock that is surrendered to the Company in payment of withholding taxes and
the exercise price if the option is exercised by the surrender of qualifying
shares of common stock.
The following table contains information concerning options exercised
during fiscal 1998 and unexercised stock options held as of January 30, 1999.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-THE-
UNDERLYING MONEY OPTIONS AT
UNEXERCISED OPTIONS AT JANUARY 30,
ACQUIRED JANUARY 30, 1999 (#) 1999($)(1)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ---------------------- -------------------
<S> <C> <C> <C> <C>
Jeffrey A. Cole -- -- 136,657/430,000 $715,187/$1,340,000
Brian B. Smith -- -- 175,822/285,000 926,659/960,938
Leslie D. Dunn -- -- 4,000/34,500 0/0
Joseph Gaglioti 9,000 $308,813 16,166/29,000 75,476/69,750
Wayne L. Mosley -- -- 25,166/29,000 198,101/69,750
</TABLE>
- ---------------
(1) Based on the closing price of $16.625 per share of our common stock on the
New York Stock Exchange on January 29, 1999, the last trading day of fiscal
1998.
The 1992 Plan and the 1993 Plan and the option agreements thereunder
permit, subject to certain restrictions, each optionee to exercise options by
borrowing funds from the Company. The 1996 Plan and the 1998 Plan and the option
agreements thereunder permit such loans only if approved, at the time of
exercise, by the Compensation Committee of the Board of Directors. The principal
on such loans is payable five years after the date of exercise, with interest
payable annually at a rate fixed on the date of exercise. The interest rate is
based on a formula tied to federal borrowing rates. Each loan is made on a
recourse basis and is secured by the option shares acquired from the proceeds of
such loan. Messrs. Cole and Smith each elected to exercise options in 1993 by
borrowing from the Company the full amount of the exercise price of such shares
granted under the 1992 Plan. The maturity dates of the loans to Messrs. Cole and
Smith have been extended thirty months and will mature in 2000. As of the date
of this Proxy Statement, the amount (excluding accrued interest) owed by each
individual named in the Summary Compensation Table with respect to such loans is
as follows (the interest rate per annum is shown in parentheses): Jeffrey A.
Cole -- $666,666 (5.47%); and Brian B. Smith -- $194,887 (5.47%).
EXECUTIVE LIFE INSURANCE PLAN
Our Executive Life Insurance Plan permits certain officers and key
employees to obtain life insurance benefits in addition to those generally
provided to salaried employees. The level of coverage provided to the
15
<PAGE> 18
Company's named executive officers includes (1) basic term life insurance
coverage equal to twice the individual's base salary, (2) an opportunity for the
individual to purchase, at group rates based upon age, an additional amount of
insurance equal to one or two times such individual's base salary and (3)
purchase by the Company of an additional amount of coverage equal to 50% of the
amount purchased by the individual under (2). The maximum level of coverage per
individual is $1,500,000.
MANAGEMENT INCENTIVE BONUS PROGRAM
In 1996 the Management Incentive Bonus Program was adopted to replace our
existing bonus plans for senior managers. The Management Incentive Bonus Program
was approved by our stockholders at the 1996 Annual Meeting. Your Board of
Directors believes that the Management Incentive Bonus Program promotes our
compensation objectives by (1) offering additional incentives tied to continued
improvement in operating results, (2) offering additional stock ownership
opportunities to provide retention incentives to our senior management and (3)
making our overall compensation program competitive with similar companies.
Each fiscal year, the Compensation Committee establishes performance goals
for that year. These goals are limited to: earnings, operating income, increases
in revenue, return on assets, investment, sales or equity, total stockholder
return or any combination thereof. For fiscal 1996, fiscal 1997 and fiscal 1998,
the Compensation Committee established several levels of performance:
"threshold," representing the minimum performance for which any Management
Incentive Bonus Program award will be payable (which typically equaled the
performance of the Company or the employee's business unit for the prior fiscal
year), "Tier One," achievement of which results in a payout of 50% of the
executive's salary, representing a higher level of performance, "Tier Two,"
achievement of which results in an additional payout of 10% of base salary,
representing a superior level of performance and, for senior executives
including those named in the Summary Compensation Table, a "Tier Three"
performance level, representing a level of performance exceeding the "Tier Two"
level, achievement of which results in an additional payout of 40% of base
salary. Similar goals have been established for fiscal 1999.
The actual level of achievement of the performance goals will serve as the
basis for establishing the amount of the award payable to a participant for the
fiscal year. If operating performance fails to achieve the performance goals
established, no awards will be made.
In fiscal 1998, the five named executive officers did not achieve any
bonuses.
401(K) PLAN
We provide a defined contribution plan, including features under Section
401(k) of the Internal Revenue Code, which provides retirement benefits to our
employees. Eligible employees may contribute up to 17% of their compensation to
the plan, although highly compensated employees, including all executive
officers of the Company, were limited to a maximum of 2% of their compensation.
There is a 10% mandatory matching of employee contributions by the Company, plus
a discretionary match is determined annually by the Board of Directors. For
fiscal 1998, your Board of Directors has approved a discretionary match equal to
5% of employee contributions, which together with the mandatory match aggregated
approximately $760,000.
DEFERRED COMPENSATION PLAN
The Cole National Group, Inc. Deferred Compensation Plan for Executives and
Other Senior Management (the "DEFERRED COMPENSATION PLAN"), which went into
effect on February 1, 1999, generally allows deferral of income without regard
to limitations imposed on our 401(k) savings plans. We make a contribution of
our common stock equal to 10% of the participant's deferrals. Participants in
the Deferred Compensation Plan will be
16
<PAGE> 19
fully vested in the defined contribution benefits after four years of service
(with credit for past service). Benefits under the Deferred Compensation Plan
will generally be payable upon retirement in a single lump sum or in installment
payments at the election of the participant prior to retirement, and upon
termination in a single lump sum payment.
17
<PAGE> 20
BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
This report shall not be deemed to be incorporated by reference by any
general statement incorporating this Proxy Statement by reference into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
The following report has been submitted by the Compensation Committee and
Special Compensation Committee of the Board of Directors.
GENERAL COMPENSATION POLICIES
Our general compensation policies have been followed for many years, and
divide executive compensation into four main components: base salary, management
bonus plans, long-term stock-based compensation, and benefit plans. Our
multi-faceted compensation program is designed to attract and retain successful
executives in the face of a highly competitive employment situation among
retailers, while linking a significant portion of the executive's compensation
to the Company's short-term and long-term performance.
- We believe that base salaries should provide a floor for executive
compensation that is necessary to retain executives. We also believe that
at least 50% of the executive's potential annual compensation should come
from a combination of short-term and long-term awards tied to our
Company's performance. In fixing base salaries, we generally rely on
executive compensation consultants or formal or informal surveys of
compensation paid to executives of other corporations, including other
retailers. Base salary is fixed to be appropriate for the particular
position at the Company, irrespective of the Company's performance, and
therefore does not fluctuate on the basis of the Company's performance.
- We believe that by making a significant portion of annual compensation
contingent on the Company's performance, our executives will be motivated
to achieve continuing annual improvements in operating results. We
believe that the potential for achieving a large bonus, especially when
payable in shares, will provide additional motivation for enhanced
Company performance, and that the payment of restricted shares in lieu of
cash will provide additional retention incentives for senior managers in
a highly competitive employment market.
- We believe that stock ownership and stock-based compensation are valuable
tools for motivating employees to improve the overall long-term
performance of the Company and for tying a significant amount of the
executive's potential income to enhanced stockholder values. Our
stock-based performance plans reflect this philosophy.
- We believe that stock ownership and stock-based compensation are
important vehicles in aligning the interests of management with the
interest of stockholders. We encourage our managers to own shares of
Company stock. Our Board of Directors has adopted guidelines for our
executives, including vice presidents and up -- approximately 40
people -- that establish stock ownership goals of shares worth 5x base
compensation for our Chief Executive Officer and Chief Operating Officer,
3x base compensation for our other senior executives, and 1x base
compensation at the vice president level. We anticipate that senior
executives will meet these guidelines, at least in part, by exercising
stock options and retaining the shares so acquired. Unexercised options
will not count toward meeting the guideline amounts. Achievement of these
guideline amounts by each individual within a 5 to 7 year period will be
an important criteria used by the Board of Directors in determining the
individual's eligibility for the granting of additional stock options at
such time. The Company's Directors have determined to lead by example and
have adopted
18
<PAGE> 21
similar guidelines for Nonemployee Directors to achieve stock ownership
of 5 times their annual directors' fees within the next four years.
ACTIONS IN 1998
In 1998, the Compensation Committee engaged Frederic W. Cook & Co., Inc. to
advise the Committee with respect to the compensation of Messrs. Cole and Smith.
This firm made a variety of recommendations regarding the compensation of
Messrs. Cole and Smith, which are reflected below. The recommendations included
the design of a compensation program and a revised employment agreement for Mr.
Cole to provide the framework in which he can continue his efforts for the
Company while facilitating an orderly long-term management succession plan. We
believe that careful planning of this transition is an important role for your
Board of Directors for the coming years.
The compensation program designed by Frederic W. Cook & Co., Inc. focused
heavily on stock-based incentives to reward stockholder value growth, create
ownership and encourage retention.
BASE SALARY OF MESSRS. COLE AND SMITH. The base salaries of Messrs. Cole
and Smith for 1998 were determined by the Special Compensation Committee in
light of their performance and our analysis of their contribution to the
Company. The Frederic W. Cook & Co., Inc. report did not recommend any changes
to their base salary compensation, and no changes were made.
BASE SALARIES OF OTHER EXECUTIVE OFFICERS. During 1998, the base salaries
of all our executive officers, other than Messrs. Cole and Smith, were
determined by Mr. Cole, and approved by the Board of Directors following review
and a report by the Compensation Committee. Factors that Mr. Cole considered in
fixing base salaries included the prior year's base compensation, the officer's
performance as measured by our traditional annual review process (which focuses
on the executive's leadership, experience, skills and overall job performance),
and Mr. Cole's analysis of the officer's contribution to the Company.
ANNUAL BONUS PLANS. Our Management Incentive Bonus Program, which was
approved by the Company's stockholders in June 1996, provides senior executives,
including each of our executive officers, with the opportunity to receive bonus
compensation of up to 100% of their base salaries upon achievement of
performance goals that have been set by the Compensation Committee upon the
recommendations of Messrs. Cole and Smith. In 1998, the performance goals were
based on improvements in operating income. Based on the pre-established
criteria, no bonuses were earned by the Company's executive officers named in
the Summary Compensation Table.
The Management Incentive Bonus Program contemplates that some or all of the
bonus will be payable in shares of Common Stock. Participants in the bonus
program at Things Remembered who received a bonus with respect to 1998, to the
extent such bonus exceeded 50% of base salary, were paid in shares of common
stock.
LONG-TERM STOCK-BASED COMPENSATION. We currently have in place four
stock-based compensation plans for employees: the 1992 Plan and the 1993 Plan,
each established when we were a private company and approved by stockholders
before our initial public offering in 1994, and the 1996 Plan and the 1998 Plan,
which were approved by the Company's stockholders in 1996 and 1998,
respectively.
Our stock-based compensation awards have been of (a) nonqualified options
with an exercise price not less than the fair market value of a share of Common
Stock at the date of grant, and (b) restricted shares. The number of options and
shares of restricted stock granted to Messrs. Cole and Smith in 1998 was
determined by the Special Compensation Committee in consultation with Frederic
W. Cook & Co., Inc., was concurred in by the
19
<PAGE> 22
Board of Directors and are intended to provide three years of competitive
grants. The Committee does not intend to make new grants (other than grants of
options for stock-for-stock exercises) to Messrs. Cole or Smith prior to 2001.
The number of options granted to other executive officers were determined by
Messrs. Cole and Smith and approved by the Compensation Committee. We believe
the stock based nature of the awards -- and the risk of forfeiture if the
recipient leaves the Company -- discourages them from leaving the Company and
encourages their continuing efforts to enhance the Company's business and
growth, while better aligning their compensation with the interests of long-term
stockholders.
To encourage early exercise of options to meet our stock ownership
guidelines, our stock option awards made to senior executives in 1998 include
provisions for the granting of new options if the optionee exercises their
original option using already owned shares (i.e. a stock-for-stock exercise).
The new options will be for the number of already owned shares used to exercise
the original option at an exercise price equal to fair market value at exercise,
and for the remainder of the original option term. Shares withheld for
satisfaction of tax obligations will be treated similarly. We believe that
encouraging the early exercise of options, coupled with our stock ownership
guidelines that encourage retention of stock ownership, will increase the
alignment between our executives and our stockholders.
BENEFIT PLANS. We maintain a variety of benefit plans designed to provide
an attractive package to our executive officers. We periodically re-evaluate the
nature and extent of the benefit plans in light of the plans available to
executives at competitors in the retail industry. In 1998, we adopted the 1999
SERP in response to the Frederic Cook recommendations. In addition, the Company
adopted the Deferred Compensation Plan.
1993 TAX ACT. The Board of Directors' general philosophy is to "qualify"
future annual and long-term incentive plans for tax deductibility wherever
appropriate, recognizing that, under certain circumstances, the limit imposed by
Section 162(m) of the Internal Revenue Code may be exceeded. The Company will
recognize non-deductible compensation expense as a result of the restricted
stock awards to Messrs. Cole and Smith to the extent that the value of the
individual awards, together with their base salaries and certain other
perquisites (but not their stock options or incentive bonuses), exceeded $1
million in fiscal 1998, and may also recognize non-deductible compensation
expense for these awards as compensation expense is recognized in future years.
The foregoing report has been furnished by the members of the Compensation
Committee and of the Special Compensation Committee.
Peter V. Handal
Charles A. Ratner
Timothy F. Finley
COMPENSATION COMMITTEE INTERLOCKS, INSIDER
PARTICIPATION AND CERTAIN TRANSACTIONS
Deliberations concerning compensation for fiscal 1998 generally involved
the Compensation Committee, the Special Compensation Committee and the full
Board of Directors, including Jeffrey A. Cole and Brian B. Smith, who are
employees of the Company.
Mr. Ratner is the President, Chief Operating Officer and a director of
Forest City Enterprises, Inc. ("FOREST CITY"). Forest City and its affiliates
are developers and managers of commercial real estate, including shopping malls
in which the Company's stores may operate. The Company's subsidiaries currently
operate 17 stores under leases with Forest City or its affiliates. Under such
leases, which are generally for multiple year periods of
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<PAGE> 23
differing duration, the Company's subsidiaries paid aggregate rent of
approximately $724,000 during fiscal 1998. Additional common area charges,
insurance charges, taxes and similar charges were paid. We believe that the
terms of our leases with Forest City or its affiliates, as applicable, are
equivalent to those that could have been obtained pursuant to arm's length
transactions with unaffiliated parties.
Walter J. Salmon is currently retained as a consultant to the Company, and
receives compensation of $25,000 per year. In addition, under a deferred
compensation agreement entered into in 1979, Mr. Salmon is entitled to receive
annual payments of $5,500 for the period that commenced in 1996 and will end in
2004.
In December 1998, HAL International N.V. filed a Schedule 13G disclosing it
held more than five percent of the Company's common stock. HAL International
N.V. is owned by HAL Holding N.V. Entities affiliated with HAL Holding N.V. own
a majority of the outstanding equity interest of Pearle Europe B.V., in which
the Company has an approximate 24% equity ownership interest. The Company and an
affiliate of HAL Holding N.V. are parties to a stockholders agreement regarding
their interests in Pearle Europe B.V., and each has loaned money to Pearle
Europe B.V.
In February 1998, Cole National Corporation repaid a $3.2 million note
payable to a subsidiary of Pearle Europe and invested an additional $7.2 million
in the form of 8% stockholder loans to Pearle Europe in connection with Pearle
Europe's acquisition of optical operations in Germany and Austria. In June 1998,
Pearle Europe repaid to Cole National Corporation a stockholder loan, including
interest thereon, in the amount of $3.7 million.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our Directors
and executive officers and persons who own more than 10 percent of a registered
class of our equity securities to file reports of ownership on Forms 3, 4 and 5
with the Securities and Exchange Commission. The Securities and Exchange
Commission requires this group to furnish us with copies of all such filings. We
periodically remind this group of its reporting obligation and assist in making
the required disclosure once we are notified that a reportable event has
occurred. We are required to disclose in this Proxy Statement any failure by any
of the above mentioned persons to make timely Section 16 reports.
Based upon its review of such forms received by the Company and written
representations from the Directors and executive officers that no other reports
were required, the Company is unaware of any instances of noncompliance, or late
compliance, with such filings during fiscal 1998 by its Directors, executive
officers or 10 percent stockholders, except that Brian B. Smith was unable, for
administrative reasons, to timely report on Form 4 purchases in one month under
our payroll deduction stock purchase program.
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STOCK PRICE PERFORMANCE
Shown below is a graph comparing the yearly percentage change in the
cumulative total stockholder return on our common stock from April 11, 1994 (the
date of our initial public offering) against the cumulative total return,
including reinvestment of dividends of the S&P 500 Stock Index and the S&P
Retail Stores Composite Index from March 31, 1994 (the nearest date for which
total return data for each index are readily available) through January 29, 1999
(the last trading day of our most recent fiscal year, which ended January 30,
1999). The comparison assumes that the value of the investment in our common
stock at its initial public offering price and in each index was $100 on April
11, 1994 and March 31, 1994, respectively.
COMPARISON OF THE COMMON STOCK,
S&P 500 STOCK INDEX AND S&P RETAIL STORES COMPOSITE INDEX
<TABLE>
<CAPTION>
S&P RETAIL STORES
COLE NATIONAL CORPORATION S&P 500 COMPOSITE INDEX
------------------------- ------- -----------------
<S> <C> <C> <C>
4/94 100.00 100.00 100.00
1/95 80.00 108.00 94.00
1/96 90.00 150.00 101.00
1/97 236.00 189.00 121.00
1/98 276.00 240.00 180.00
1/99 139.00 318.00 294.00
</TABLE>
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<PAGE> 25
APPROVAL OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN
ITEM NO. 2
Your Board of Directors recommends that you approve the Cole National
Corporation 1999 Employee Stock Purchase Plan (the "PURCHASE PLAN"). The
Purchase Plan is a broad based plan intended to provide eligible employees of
the Company and certain subsidiaries with a convenient method of becoming
stockholders of the Company. The following description of the material elements
of the Purchase Plan is necessarily brief and general. A copy of the Purchase
Plan is attached hereto as Annex A and the summary description that follows is
qualified in its entirety by reference to that annex.
SUMMARY DESCRIPTION
The Purchase Plan, if approved by the stockholders, provides eligible
employees with the opportunity to purchase shares of Common Stock pursuant to a
payroll deduction program. The Purchase Plan provides for offering periods of
six months ("OFFERING PERIODS"), unless the Compensation Committee of the Board
of Directors otherwise determines, during which contributions may be made to
purchase shares of our common stock. At the end of each Offering Period, shares
of common stock are purchased automatically at a price equal to the lesser of
85% of the market price of shares of common stock at the beginning of the
Offering Period or 85% of the market value of shares of common stock on the last
day of the Offering Period. There currently are approximately 8,200 employees
eligible to participate in the Purchase Plan. The closing price of a share of
common stock on April 29, 1999 was $15.625. The Purchase Plan will continue in
effect until all shares of common stock available for issuance under the
Purchase Plan have been issued, unless terminated earlier in the discretion of
the Board of Directors or upon the occurrence of certain types of corporate
transactions.
An employee may elect to have up to fifteen percent (15%) of his or her
compensation withheld and applied to the purchase of shares of common stock
under the Purchase Plan. Compensation for this purpose means the participant's
total compensation, which includes regular base earnings paid by the Company or
a Participating Company (defined below), sales commissions, overtime, bonuses
and incentive payments, and elective contributions that are not includible in
income under the Internal Revenue Code. However, during any calendar year, no
employee is entitled to purchase shares of common stock under the Purchase Plan
having a value of more than $25,000.
Each participant will be granted a separate purchase right for each
Offering Period in which the individual participates. The purchase right will be
granted on the first day of such Offering Period and will be automatically
exercised on the last day of the Offering Period.
There will be 400,000 shares of Common Stock available for issuance under
the Purchase Plan. In the event of any change in our common stock subject to the
Purchase Plan, or subject to any purchase right granted under the Purchase Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, split-up, combination of shares, exchange of shares, change in
corporate structure, or otherwise), the Compensation Committee will make
appropriate adjustments to (i) the class and maximum number of shares of common
stock subject to the Purchase Plan, (ii) the class and maximum number of shares
of common stock purchasable by each participant per Offering Period and (iii)
the class and number of shares of common stock and price per share of common
stock subject to outstanding purchase rights, in order to prevent the dilution
or enlargement of benefits under the Purchase Plan.
Each employee of the Company, and of such subsidiaries ("PARTICIPATING
COMPANIES") as the Board of Directors of the Company or the Compensation
Committee shall from time to time designate, may participate in
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<PAGE> 26
the Purchase Plan. However, employees whose customary employment with the
Company or any Participating Company is less than five months per calendar year
will not be eligible to participate in the Purchase Plan. In addition, an
employee whose terms of employment are subject to the terms of a collective
bargaining agreement will not be an eligible employee if and for such period of
time as the union representing the collective bargaining unit of which the
employee is a member affirmatively chooses, on behalf of the members of such
unit, not to participate in the Purchase Plan. Further, an employee will not be
eligible to participate if such individual would, immediately after the grant of
purchase rights, own or hold outstanding options or other rights to purchase
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company.
An eligible employee may enroll in the Purchase Plan at the beginning of
any Offering Period. Payment for common stock under the Purchase Plan shall be
effected by means of the participant's authorized payroll deductions or such
other means as the Compensation Committee may authorize. Payroll deductions will
begin with the first pay day following the commencement of an Offering Period
and will (unless sooner terminated by the participant) remain in effect for
successive Offering Periods. Interest will not accrue on amounts withheld from a
participant's compensation or otherwise held in an account established for a
participant.
A participant may withdraw from the Purchase Plan, effective on the first
day of the next payroll period, by filing the appropriate form with the
Compensation Committee. Any payroll deductions previously collected from the
participant and not previously applied to the purchase of common stock will, at
the participant's election, be refunded or held for the purchase of shares of
common stock on the next purchase date immediately following such termination.
If no such election is made, then such funds will be refunded. An employee who
has withdrawn from an Offering Period may not again participate in the Purchase
Plan until the next Offering Period.
Because the purchase of shares of common stock under the Purchase Plan is
discretionary with all eligible employees, it would not be meaningful to include
information as to the number of shares of common stock which would have been
distributable during fiscal 1998 to all employees, or to groups of employees, or
to any particular employee of the Company or any Participating Company had the
Purchase Plan been in effect during the year.
The Board of Directors may amend, suspend, or discontinue the Purchase Plan
with respect to any shares of common stock at any time not subject to purchase
rights. However, no such action may, without the approval of stockholders of the
Company, increase the number of shares of Common Stock subject to the Purchase
Plan (other than for the permitted adjustments described above), modify the
requirements as to eligibility for participation in the Purchase Plan or cause
the Purchase Plan to fail to meet the requirements of an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code.
ADMINISTRATION
The Purchase Plan will be administered by the Compensation Committee. The
Compensation Committee will have full authority to interpret and construe any
provision of the Purchase Plan and to adopt such rules and regulations for
administering the Purchase Plan as it may deem necessary. Decisions of the
Compensation Committee will be final and binding on all parties who have an
interest therein.
FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan and the right of eligible employees to make purchases
thereunder are intended to qualify under the provisions of Sections 421 and 423
of the Internal Revenue Code. Under these provisions, no income will be taxable
to a participant at the time of grant of a purchase right or upon the purchase
of shares of the Company's common stock at the end of an Offering Period. As
summarized below, a participant may be taxed
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<PAGE> 27
upon the sale of other disposition of shares of common stock acquired under the
Purchase Plan. The consequences will depend upon how long the participant has
held the shares of common stock prior to disposition.
If the shares of common stock are disposed of at least two years after the
date of granting of the purchase right and at least one year after the shares of
common stock are purchased under the Purchase Plan, the following federal income
tax consequences will apply. The lesser of (a) the excess of the fair market
value of the shares of common stock at the time granted over the purchase price
of the shares of common stock or (b) the excess of the fair market value of the
shares of common stock at the time such shares are disposed of over the purchase
price of the shares of common stock will be treated as ordinary income. Any
further gain upon such sale will be treated as a capital gain. If the shares of
common stock are sold and the sale price is less than the purchase price, there
is no ordinary income and the employee has a capital loss equal to the
difference. If a participant holds the shares of common stock for this period,
no deduction in respect of the disposition of such shares of common stock will
be allowed to the Company.
If the shares of common stock are disposed of before the expiration of
either the two year or the one year holding periods described above (a
"DISQUALIFYING DISPOSITION"), the following federal income tax consequences will
apply. The excess of the fair market value of the shares of common stock at the
date the shares are purchased over the purchase price will be treated as
ordinary income to the employee. This excess will constitute ordinary income in
the year of sale or other disposition even if no gain is realized on the sale.
Any further gain upon such sale will be treated as capital gain. If the shares
of common stock are sold for less than their fair market value on the date of
purchase, the same amount of ordinary income is attributed to the employee and a
capital loss will be recognized equal to the difference between the sale price
and the fair market value of the shares of common stock on such purchase date.
To the extent the employee recognizes ordinary income by reason of a
Disqualifying Disposition, the Company will be entitled to a corresponding tax
deduction for compensation in the tax year in which the disposition occurs.
The foregoing discussion is merely a summary of the more significant
effects of the federal income tax on an employee of the Company or a
Participating Company with respect to shares of common stock purchased under the
Purchase Plan and does not purport to be a complete analysis of the tax laws
dealing with this subject. Reference should be made to the applicable provisions
of the Internal Revenue Code and the regulations promulgated thereunder. In
addition, this summary does not discuss the provisions of the income tax laws of
any state or foreign country in which an employee may reside. Each employee
should consult his or her own tax advisor concerning the federal, state, local
and foreign income tax consequences of participation in the Purchase Plan.
REQUIRED VOTE
An affirmative majority of the votes cast is required to approve the
Purchase Plan. The total vote cast on the proposal -- whether "for," "against"
or "abstain," -- must represent a majority of our common stock outstanding and
entitled to vote at the meeting. Abstentions to the proposal will be counted as
votes cast on the proposal.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
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<PAGE> 28
1998 EQUITY AND PERFORMANCE INCENTIVE PLAN
(AMENDED AND RESTATED EFFECTIVE JUNE 10, 1999)
ITEM NO. 3
Your Board of Directors recommends that you approve the amendments to the
1998 Equity and Performance Incentive Plan (the "AMENDED 1998 PLAN"). These
amendments were adopted by the Board of Directors on March 18, 1999, subject to
your approval at the Annual Meeting.
The 1998 Equity and Incentive Plan was approved by you at our 1998 Annual
Meeting. Subject to your approval, we are now proposing to make the following
changes:
- The Company proposes to extend the applicability of the provisions of the
1998 Plan, which were approved by our Stockholders at the 1998 Annual
Meeting, regarding stock-for-stock exercise of options to all of the
Company's employee equity plans. Shares that are transferred, surrendered
or relinquished by an optionee to pay the option exercise price or
satisfy withholding amounts under the Company's prior stock option plans
would be added to the number of shares that are available for further
grants under the Amended 1998 Plan. This proposed change will not result
in any increase in the number of shares that would be issued and
outstanding if optionees had exercised their options and paid withholding
taxes in cash. This change will provide for consistent treatment of
option grants made by the Company under any of its prior plans and will
simplify the administration of those plans.
- The limit on Option Rights that may be granted to any person would change
from 350,000 Option Rights during any 3 fiscal year period to 250,000
Option Rights in a single fiscal year of the Company. Unused Option
Rights may be carried forward on a cumulative basis to subsequent years
during the life of the Amended 1998 Plan. The reason for this change is
that we believe that the current limit is too restrictive as it may
inhibit stock-for-stock exercises of Option Rights.
- We have also made technical corrections to clarify the definition of
"Compensation Committee," and other minor administrative changes.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU APPROVE THESE AMENDMENTS. If the
Amended 1998 Plan is not approved, the original 1998 Plan and all outstanding
grants under the plan will remain in effect.
SUMMARY DESCRIPTION
The following is a summary of the material elements of the Amended 1998
Plan and should be read in conjunction with the complete text of the Amended
1998 Plan, which is attached hereto as Annex B. The complete text in Annex B
indicates the changes between the Amended 1998 Plan and the plan approved last
year.
General. Under the Amended 1998 Plan, the Board of Directors is authorized
to make awards of (i) options to purchase shares of the Company's common stock
("OPTION RIGHTS"), (ii) performance stock and performance units ("PERFORMANCE
UNITS" or "PERFORMANCE STOCK"), (iii) restricted stock ("RESTRICTED STOCK") or
(iv) deferred stock ("DEFERRED STOCK"). The terms applicable to these various
awards, including those terms that may be established by the Board of Directors
when making or administering particular awards, are set forth in detail in the
Amended 1998 Plan. The Compensation Committee and Special Compensation Committee
of your Board of Directors is authorized to oversee the Amended 1998 Plan and to
make awards and grants under the Amended 1998 Plan, and references to the Board
of Directors will generally include those committees.
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<PAGE> 29
Shares Available Under the Amended 1998 Plan. The number of shares of
common stock that may be issued or transferred:
- upon the exercise of Option Rights,
- as Restricted Stock and released from all substantial risks of
forfeiture,
- as Deferred Stock,
- in payment of Performance Stock or Performance Units that have been
earned, or
- in payment of dividend equivalents paid with respect to awards made under
the Amended 1998 Plan,
may not exceed a total of 884,000, subject to adjustments pursuant to the terms
of the Amended 1998 Plan. These shares of Common Stock may be original issue or
treasury shares or a combination of both.
Eligibility. Officers, key employees and consultants of the Company or any
of its subsidiaries, as well as any person who has agreed to begin serving in
such capacity within 30 days of the date of the grant are eligible to be
selected by the Board of Directors to receive benefits under the Amended 1998
Plan. Those who will receive grants will be selected on the basis of performance
objectives.
Option Rights. Option Rights entitle the optionee to purchase shares of
common stock at a predetermined price per share (which may not be less than the
market value at the date of grant, except for non-qualified stock options
granted in lieu of salary or bonus, which may be not less than 85% of the market
value at the date of grant). Each grant will specify whether the option price
will be payable:
- in cash at the time of exercise,
- by the transfer to the Company of shares of common stock owned by the
optionee for at least six months, having a value at the time of exercise
equal to the option price,
- if authorized by the Board of Directors prior to the exercise of the
option, the delivery of a promissory note or notes of the optionee
payable over not more than five years,
- if authorized by the Board of Directors, the delivery of shares of
Restricted Stock or other forfeitable shares, Deferred Stock, Performance
Stock, other vested Option Rights, or Performance Units, or
- a combination of those payment methods.
Grants may provide for deferred payment of the option price from the
proceeds of sale through a broker on the date of exercise of some or all of the
shares of common stock to which the exercise relates.
No Option Rights may be exercisable more than ten years from the date of
grant. Each grant must specify the period of continuous employment with the
Company or any subsidiary that is required before the Option Rights become
exercisable. Grants may provide for earlier exercise of an Option Right in the
event of a "change in control" of the Company or other similar transaction or
event. Grants may also specify performance goals that must be achieved as a
condition to the exercise of the option. Successive grants may be made to the
same optionee whether or not previously granted Option Rights remain
unexercised.
As of the date of this Proxy Statement, 588,000 Option Rights have been
awarded under the original 1998 Plan approved last year.
Restricted Stock. An award of Restricted Stock involves the immediate
transfer of ownership of a specific number of shares of common stock by the
Company to a participant in consideration of the performance of
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<PAGE> 30
services. The participant is immediately entitled to voting, dividend and other
ownership rights in such shares. The transfer may be made without additional
consideration or in consideration of a payment by the participant that is less
than current market value, as the Board of Directors may determine. The Board of
Directors may condition the award on the achievement of specified performance
goals.
Restricted Stock must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Internal Revenue Code for a period to be
determined by the Board of Directors. An example would be a provision that the
Restricted Stock would be forfeited if the participant ceased to serve the
Company as an officer or key employee during a specified period of years. If
service alone is the criterion for the lapse of the risk of forfeiture, the
period of service must be at least three years; if other performance objectives
are included, the lapse of the risk of forfeiture may occur as early as one year
from the date of grant. In order to enforce these forfeiture provisions, the
transferability of Restricted Stock will be prohibited or restricted in a manner
and to the extent prescribed by the Board of Directors for the period during
which the forfeiture provisions are to continue. The Board of Directors may
provide for acceleration of the lapse of the risk of forfeiture in the event of
a change in control of the Company or other similar transaction or event.
As of the date of this Proxy Statement, 178,750 shares of Restricted Stock
have been issued under the original 1998 Plan approved last year.
Deferred Stock. An award of Deferred Stock constitutes an agreement by the
Company to deliver shares of common stock to the participant in the future in
consideration of the performance of services. However, the Deferred Stock award
is subject to the fulfillment of certain conditions, such as performance goals,
during the deferral period specified by the Board of Directors. During the
deferral period, the participant cannot transfer any rights in the award and has
no right to vote the shares of Deferred Stock, but the Board of Directors may,
on or after the date of the award, authorize the payment of dividend equivalents
on such shares on a current, deferred or contingent basis, either in cash or in
additional shares of common stock. Awards of Deferred Stock can be made without
additional consideration or in consideration of a payment by the participant
that is less than the market value per share on the date of award.
Deferred Stock must be subject to a deferral period of at least three
years. The Board of Directors determines the deferral period at the date of the
award, and may provide for a deferral period of less than three years in the
event of a change in control of the Company or other similar transaction or
event.
Performance Stock and Performance Units. Performance Stock and Performance
Units involve awards that become payable upon the achievement of specified
performance goals during a designated performance period (which must be at least
three years). Such performance period may be subject to earlier termination in
the event of death, retirement or a change in control of the Company or other
similar transaction or event. A minimum level of acceptable achievement may also
be established by the Board of Directors. If, by the end of the performance
period, the participant has achieved the specified performance goals, the
participant will be deemed to have fully earned the Performance Stock or
Performance Units. If the participant has not achieved the performance goals,
but has attained or exceeded the predetermined minimum, the participant will be
deemed to have partly earned the Performance Stock and/or Performance Units
(such part to be determined in accordance with a formula). To the extent earned,
the Performance Stock and/or Performance Units will be paid to the participant
at the time and in the manner determined by the Board of Directors in cash,
shares of common stock or in any combination thereof.
Each award of Performance Stock or Performance Units may be subject to
adjustment to reflect changes in compensation or other factors, so long as no
adjustment would result in the loss of an available exemption for the award
under Section 162(m) of the Internal Revenue Code. The Board of Directors may
provide for the payment
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<PAGE> 31
of dividend equivalents to the holder on a current, deferred or contingent
basis, either in cash or in additional common stock.
Performance Goals. The Amended 1998 Plan requires that the Board of
Directors establish performance goals for purposes of Performance Stock and
Performance Units. In addition, if the Board of Directors so chooses, Option
Rights, Restricted Stock and Deferred Stock may also specify performance goals.
Performance goals may be described either in terms of Company-wide objectives,
individual participant objectives, or objectives related to performance of the
division, subsidiary, department or function within the Company or a subsidiary
in which the participant is employed. Performance goals applicable to any award
include specified levels of or growth in:
- cash flow,
- earnings per share,
- earnings before interest and taxes,
- earnings per share growth,
- net income,
- return on assets,
- return on equity,
- return on invested capital,
- return on total capital,
- revenue growth,
- stock price,
- total return to stockholders,
- value added, or
- any combination thereof.
If the Board of Directors determines that a change in the business,
operations, corporate structure or capital structure of the Company, or the
manner in which it conducts its business, or other events or circumstances
render the performance goals unsuitable, the Board of Directors may modify the
performance goals or the related minimum acceptable level of achievement, in
whole or in part, as the Board of Directors deems appropriate and equitable,
unless the result would be to make an award otherwise eligible for an exemption
under Section 162(m) of the Internal Revenue Code ineligible for such an
exemption.
Transferability. Except as otherwise determined by the Board of Directors,
no Option Right or other award under the Amended 1998 Plan is transferable by a
participant other than by will or the laws of descent and distribution, or
(except for incentive stock options) to the participant's immediate family or
trusts established solely for the benefit of one or more members of the
immediate family. Except as otherwise determined by the Board of Directors,
Option Rights are exercisable during the optionee's lifetime only by him or her.
The Board of Directors may specify at the date of grant that part or all of
the shares of common stock that are:
- to be issued or transferred by the Company upon exercise of Option
Rights, upon termination of the deferral period applicable to Deferred
Stock or upon payment under any grant of Performance Stock or Performance
Units or
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<PAGE> 32
- no longer subject to the substantial risk of forfeiture and restrictions
on transfer referred to in Section 5 of the Amended 1998 Plan,
shall be subject to further restrictions on transfer.
Adjustments. The Amended 1998 Plan, like the 1998 Plan, provides that the
number of shares available for awards will be adjusted to account for (a) shares
relating to awards that expire or are forfeited under the Plan, or (b) shares
that are transferred, surrendered or relinquished in payment of option exercise
price or satisfaction of withholding amounts for the exercise or receipt of
awards under the Plan. The Amended 1998 Plan will extend this same counting rule
to the shares transferred, surrendered or relinquished in payment of option
exercise prices or satisfaction of withholding amount for the exercise or
receipt of awards under the 1992 Plan, the 1993 Plan or the 1996 Plan. The
effect of this change will be to permit the grant of additional awards equal to
the number of shares turned in by award recipients.
The maximum number of shares of common stock covered by outstanding Option
Rights, Deferred Stock, and Performance Stock granted under the Amended 1998
Plan, and the prices per share applicable thereto, are also subject to
adjustment in the event of stock dividends, stock splits, combinations of
shares, recapitalizations, mergers, consolidations, spin-offs, reorganizations,
liquidations, issuances of rights or warrants, and similar events. In the event
of any such transaction, the Board of Directors is given discretion to provide a
substitution of alternative consideration for any or all outstanding awards
under the Amended 1998 Plan, as the Board of Directors in good faith determines
to be equitable under the circumstances, and may require the surrender of all
awards so replaced. The Board of Directors may also make or provide for
adjustments in the numerical limitations under the Amended 1998 Plan as the
Board of Directors may determine appropriate to reflect any of the foregoing
transactions or events.
Other. The Board of Directors is authorized to interpret the Amended 1998
Plan and related agreements and other documents. The Board of Directors may make
awards to employees under any or a combination of all of the various categories
of awards that are authorized under the Amended 1998 Plan, or in its discretion,
make no awards. The Amended 1998 Plan may be amended from time to time by the
Board of Directors. However, any amendment that must be approved by the
stockholders of the Company in order to comply with applicable law or the rules
of the principal national securities exchange or quotation system upon which the
common stock is traded or quoted will not be effective unless and until such
approval has been obtained in compliance with such applicable law or rules. Such
amendments would include any increase in the number of shares issued or certain
other increases in awards available under the Plan (except for increases caused
by adjustments made pursuant to the Amended 1998 Plan). Presentation of the
Amended 1998 Plan or any amendment thereof for stockholder approval is not to be
construed to limit the Company's authority to offer similar or dissimilar
benefits through plans that are not subject to stockholder approval.
The Board of Directors may provide for special terms for awards to
participants who are foreign nationals or who are employed by the Company or any
of its subsidiaries outside the United States of America as the Board of
Directors may consider necessary or appropriate to accommodate differences in
local law, tax policy or custom.
The Board of Directors may not, without further approval of the
stockholders of the Company, authorize the amendment of any outstanding Option
Right to reduce the option price. Furthermore, no Option Right may be canceled
and replaced with awards having a lower option price without approval of the
stockholders of the Company.
The Amended 1998 Plan does not confer on any participant a right to
continued employment with the Company or any subsidiary.
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FEDERAL INCOME TAX CONSEQUENCES
Following is a brief summary of certain of the federal income tax
consequences of option awards under the Amended 1998 Plan based on federal
income tax laws in effect on January 1, 1999. This summary is not intended to be
exhaustive and does not describe state or local tax consequences.
Option Rights. In general:
- no income will be recognized by an optionee at the time an Option Right
which is not an Incentive Stock Option is granted;
- at exercise, ordinary income will be recognized by the optionee in an
amount equal to the difference between the option price paid for the
shares and the fair market value of the shares, if unrestricted, on the
date of exercise; and
- at sale, appreciation (or depreciation) after the date of exercise will
be treated as either short-term or long-term capital gain (or loss)
depending on how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an Incentive Stock Option. If shares of
common stock are issued to the optionee pursuant to the exercise of an Incentive
Stock Option, and if no disqualifying disposition of such shares is made by such
optionee within two years after the date of grant or within one year after the
transfer of such shares to the optionee, then upon sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of common stock acquired upon the exercise of an Incentive Stock
Option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of such shares at the time of exercise (or, if less, the amount realized
on the disposition of such shares if a sale or exchange) over the option price
paid for such shares. Any further gain (or loss) realized by the participant
generally will be taxed as short-term or long-term capital gain (or loss)
depending on the holding period.
Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock received as a result of a grant or award
could subject an officer or Director to suit under Section 16(b) of the
Securities Exchange Act of 1934, the tax consequences to the officer or Director
may differ from the tax consequences described above. In these circumstances,
unless a special election has been made, the principal difference usually will
be to postpone valuation and taxation of the stock received so long as the sale
of the stock received could subject the officer or Director to suit under
Section 16(b) of the Securities Exchange Act of 1934, but no longer than six
months.
Tax Consequences To Participant's Employer. To the extent that a
participant recognizes ordinary income in the circumstances described above, the
participant's employer will generally be entitled to a corresponding deduction,
provided, among other things, that such income meets the test of reasonableness,
does not, along with other income of the participant, exceed the limitation on
deductible compensation under Section 162(m) of the Internal Revenue Code, is an
ordinary and necessary business expense, and is not an "excess parachute
payment," and that any applicable withholding obligations are satisfied.
Compliance with Section 162(m) of the Internal Revenue Code. The Amended
1998 Plan is intended to comply with rules for deductibility under Section
162(m) of the Internal Revenue Code. Performance Units awarded to named
executives will provide for objective performance goals and are intended to
qualify for deductibility without regard to the limits of Section 162(m). The
Amended 1998 Plan provides that the maximum
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number of Option Rights of common stock that can be granted to any participant
during any fiscal year is 250,000; the unused number of Option Rights may be
carried forward on a cumulative basis to subsequent years during the life of the
Amended 1998 Plan. This is a change from the original 1998 Plan approved last
year, which provided that a maximum of 350,000 Option Rights of common stock
could be granted to a participant during any three fiscal-year period. No change
has been made to the maximum number of shares of common stock covered by awards
of Restricted Stock, Deferred Stock or Performance Stock under the Amended 1998
Plan, which cannot exceed 265,000 in the aggregate and, during any period of
three consecutive fiscal years, the maximum number of shares of common stock
covered by awards of Restricted Stock, Deferred Stock or Performance Stock under
the Amended 1998 Plan granted to any one participant cannot exceed 125,000
shares of common stock. In addition, no participant, in any period of one
calendar year, may be granted Performance Units having an aggregate maximum
value greater than $1,000,000 on the date of the grant.
Withholding Taxes. To the extent that the Company is required to withhold
federal, state, local or foreign taxes in connection with any payment made or
benefit realized by a participant under the Amended 1998 Plan, and the amounts
available to the Company for such withholding are insufficient, it is a
condition to the receipt of such payment or the realization of such benefit that
the participant make arrangements satisfactory to the Company for payment of the
balance of such taxes required to be withheld, which arrangements (in the
discretion of the Board of Directors) may include relinquishment of a portion of
such benefit or any other benefit, or may be satisfied through loans by the
Company to the participant.
Accounting Treatment. Performance Shares and Performance Units will require
a charge against income of the Company periodically representing the value and
increases in the value of the anticipated benefits. Such charge is based on the
dollar amount expected to be paid at the end of the performance period.
Restricted Stock and Deferred Stock will require a charge against income equal
to the fair market value of the awarded shares at the time of award less the
amount, if any, paid or payable by the recipient. Such charge is spread over the
earn-out period for the Restricted or Deferred Stock. Given the variety of
awards that may be made separately or in combination under the Amended 1998
Plan, actual awards may result in periodic charges against income in certain
other circumstances.
PLAN BENEFITS
It is not possible to determine future awards that will be received by
participants in the Amended 1998 Plan.
Awards under the original 1998 Plan as approved last year are reflected in
the Summary Compensation Table and in the description of the 1998 Plan under
"Compensation Pursuant to Employee Benefit Plans -- Stock Option Plans."
REQUIRED VOTE
An affirmative majority of the votes cast is required to approve the
Amended 1998 Plan. The total vote cast on the proposal -- whether "for,"
"against" or "abstain," -- must represent a majority of our common stock
outstanding and entitled to vote at the meeting. Abstentions to the proposal
will be counted as votes cast on the proposal.
If the Amended 1998 Plan is not approved, the 1998 Plan approved last year
will remain in effect, with no changes. Outstanding awards under the original
plan will be unaffected by the outcome of the voting.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDED 1998
PLAN.
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APPOINTMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
ITEM NO. 4
We ask that you ratify the appointment of Arthur Andersen LLP as
independent certified public accountants to audit the books and accounts for the
Company and its subsidiaries for the 1999 fiscal year. A representative of
Arthur Andersen LLP is expected to attend the Annual Meeting, will have the
opportunity to make a statement if he or she so desires, and will be available
to answer appropriate questions.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS OF THE COMPANY AND ITS SUBSIDIARIES.
SUBMISSION OF STOCKHOLDER PROPOSALS
To be eligible for inclusion in our proxy statement and form of proxy for
our next Annual Meeting, your proposals must be received at our executive
offices on or before January 3, 2000. Under our By-Laws, no stockholder proposal
or nomination for director may be submitted less than 60 days prior to a
stockholder meeting for consideration at an annual meeting. If public notice of
the date of the Annual Meeting is not given at least 75 days prior to the Annual
Meeting, submissions must be delivered to the Company no later than 10 days
following the public announcement of the meeting date. Such proposals should be
submitted by certified mail, return receipt requested, addressed to us at 5915
Landerbrook Drive, Mayfield Heights, Ohio 44124, Attention: Secretary. If any
stockholder proposal is submitted after March 3, 2000, the Board of Directors
will be allowed to use its discretionary voting authority when the proposal is
raised at the 2000 Annual Meeting, without any discussion of the matter in the
proxy statement.
OTHER MATTERS
The Board of Directors knows of no other matters which are likely to be
brought before the meeting, but if other matters do properly come before the
meeting, the persons named in the enclosed proxy, or their substitutes, will
vote the proxy in accordance with their best judgment.
Leslie D. Dunn
Secretary
Mayfield Heights, Ohio
May 3, 1999
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. IF YOU DO NOT PLAN
TO ATTEND THE MEETING, WE URGE YOU TO FILL OUT, DATE AND MAIL THE ENCLOSED FORM
OF PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
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ANNEX A
COLE NATIONAL CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE
The Cole National Corporation 1999 Employee Stock Purchase Plan (the
"Plan") is intended to provide eligible employees of Cole National Corporation
(the "Company") and such other companies, whether or not currently in existence
or currently affiliated with the Company ("Participating Companies"), as the
Board of Directors of the Company (the "Board") or the Committee (as defined
below) shall from time to time designate, with a convenient method of becoming
shareholders of the Company; provided that each such Participating Company shall
qualify as a "parent corporation" or "subsidiary corporation" (a "Corporate
Affiliate"), as defined in Section 424(e) and (f) of the Internal Revenue Code
of 1986, as amended (the "Code"), on the first day of the relevant Offering
Period (as such term is defined in Article 5). It is further intended that the
Plan shall qualify as an "employee stock purchase plan" as defined in Section
423 of the Code.
2. ADMINISTRATION
(a) Administrative Body. The Plan shall be administered by the Compensation
Committee (the "Committee") of the Board. The Committee shall have full
authority to interpret and construe any provision of the Plan and to adopt such
rules and regulations for administering the Plan as it may deem necessary.
Decisions of the Committee shall be final and binding on all parties who have an
interest in the Plan. The Committee may delegate any of its duties and
responsibilities under the Plan.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of Subsection
2(a), in the event that Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended, or any successor provision ("Rule 16b-3") provides specific
requirements for the administrators of plans of this type, the Plan shall only
be administered by such a body and in such a manner as shall comply with the
applicable requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no
discretion concerning decisions regarding the Plan shall be afforded to any
committee or person that is not "disinterested" as that term is used in Rule
16b-3.
3. EFFECTIVE DATE AND TERM OF PLAN
(a) Effective Date; Approval of Shareholders. The Plan shall take effect
upon adoption by the Board; provided, however, that any purchase rights and
purchases under the Plan shall be null and void unless the Plan is approved by a
vote of the holders of a majority of the total number of outstanding shares of
the common stock of the Company ("Common Stock") present in person or by proxy
at a meeting at which a quorum representing a majority of the outstanding Common
Stock is present in person or by proxy, which approval must occur within the
period of 12 months before and 12 months after the date the Plan is adopted by
the Board.
(b) Termination of Plan. The Plan shall continue in effect until the date
on which all shares of Common Stock available for issuance under the Plan shall
have been issued unless earlier terminated pursuant to Section 9 or 10.
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4. STOCK SUBJECT TO THE PLAN
(a) Number of Shares. The stock subject to the Plan shall be shares of
Common Stock which are authorized but unissued or which have been reacquired by
the Company. In connection with the sale of shares of Common Stock under the
Plan, the Company may repurchase shares of Common Stock in the open market. The
aggregate number of shares of Common Stock which may be issued pursuant to the
Plan shall not exceed 400,000 shares (subject to further adjustment thereafter
as provided in Section 4(b)).
(b) Adjustment. If any change is made in the Common Stock subject to the
Plan, or subject to any purchase right granted under the Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, split-up,
spin-off, combination of shares, exchange of shares, change in corporate
structure, or otherwise), the Committee shall make appropriate adjustments as to
(i) the class and maximum number of shares subject to the Plan, (ii) the class
and maximum number of shares purchasable by each participant per Offering Period
and (iii) the class and number of shares and price per share of stock subject to
outstanding purchase rights, in order to prevent the dilution or enlargement of
benefits thereunder.
5. OFFERING PERIODS
(a) Terms of Offering Period. Common Stock shall be offered for purchase
under the Plan through a series of successive offering periods ("Offering
Periods") until such time as (i) the maximum number of shares of Common Stock
available for issuance under the Plan shall have been issued pursuant to
purchase rights granted under the Plan or (ii) the Plan shall have been sooner
terminated in accordance with Article 9 or 10. The Committee shall determine, in
its discretion, the length of each Offering Period, provided that no Offering
Period shall have a term exceeding 27 months.
(b) Initial Offering Periods. The initial Offering Period under the Plan
shall begin on August 1, 1999 and shall end on December 31, 1999. Unless the
Committee otherwise determines, subsequent Offering Periods shall be for a
period of six calendar months, commencing on each January 1 and July 1 during
the term of the Plan.
(c) Purchase Rights. Each participant shall be granted a separate purchase
right for each Offering Period in which the individual participates. The
purchase right shall be granted on the first day of such Offering Period and
shall be automatically exercised on the last day of the Offering Period.
6. ELIGIBILITY AND PARTICIPATION
(a) General Rules. Each employee of the Company or any of the Participating
Companies whose customary employment with the Company or any Participating
Company is at least five months per calendar year and who has not less than one
year of service with the Company and any Participating Company shall be an
eligible employee, provided that an employee whose terms of employment are
subject to the terms of a collective bargaining agreement shall not be an
eligible employee if and for such period of time as the union representing a
collective bargaining unit of which any employee is a member affirmatively
chooses, on behalf of the members of such unit, not to participate in the Plan.
An employee may participate in an Offering Period if the employee (i) has become
an eligible employee before the first day of the Offering Period, (ii) has
completed any minimum service requirement that may be specified by the Committee
for such Offering Period (or in the case of an employee whose terms of
employment are subject to the terms of a collective bargaining agreement, any
probationary period specified therein for participation in the Plan), not to
exceed two years and (iii) remains an eligible employee on the first day of the
Offering Period. Eligible employees may become participants with respect to an
Offering Period by executing such instruments as the Committee may specify and
delivering them to such persons and at such time prior to the first day of that
Offering Period as the Committee may specify.
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(b) Five Percent Owner. Under no circumstances shall purchase rights be
granted under the Plan to any employee if such individual would, immediately
after the grant, own (within the meaning of Code Section 424(d)), or hold
outstanding options or other rights to purchase, stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of stock
of the Company or any Corporate Affiliate.
7. PURCHASE RIGHTS
Purchase rights shall be evidenced by instruments in such form as the
Committee may from time to time approve, and shall conform to the following
terms and conditions:
(a) Purchase Price. The purchase price ("Purchase Price") per share of each
share of Common Stock purchased on any date within an Offering Period shall be
the lower of (i) eighty-five percent (85%) of the fair market value per share of
the Company's Common Stock on the first day of the Offering Period and (ii)
eighty-five percent (85%) of the fair market value per share of the Company's
Common Stock on the purchase date.
(b) Fair Market Value. For purposes of the Plan, the fair market value per
share of the Company's Common Stock on any day shall be the closing price on
that date as recorded by the Wall Street Journal in the New York Stock Exchange
Composite Transactions, or on the next regular business date on which shares of
the Common Stock are traded in the event that no shares of the Common Stock have
been traded on the relevant day. If the New York Stock Exchange shall cease to
be the primary exchange or market for the Company's Common Stock, fair market
value shall be determined based on the closing price (or, if not available, the
mean between the high and low selling or bid and asked prices) as reported for
the exchange or market that the Committee determines to be the primary market
for such Common Stock.
(c) Payroll Deductions. Payment for Common Stock under the Plan shall be
effected by means of the participant's authorized payroll deductions or such
other means as the Committee may authorize. Such deductions shall begin with the
first pay day following the commencement of the Offering Period and shall
(unless sooner terminated by the participant) remain in effect for successive
Offering Periods. No interest shall accrue on any amounts withheld from a
participant's compensation or otherwise held in an account established for a
participant. The Committee may permit participants to elect payroll deductions
pursuant to one or either of the following methods:
(i) Flat Dollar Amount. A participant may elect an amount, per
biweekly payroll check, to be contributed to the Plan, not in excess of
fifteen percent (15%) of his or her compensation (as defined below) on an
annualized basis. The minimum contribution is $20 per payroll check. If
permitted by the Committee in its discretion, each participant may also
make a separate election to contribute to the Plan a specified dollar
amount from annual scheduled bonus payments.
(ii) Percentage of Compensation. A participant may elect a percentage
of the participant's compensation paid during the Offering Period, in one
percent (1%) increments (not to exceed fifteen percent (15%)), to be
contributed to the Plan. Compensation for this purpose means the
participant's total compensation, which includes regular base earnings paid
by the Company or a Participating Company, sales commissions, overtime,
bonuses and incentive payments, and elective contributions that are not
includible in income under Sections 125 and 401(k) of the Code, or any
other definition of compensation that complies with the requirements of
Section 423(b)(5) of the Code.
(d) Number of Shares. On the first day of any Offering Period, the Company
shall be deemed to have granted under this Plan to the participant an option for
as many full shares and fractional shares of Common
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Stock as he or she will be able to purchase with the payroll deductions and
other amounts credited to his or her account during the Offering Period.
(e) Termination of or Changes to Payroll Deductions. Unless a participant
has irrevocably elected otherwise, the participant may terminate payroll
deductions at any time by filing the appropriate form with the Committee. Such
termination shall become effective as soon as administratively practicable
following the receipt of such form. Any payroll deductions previously collected
from the participant and not previously applied to the purchase of Common Stock
during that Offering Period shall, at the participant's election, immediately be
refunded or held for the purchase of shares of Common Stock on the next purchase
date immediately following such termination. If no such election is made, then
such funds shall be refunded as soon as administratively practicable after the
purchase date. Prior to the commencement of any new Offering Period, a
participant may resume, increase or decrease payroll deductions by filing the
appropriate form with the Committee. The new payroll deduction shall become
effective on the first day of the first Offering Period following the receipt of
such form. Distribution of Common Stock held in a participant's account shall be
distributed pursuant to Section 7(g).
(f) Termination of Employment. If a participant ceases to be employed by
the Company or a Participating Company for any reason, including death or
disability, prior to the end of an Offering Period, the participant's purchase
right shall terminate, and any payroll deductions previously collected from the
participant and not previously applied to the purchase of Common Stock during
that Offering Period shall be paid to the participant or the participant's
personal representative as soon as practicable. The Committee may provide, on a
uniform basis with respect to any Offering Period, that an employee who is on a
leave of absence shall be deemed to have terminated employment after a specified
period.
(g) Evidence of Stock Ownership; Transfer Restrictions on Shares and
Escrow; Dividends.
(i) Promptly following the end of each Offering Period, the number of
shares of Common Stock purchased by each participant shall be deposited
into an account established in the participant's name at a stock brokerage
or other financial services firm designated by the Company (the "ESPP
Broker").
(ii) A participant shall be free to undertake a disposition (as that
term is defined in Section 424(c) of the Code) of the shares of Common
Stock in his or her Account at any time, whether by sale, exchange, gift,
or other transfer of legal title, but in the absence of such a disposition
of the shares of Common Stock, the shares must remain in the participant's
account at the ESPP Broker until the holding period set forth in Section
423(a) of the Code has been satisfied. With respect to shares of Common
Stock for which the Code Section 423(a) holding period has been satisfied,
the participant may move those shares of Common Stock to another brokerage
account of the participant's choosing or request that a stock certificate
be issued and delivered to him or her.
(iii) The Committee may determine, in its discretion, that shares of
Common Stock acquired under the Plan during an Offering Period shall not be
transferable by the participant, other than by reason of death or such
other reasons as the Committee may specify, for a period not to exceed one
(1) year following the purchase date. If the Committee does so determine,
shares so acquired shall be held in escrow by the Company until such
transfer restrictions lapse. The Committee may also provide with respect to
any Offering Period, that in the event that a participant attempts to
transfer shares held in escrow on his or her behalf or terminates
employment with the Company or Participating Company while shares are held
in escrow on his or her behalf, the Company shall have an automatic right
to repurchase, unless such repurchase is prohibited or restricted by law,
such shares, for an amount equal to the lesser of (i) the price paid for
the shares by the participant, or (ii) the fair market value (determined in
accordance with Section 7(b)) of the shares on the date of repurchase.
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(iv) All regular cash dividends on shares of Common Stock or other
securities at the time held on behalf of a participant shall be reinvested
in shares of Common Stock under the Plan.
(v) Following the termination of employment of a participant, shares
of Common Stock shall be deposited in a non-Plan account following the end
of the restriction period set forth in Section 7(g)(ii).
(h) Proration of Purchase Rights. If the total number of shares of Common
Stock for which purchase rights are to be granted on any date in accordance with
the terms of the Plan exceed the number of shares of Common Stock then remaining
available under the Plan (after deduction of all shares of Common Stock for
which purchase rights have been exercised or are then outstanding), the
Committee shall make a pro rata allocation of the shares of Common Stock
remaining available in as near as uniform a manner as shall be practicable and
as it shall deem equitable. The Committee shall give written notice of such
allocation to each participant affected thereby.
(i) Exercise. Each purchase right shall be exercised automatically on the
purchase date for the number of purchasable shares and fractions of Common
Stock, unless the purchase right has been previously terminated pursuant to
Section 7(e) or 7(f).
(j) Assignment. Subject to Section 8, purchase rights under the Plan shall
not be assignable or transferable by the participant other than by will or by
the laws of descent and distribution and during the life of the participant
shall be exercisable only by the participant.
(k) Rights as Stockholder. A participant shall have no rights as a
stockholder with respect to shares of Common Stock covered by any purchase right
granted under the Plan until the purchase right is exercised. No adjustments
shall be made for dividends or other rights for which the record date is prior
to the date of exercise.
(l) Accrual Limitations. No purchase right shall permit the rights of a
participant to purchase stock under all "employee stock purchase plans" (as
defined in Section 423 of the Code) of the Company or a Corporate Affiliate to
accrue at a rate that exceeds $25,000 of fair market value of such stock
(determined at the time such purchase right is granted) for each calendar year
in which such purchase right is outstanding at any time. For Offering Periods of
less than one year, the Committee may, by uniform rule applicable to each
participant, limit the accrual rate to a pro-rata portion of such $25,000.
(m) Regulatory Approval. The implementation of the Plan, the granting of
any purchase right under the Plan, and the issuance of Common Stock upon the
exercise of any such purchase right shall be subject to the Company's compliance
with all applicable requirements of the Securities Act of 1933, all applicable
listing requirements of any securities exchange on which the Common Stock is
listed and all other applicable requirements established by law or regulation.
(n) Other Provisions. Instruments evidencing purchase rights may contain
such other provisions, not inconsistent with the Plan, as the Committee deems
advisable.
8. DESIGNATION OF BENEFICIARY
A participant may file a written designation of a beneficiary who is to
receive shares of Common Stock and cash, if any, credited on behalf of the
participant under the Plan in the event of such participant's death. Such
designation of beneficiary may be changed by the participant at any time by
filing the appropriate form with the Committee. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares of Common Stock and/or cash to the executor or administrator
of the estate of the participant, or if no such executor or
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administrator has been appointed (to the knowledge of the Company), the Company
shall deliver such shares of Common Stock and/or cash to the participant's
spouse or if no spouse is living, to the children of the participant in equal
shares.
9. CORPORATE TRANSACTIONS
(a) Termination. In the event of the disposition of all or substantially
all of the assets or outstanding capital stock of the issuer of the Common Stock
by means of a sale, merger, reorganization, or liquidation (a "Corporate
Transaction"), each purchase right under this Plan, unless assumed pursuant to a
written agreement by the successor corporation or a parent or subsidiary
thereof, shall automatically be exercised immediately prior to the consummation
of the Corporate Transaction as if such date were the last purchase date of the
Offering Period. Any payroll deductions or other amounts held in a participant's
account that are not applied to such purchase shall be promptly refunded to the
participant.
(b) Corporate Structure. The grant of purchase rights under this Plan shall
in no way affect the right of the Company to adjust, reclassify, reorganize, or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
10. AMENDMENT AND TERMINATION
The Board may from time to time alter, amend, suspend, or discontinue the
Plan with respect to any shares of Common Stock at any time not subject to
purchase rights; provided, however, that no such action of the Board may,
without the approval of stockholders of the Company, (i) increase the number of
shares of Common Stock subject to the Plan (unless necessary to effect the
adjustments required under Section 4(b)), (ii) modify the requirements as to
eligibility for participation in the Plan or (iii) make any other change with
respect to which the Board determines that stockholder approval is required by
applicable law or regulatory standards or with respect to which stockholder
approval is required in order to maintain the Plan's status as an "employee
stock purchase plan" under Section 423 of the Code.
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ANNEX B
COLE NATIONAL CORPORATION
1998 EQUITY AND PERFORMANCE INCENTIVE PLAN
(Amended and Restated Effective June 10, 1999)
[Shows changes from the original plan approved at the Company's 1998 Annual
Meeting of Stockholders by showing additions in bold and deletions struck
through.]
1. Purpose; EFFECT OF AMENDMENT AND RESTATEMENT. (a) THE COLE NATIONAL
CORPORATION, A DELAWARE CORPORATION, HEREBY AMENDS AND RESTATES THE COLE
NATIONAL CORPORATION EQUITY AND PERFORMANCE INCENTIVE PLAN EFFECTIVE JUNE 10,
1999. The purpose of the amended and restated [1998 Equity and Performance
Incentive] Plan is to attract, retain, and motivate consultants, officers and
other key employees of Cole National Corporation, [a Delaware corporation] and
its Subsidiaries, to provide such persons incentives and rewards for superior
performance which share in the growth of the value of the Company, and to
promote ownership and holding of shares of Common Stock of the Company by such
persons, thereby reinforcing a mutuality of interest with other stockholders.
(b) THIS AMENDMENT AND RESTATEMENT OF THIS PLAN SHALL CONSTITUTE A
CONTINUATION OF THE PLAN, AND IS GENERALLY EFFECTIVE JUNE 10, 1999. GRANTS AND
AWARDS MADE PRIOR TO SUCH DATE SHALL BE GOVERNED BY THE TERMS AND PROVISIONS OF
THE PRIOR 1998 PLAN, EXCEPT AS EXPRESSLY PROVIDED OTHERWISE IN THE PLAN.
2. Definitions. As used in this Plan,
"Board" means the Board of Directors of the Company and, to the extent of
any delegation by the Board to a committee (or subcommittee thereof) pursuant to
Section 14 of this Plan, such committee (or subcommittee).
"Change in Control" shall have the meaning provided in Section 10 of this
Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Stock" means the Common Stock, par value $.001 per share, of the
Company or any security into which such Common Stock may be changed by reason of
any transaction or event of the type referred to in Section 10 of this Plan.
"Company" means Cole National Corporation, a Delaware corporation.
"COMPENSATION COMMITTEE" MEANS ANY COMMITTEE (OR SUBCOMMITTEE THEREOF) TO
WHICH DELEGATION HAS BEEN MADE PURSUANT TO SECTION 14 OF THIS PLAN.
"Covered Employee" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of Section
162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which a grant of
Option Rights, Performance Stock or Performance Units or a grant or sale of
Restricted Stock or Deferred Stock shall become effective (which date shall not
be earlier than the date on which the Board takes action with respect thereto).
"Deferral Period" means the period of time during which shares of Deferred
Stock are subject to deferral limitations under Section 6 of this Plan.
B-1
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
<PAGE> 43
"Deferred Stock" means an award made pursuant to Section 6 of this Plan of
the right to receive shares of Common Stock at the end of a specified Deferral
Period.
"Director" means a member of the Board of Directors of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, as such law, rules and regulations may be
amended from time to time.
"Immediate Family" has the meaning ascribed thereto in Rule 16a-1(e) under
the Exchange Act (or any successor rule to the same effect) as in effect from
time to time.
"Incentive Stock Options" means Option Rights that are intended to qualify
as "incentive stock options" under Section 422 of the Code or any successor
provision.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Stock or Performance Units or, when so determined by the
Board, Option Rights, Restricted Stock and dividend credits pursuant to this
Plan.
Management Objectives may be described in terms of Company-wide objectives
or objectives that are related to the performance of the individual Participant
or of the Subsidiary, division, department, region or function within the
Company or Subsidiary in which the Participant is employed. The Management
Objectives may be made relative to the performance of other corporations. The
Management Objectives applicable to any award to a Covered Employee shall be
based on specified levels of or growth in one or more of the following criteria:
<TABLE>
<S> <C>
- - cash flow - return on equity
- - earnings per share - return on invested capital
- - earnings before interest and taxes - return on total capital
- - earnings per share growth - revenue growth
- - net income - stock price
- - total return to stockholders - value
- - return on assets
</TABLE>
If the BOARD OR COMPENSATION Committee determines that a change in the
business, operations, corporate structure or capital structure of the Company,
or the manner in which it conducts its business, or other events or
circumstances render the Management Objectives unsuitable, the BOARD OR
COMPENSATION Committee may in its discretion modify such Management Objectives
or the related minimum acceptable level of achievement, in whole or in part, as
the BOARD OR COMPENSATION Committee deems appropriate and equitable, except in
the case of a Covered Employee where such action would result in the loss of the
otherwise available exemption of the award under Section 162(m) of the Code. In
such case, the BOARD OR COMPENSATION Committee shall not make any modification
of the Management Objectives or minimum acceptable level of achievement.
"Market Value per Share" means, as of any particular date, (i) the closing
sale price per share of Common Stock as reported on the New York Stock Exchange
or, if applicable, the NASDAQ National Market System, on the Date of Grant, or
if there are no sales on such day, on the next preceding trading day during
which a sale occurred, or (ii) if clause (i) does not apply, the fair market
value per share of Common Stock as determined by the Board.
"Non-Employee Director" means a Director who is not an employee of the
Company or any Subsidiary.
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
B-2
<PAGE> 44
"Option Price" means the purchase price payable on exercise of an Option
Right.
"Option Right" means the right to purchase shares of Common Stock upon
exercise of an option granted pursuant to Section 4 or Section 8 of this Plan.
"Participant" means a person who is selected by the Board OR COMPENSATION
COMMITTEE to receive benefits under this Plan and who is at the time a
consultant, an officer or other key employee of the Company or any one or more
of its Subsidiaries, or who has agreed to commence serving in any of such
capacities within 30 days of the Date of Grant.
"Performance Period" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 7 of this
Plan within which the Management Objectives relating to such Performance Share
or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the equivalent
of one Common Share awarded pursuant to Section 7 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit equivalent
to $1.00 awarded pursuant to Section 7 of this Plan.
"Plan" means this Cole National Corporation 1998 Equity and Performance
Incentive Plan (AMENDED AND RESTATED EFFECTIVE JUNE 10, 1999).
"PRIOR PLAN" MEANS EACH OF THE COLE NATIONAL CORPORATION 1992 MANAGEMENT
STOCK OPTION PLAN, THE COLE NATIONAL CORPORATION 1993 MANAGEMENT STOCK OPTION
PLAN AND THE COLE NATIONAL CORPORATION 1996 MANAGEMENT STOCK OPTION PLAN.
"PRIOR 1998 PLAN" MEANS THE COLE NATIONAL CORPORATION 1998 EQUITY AND
PERFORMANCE INCENTIVE PLAN, APPROVED BY ITS STOCKHOLDERS ON JUNE 11, 1998.
"Restricted Stock" means Common Stock granted or sold pursuant to Section 5
of this Plan as to which neither the substantial risk of forfeiture nor the
prohibition on transfers referred to in such Section 5 has expired.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act (or any successor rule
to the same effect) as in effect from time to time.
"Spread" means the excess of the Market Value per Share on the date when
Option Rights are surrendered in payment of the Option Price of other Option
Rights, over the Option Price provided for in the related Option Right.
"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 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.
"Voting Power" means at any time, the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
Directors.
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<PAGE> 45
3. Shares Available Under the Plan. (a) Subject to adjustment as provided
in Section 3(b) and Section 9 of this Plan, the number of shares of Common Stock
that may be issued or transferred (i) upon the exercise of Option Rights, (ii)
as Restricted Stock and released from substantial risks of forfeiture thereof,
(iii) as Deferred Stock, (iv) in payment of Performance Stock or Performance
Units that have been earned or (v) in payment of dividend equivalents paid with
respect to awards made under the Plan shall not exceed in the aggregate 884,000
shares of Common Stock, plus any shares described in Section 3(b). Such shares
may be shares of original issuance or treasury shares or a combination of the
foregoing.
(b) The number of shares available in Section 3(a) above shall be adjusted
to account for shares relating to awards that expire OR are forfeited UNDER THE
PLAN, or are transferred, surrendered or relinquished upon the payment of any
Option Price by the transfer to the Company of Common Stock or upon satisfaction
of any withholding amount UNDER THE PLAN, THE PRIOR 1998 PLAN OR UNDER ANY PRIOR
PLAN. Upon payment in cash of the benefit provided by any award granted under
this Plan or the Prior 1998 Plan, any shares that were covered by that award
shall again be available for issue or transfer hereunder.
(c) Notwithstanding any other provision of this Plan to the contrary and
subject to adjustment as provided in Section 9 of this Plan,
(i) the aggregate number of shares of Common Stock actually issued or
transferred by the Company upon the exercise of Incentive Stock Options
under the Plan shall not exceed 884,000 shares of Common Stock;
(ii) no Participant shall be granted Option Rights, in the aggregate,
for more than 250,000 [350,000] shares of Common Stock under the Plan
during any [period of three consecutive fiscal years] fiscal year of the
Company; [and] PROVIDED THAT ANY UNUSED PORTION OF EACH LIMITATION SHALL
BE CARRIED FORWARD TO FUTURE FISCAL YEARS OF THE COMPANY ON A CUMULATIVE
BASIS.
(iii) the maximum number of shares of Common Stock covered by awards
of Restricted Stock, Deferred Stock or Performance Stock under this Plan
shall not exceed 265,000 in the aggregate, and, during any period of three
consecutive fiscal years of the Company the maximum number of shares of
Common Stock covered by awards of Restricted Stock, Deferred Stock or
Performance Stock under this Plan granted to any one Participant shall not
exceed 125,000 shares of Common Stock.
(d) Notwithstanding any other provision of this Plan to the contrary, in no
event shall any Participant in any fiscal year of the Company receive awards of
Performance Units having an aggregate maximum value as of the Date of Grant in
excess of $1,000,000.
4. Option Rights. The Board may, from time to time and upon such terms and
conditions as it may determine, authorize the granting to Participants of
options to purchase shares of Common Stock. Each such grant may utilize any or
all of the authorizations, and shall be subject to all of the requirements
contained in the following provisions:
(a) Each grant shall specify the number of shares of Common Stock to which
it pertains subject to the limitations set forth in Section 3 of this plan.
(b) Each grant shall specify an Option Price per share, which may not be
less than the Market Value per Share on the Date of Grant, provided, however,
that in the case of options other than Incentive Stock Options, the Option Price
shall not be less than 85% of the Market Value per Share on the Date of Grant,
if granted in lieu of salary or cash bonus. Notwithstanding the foregoing, the
COMPENSATION Committee in its discretion, may determine a price per share of
Common Stock of less than the Market Value per Share on the Date of Grant, if
B-4
Language indicated as being shown by strike out in the typeset document
is enclosed in brackets "[" and "]" in the electronic format.
<PAGE> 46
such grant is in substitution for a stock option granted by an entity which has
been merged with or acquired by the Company or a Subsidiary and such substitute
grant is made in connection with such merger or acquisition.
(c) Each grant shall specify whether the Option Price shall be payable (i)
in cash, in the form of currency, or cashier's check or other cash equivalent
acceptable to the Company, (ii) by the actual or constructive transfer to the
Company of shares of Common Stock owned by the Optionee for at least 6 months
(or other consideration authorized pursuant to Section 4(d)) having a value at
the time of exercise equal to the total Option Price, (iii) if authorized by the
Compensation Committee prior to the exercise of the option, the delivery of a
promissory note or notes of the Optionee payable over not more than five years,
or (iv) by a combination of such methods of payment.
(d) The Board may determine, at or after the Date of Grant, that payment of
the Option Price of any Option Right (other than an Incentive Stock Option) may
also be made in whole or in part in the form of shares of Restricted Stock or
other Common Stock that are forfeitable or subject to restrictions on transfer,
Deferred Stock, Performance Stock (based, in each case, on the Market Value per
Share on the date of exercise), other Option Rights (based on the Spread on the
date of exercise) or Performance Units. Unless otherwise determined by the Board
at or after the Date of Grant, whenever any Option Price is paid in whole or in
part by means of any of the forms of consideration specified in this Section
4(d), the Common Stock received upon the exercise of the Option Rights shall be
subject to such risks of forfeiture or restrictions on transfer as may
correspond to any that apply to the consideration surrendered, but only to the
extent, determined with respect to the consideration surrendered, of (i) the
number of shares or Performance Stock, (ii) the Spread of any unexercisable
portion of Option Rights, or (iii) the stated value of Performance Units.
(e) Any grant may provide for deferred payment of the Option Price from the
proceeds of sale through a broker on a date satisfactory to the Company of some
or all of the shares to which such exercise relates.
(f) Successive grants may be made to the same Participant whether or not
any Option Rights previously granted to such Participant remain unexercised.
(g) Each grant shall specify the period or periods of continuous service by
the Optionee with the Company or any Subsidiary that is necessary before the
Option Rights or installments thereof will become exercisable and may provide
for the earlier exercise of such Option Rights in the event of a Change in
Control.
(h) Any grant of Option Rights may specify Management Objectives that must
be achieved as a condition to the exercise of such rights.
(i) Option Rights granted under this Plan may be (i) options, including,
without limitation, Incentive Stock Options, that are intended to qualify under
particular provisions of the Code, (ii) options that are not intended so to
qualify, or (iii) combinations of the foregoing.
(j) No Option Right shall be exercisable more than 10 years from the Date
of Grant.
(k) Each grant of Option Rights shall be evidenced by an agreement executed
on behalf of the Company by an officer and delivered to the Optionee and
containing such terms and provisions, consistent with this Plan, as the Board
may approve.
B-5
<PAGE> 47
5. Restricted Stock. The Board may also authorize the grant or sale of
shares of Restricted Stock to Participants. Each such grant or sale may utilize
any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of the
ownership of Common Stock to the Participant in consideration of the performance
of services, entitling such Participant to voting, dividend and other ownership
rights, but subject to the substantial risk of forfeiture and restrictions on
transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional consideration or
in consideration of a payment by such Participant that is less than Market Value
per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the shares of Restricted
Stock covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code except (if the Board
shall so determine) in the event of death, retirement or disability of the
Participant, or a Change in Control, for a period to be determined by the Board
at the Date of Grant. If the Board conditions the nonforfeitability of shares of
Restricted Stock upon service alone, such nonforfeitability may not occur before
three years from the Date of Grant of such shares of Restricted Stock, and if
the Board conditions the nonforfeitability of shares of Restricted Stock upon
Management Objectives, such nonforfeitability may not occur before one year from
the Date of Grant of such shares of Restricted Stock.
(d) Each such grant or sale shall provide that during the period for which
such substantial risk of forfeiture is to continue, the transferability of the
shares of Restricted Stock shall be prohibited or restricted in the manner and
to the extent prescribed by the Board at the Date of Grant (which restrictions
may include, without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the shares of Restricted Stock to a continuing
substantial risk of forfeiture in the hands of any transferee).
(e) Any grant of shares of Restricted Stock may specify Management
Objectives that, if achieved, will result in termination or early termination of
the restrictions applicable to such shares. Each grant may specify in respect of
such Management Objectives a minimum acceptable level of achievement and may set
forth a formula for determining the number of shares of Restricted Stock on
which restrictions will terminate if performance is at or above the minimum
level, but falls short of full achievement of the specified Management
Objectives.
(f) Any such grant or sale of shares of Restricted Stock may require that
any or all dividends or other distributions paid thereon during the period of
such restrictions be automatically deferred and reinvested in additional shares
of Restricted Stock, which may be subject to the same restrictions as the
underlying award.
(g) Each grant or sale of shares of Restricted Stock shall be evidenced by
an agreement executed on behalf of the Company by any officer and delivered to
and accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve. Unless otherwise directed
by the Board, all certificates representing shares of Restricted Stock shall be
held in custody by the Company until all restrictions thereon shall have lapsed,
together with a stock power or powers executed by the Participant in whose name
such certificates are registered, endorsed in blank and covering such shares.
B-6
<PAGE> 48
6. Deferred Stock. The Board may also authorize the granting or sale of
Deferred Stock to Participants. Each such grant or sale may utilize any or all
of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each such grant or sale shall constitute the agreement by the
Company to deliver shares of Common Stock to the Participant in the future
in consideration of the performance of services, but subject to the
fulfillment of such conditions during the Deferral Period as the Board may
specify.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than the Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral Period of
not less than 3 years, as determined by the Board at the Date of Grant
except (if the Board shall so determine) in the event of death, retirement
or disability of the Participant, or a Change in Control.
(d) During the Deferral Period, the Participant shall have no right to
transfer any rights under his or her award and shall have no rights of
ownership in the shares of Deferred Stock and shall have no right to vote
them, but the Board may, at or after the Date of Grant, authorize the
payment of dividend equivalents on such shares on either a current or
deferred or contingent basis, either in cash or in additional shares of
Common Stock.
(e) Each grant or sale of shares of Deferred Stock shall be evidenced
by an agreement executed on behalf of the Company by any officer and
delivered to and accepted by the Participant and shall contain such terms
and provisions, consistent with this Plan, as the Board may approve.
7. Performance Stock and Performance Units. The Board may also authorize
the granting of shares of Performance Stock and Performance Units that will
become payable to a Participant upon achievement of specified Management
Objectives. Each such grant may utilize any or all of the authorizations, and
shall be subject to all of the requirements, contained in the following
provisions:
(a) Each grant shall specify the number of shares of Performance Stock
or Performance Units to which it pertains, which number may be subject to
adjustment to reflect changes in compensation or other factors; provided,
however, that no such adjustment shall be made in the case of a Covered
Employee where such action would result in the loss of the otherwise
available exemption of the award under Section 162(m) of the Code.
(b) The Performance Period with respect to each share of Performance
Share or Performance Unit shall be such period of time (not less than 3
years, except (if the Board shall so determine) in the event of death,
retirement or disability of the Participant, or a Change in Control, for a
period to be determined by the Board at the Date of Grant.
(c) Any grant of shares of Performance Stock or Performance Units
shall specify Management Objectives which, if achieved, will result in
payment or early payment of the award, and each grant may specify in
respect of such specified Management Objectives a minimum acceptable level
of achievement and shall set forth a formula for determining the number of
shares of Performance Stock or Performance Units that will be earned if
performance is at or above the minimum level, but falls short of full
achievement of the specified Management Objectives. The grant of shares of
Performance Stock or Performance Units shall specify that, before the
shares of Performance Stock or Performance Units shall be earned and paid,
the Board must certify that the Management Objectives have been satisfied.
B-7
<PAGE> 49
(d) Each grant shall specify the time and manner of payment of shares
of Performance Stock or Performance Units that have been earned. Any grant
may specify that the amount payable with respect thereto may be paid by the
Company in cash, in shares of Common Stock or in any combination thereof
and may either grant to the Participant or retain in the Board the right to
elect among those alternatives.
(e) Any grant of shares of Performance Stock may specify that the
amount payable with respect thereto may not exceed a maximum specified by
the Board at the Date of Grant. Any grant of Performance Units may specify
that the amount payable or the number of shares of Common Stock issued with
respect thereto may not exceed maximums specified by the Board at the Date
of Grant.
(f) The Board may, at or after the Date of Grant of shares of
Performance Stock, provide for the payment of dividend equivalents to the
holder thereof on either a current or deferred or contingent basis, either
in cash or in additional Common Stock.
(g) Each grant of shares of Performance Stock or Performance Units
shall be evidenced by an agreement executed on behalf of the Company by any
officer and delivered to and accepted by the Participant, which agreement
shall state that such shares of Performance Stock or Performance Units are
subject to all the terms and conditions of this Plan, and contain such
other terms and provisions, consistent with this Plan, as the Board may
approve.
8. Transferability. (a) Except as otherwise determined by the Board, no
Option Right or other derivative security granted under the Plan shall be
transferable by a Participant other than by will or the laws of descent and
distribution. Except as otherwise determined by the Board, Option Rights shall
be exercisable during the Optionee's lifetime only by him or her or by his or
her guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or all of the
shares of Common Stock that are (i) to be issued or transferred by the Company
upon the exercise of Option Rights, upon the termination of the Deferral Period
applicable to Deferred Stock or upon payment under any grant of Performance
Stock or Performance Units or (ii) no longer subject to the substantial risk of
forfeiture and restrictions on transfer referred to in Section 5 of this Plan,
shall be subject to further restrictions on transfer.
(c) Notwithstanding the provisions of Section 8(a), Option Rights (other
than Incentive Stock Options), Restricted Stock, Deferred Stock, Performance
Stock and Performance Units shall be transferable by a Participant, without
payment of consideration therefor by the transferee, to any one or more members
of the Participant's Immediate Family (or to one or more trusts established
solely for the benefit of one or more members of the Participant's Immediate
Family or to one or more partnerships in which the only partners are members of
the Participant's Immediate Family); provided, however, that (i) no such
transfer shall be effective unless reasonable prior notice thereof is delivered
to the Company and such transfer is thereafter effected in accordance with any
terms and conditions that shall have been made applicable thereto by the Company
or the Board and (ii) any such transferee shall be subject to the same terms and
conditions hereunder as the Participant.
9. Adjustments. The Board may make or provide for such adjustments in the
numbers of Common Stock covered by outstanding Option Rights, Deferred Stock,
and Performance Stock granted hereunder, in the Option Price and in the kind of
shares covered thereby, as the Board, in its sole discretion, exercised in good
faith, may determine is equitably required to prevent dilution or enlargement of
the rights of Participants or Optionees that otherwise would result from (a) any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Company, or (b) any merger,
consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial
or complete liquidation or other distribution of assets, issuance of rights or
warrants to purchase securities, or (c) any other corporate transaction or event
having an effect similar to any of
B-8
<PAGE> 50
the foregoing. Moreover, in the event of any such transaction or event, the
Board, in its discretion, may provide in substitution for any or all outstanding
awards under this Plan 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. The Board may also make or
provide for such adjustments in the numbers of shares specified in Section 3 of
this Plan as the Board in its sole discretion, exercised in good faith, may
determine is appropriate to reflect any transaction or event described in this
Section 9; provided, however, that any such adjustment to the number specified
in Section 3(c)(i) shall be made only if and to the extent that such adjustment
would not cause any Option intended to qualify as an Incentive Stock Option to
fail so to qualify.
10. Change in Control. For purposes of this Plan, a "Change in Control"
shall mean 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;
(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.
11. Fractional Shares. The Company shall not be required to issue any
fractional shares of Common Stock pursuant to this Plan. The Board may provide
for the elimination of fractions or for the settlement of fractions in cash.
12. Withholding Taxes. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this
B-9
<PAGE> 51
Plan, and the amounts available to the Company for such withholding are
insufficient, it shall be a condition to the receipt of such payment or the
realization of such benefit that the Participant or such other person make
arrangements satisfactory to the Company for payment of the balance of such
taxes required to be withheld, which arrangements (in the discretion of the
Board) may include relinquishment of a portion of such benefit or any other
benefit, or loans by the Company to the Participant. The Company and a
Participant or such other person may also make similar arrangements with respect
to the payment IN CASH of any taxes with respect to which withholding is not
required.
13. Foreign Employees. In order to facilitate the making of any grant or
combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America as the
Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the Board may approve such supplements to
or amendments, restatements or alternative versions of this Plan as it may
consider necessary or appropriate for such purposes, without thereby affecting
the terms of this Plan as in effect for any other purpose, and the Secretary or
other appropriate officer of the Company may certify any such document as having
been approved and adopted in the same manner as this Plan. No such special
terms, supplements, amendments or restatements, however, shall include any
provisions that are inconsistent with the terms of this Plan as then in effect
unless this Plan could have been amended to eliminate such inconsistency without
further approval by the stockholders of the Company.
14. Administration of the Plan. (a) This Plan shall be administered by the
Board, which may from time to time delegate all or any part of its authority
under this Plan to ONE OR MORE committees of the Board (or subcommittee thereof)
consisting of not less than two Non-Employee Directors appointed by the Board. A
majority of the committee (or subcommittee) shall constitute a quorum, and the
action of the members of the committee (or subcommittee) present at any meeting
at which a quorum is present, or acts unanimously approved in writing, shall be
the acts of the committee (or subcommittee). To the extent of any such
delegation, references in this Plan to the Board shall be deemed to be
references to any such committee or subcommittee.
(b) The interpretation and construction by the Board of any provision of
this Plan or of any agreement, notification or document evidencing the grant of
Option Rights, Restricted Stock, Deferred Stock, Performance Stock or
Performance Units and any determination by the Board pursuant to any provision
of this Plan or of any such agreement, notification or document shall be final
and conclusive. No member of the Board shall be liable for any such action or
determination made in good faith.
15. Amendments, Etc. (a) The Board may at any time and from time to time
amend the Plan in whole or in part; provided, however, that any amendment which
must be approved by the stockholders of the Company in order to comply with
applicable law or the rules of the New York Stock Exchange or, if the Common
Stock are not traded on such Exchange, the principal national securities
exchange upon which the Common Stock are traded or quoted, shall not be
effective unless and until such approval has been obtained; and provided,
further, that no such amendment shall:
(i) increase the maximum number of shares specified in Section 3(a);
Sections 3(c)(i), (ii) or (iii), or Section 3(d); or
(ii) otherwise materially increase the benefits accruing to
Participants under this Plan; without the further approval of the
stockholders of the Company.
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<PAGE> 52
Presentation of this Plan or any amendment hereof for stockholder approval shall
not be construed to limit the Company's authority to offer similar or dissimilar
benefits under other plans without stockholder approval.
(b) The Board shall not, without the further approval of the stockholders
of the Company, authorize the amendment of any outstanding Option Right to
reduce the Option Price. Furthermore, no Option Right shall be canceled and
replaced with awards having a lower Option Price without further approval of the
stockholders of the Company. This Section 15(b) is intended to prohibit the
repricing of "underwater" Option Rights and shall not be construed to prohibit
the adjustments provided for in Section 9 of this Plan.
(c) The Board also may require Participants to, or may permit Participants
to elect to, defer the issuance of shares of Common Stock or the settlement of
awards in cash under the Plan pursuant to such rules, procedures or programs as
it may establish for purposes of this Plan. The Board also may provide that
deferred issuances and settlements include the payment or crediting of dividend
equivalents or interest on the deferral amounts.
(d) The Board may condition the grant of any award or combination of awards
authorized under this Plan on the surrender or deferral by the Participant of
his or her right to receive a cash bonus or other compensation otherwise payable
by the Company or a Subsidiary to the Participant.
(e) In case of termination of employment by reason of death, disability or
normal or early retirement, or in the case of hardship or other special
circumstances, of a Participant who holds an Option Right not immediately
exercisable in full, or any Restricted Stock as to which the substantial risk of
forfeiture or the prohibition or restriction on transfer has not lapsed, or any
Deferred Stock as to which the Deferral Period has not been completed, or any
Performance Stock or Performance Units which have not been fully earned, or who
holds Common Stock subject to any transfer restriction imposed pursuant to
Section 8(b) of this Plan, the Board may, in its sole discretion, accelerate the
time at which such Option Right may be exercised or the time at which such
substantial risk of forfeiture or prohibition or restriction on transfer will
lapse or the time when such Deferral Period will end or the time at which such
Performance Stock or Performance Units will be deemed to have been fully earned
or the time when such transfer restriction will terminate or may waive any other
limitation or requirement under any such award.
(f) This Plan shall not confer upon any Participant any right with respect
to continuance of employment or other service with the Company or any
Subsidiary, nor shall it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate such Participant's employment or
other service at any time.
(g) To the extent that any provision of this Plan would prevent any Option
Right that was intended to qualify as an Incentive Stock Option from qualifying
as such, that provision shall be null and void with respect to such Option
Right. Such provision, however, shall remain in effect for other Option Rights
and there shall be no further effect on any provision of this Plan.
16. Other Matters. Notwithstanding anything in this Plan to the contrary,
not more than 88,500 shares of Common Stock in the aggregate available under
this Plan may be subject to awards:
(i) in the case of grants of shares of Restricted Stock, which do not
meet the requirements of the last sentence of Section 5(c) of this Plan;
(ii) in the case of grants of Restricted Stock, as to which the
Committee may accelerate or waive any restrictions imposed under Section
5(d) of this Plan;
(iii) in the case of grants of Deferred Stock, which do not meet the
requirements of Section 6(c) of this Plan; or
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(iv) in the case of grants of Performance Shares and Performance
Units, which do not meet the requirements of Section 7(b) of this Plan.
17. Termination. No grant shall be made under this Plan more than 10 years
after the date on which this Plan is first approved by the stockholders of the
Company, but all grants made on or prior to such date shall continue in effect
thereafter subject to the terms thereof and of this Plan.
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<PAGE> 54
COLE NATIONAL CORPORATION
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jeffrey A. Cole, Brian B. Smith and
Leslie D. Dunn, and each of them, with full power of substitution, and
hereby authorizes them to represent the undersigned and to vote all of
the shares of Common Stock in COLE NATIONAL CORPORATION ("Company") held
of record by the undersigned on April 21, 1999, at the Annual Meeting of
Stockholders of the Company to be held on Thursday, June 10, 1999, and
any adjournment(s) thereof as follows and in accordance with their
judgment upon any other matter properly presented:
1. THE ELECTION OF SEVEN DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES LISTED BELOW.
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
Jeffrey A. Cole, Timothy F. Finley, Irwin N. Gold, Peter V. Handal,
Charles A. Ratner, Walter J. Salmon and Brian B. Smith
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
-------------------------------------------------------------------------
2. APPROVE THE 1999 EMPLOYEE STOCK PURCHASE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
3. APPROVE THE 1998 EQUITY AND PERFORMANCE INCENTIVE PLAN (AMENDED AND
RESTATED EFFECTIVE JUNE 10, 1999).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on reverse side)
(Continued from other side)
4. CONFIRM THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy when properly executed will be voted as directed by the
undersigned stockholder. If directions are not indicated, the proxy will
be voted to elect the nominees described in item 1 and for items 2, 3 and
4.
Date: , 1999
-----------------------
------------------------------------
Signature
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Signature (if held jointly)
IMPORTANT: Please sign as your name
appears hereon. If shares are held
jointly, all holders must sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
