<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1997
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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COLE NATIONAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
5995
(PRIMARY STANDARD
INDUSTRIAL CLASSIFICATION CODE NUMBER)
34-1744334
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
(216) 449-4100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
WAYNE L. MOSLEY
Vice President and Controller
Cole National Corporation
5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
(216) 449-4100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------
COPIES TO:
DAVID P. PORTER, Esq.
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
8 5/8% Senior Subordinated Notes due
2007.................................. $125,000,000 100% $125,000,000 $43,103.45
==================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 4, 1997
PROSPECTUS
[Cole Logo]
OFFER TO EXCHANGE ITS 8 5/8% SENIOR SUBORDINATED NOTES DUE 2007, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND ALL OF ITS OUTSTANDING 8 5/8%
SENIOR SUBORDINATED NOTES DUE 2007 ISSUED ON AUGUST 22, 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER ,
1997 UNLESS EXTENDED.
Cole National Group, Inc., a Delaware corporation (the "Company"), hereby
offers to exchange (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), up to $125,000,000 in aggregate
principal amount of the Company's new 8 5/8% Senior Subordinated Notes due 2007
(the "Exchange Notes"), for $125,000,000 in aggregate principal amount of the
Company's outstanding 8 5/8% Senior Subordinated Notes due 2007 (the "Original
Notes") originally issued on August 22, 1997. The Original Notes and the
Exchange Notes are sometimes referred to herein collectively as the "Notes."
The terms of the Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Original Notes for which they may be exchanged pursuant to this Exchange Offer,
except that (i) the Exchange Notes will be freely transferable by holders
thereof (other than as provided herein) and issued free of any covenant
restricting transfer absent registration and (ii) holders of the Exchange Notes
will not be entitled to certain rights of holders of the Original Notes under
the Registration Rights Agreement (as defined herein), which rights will
terminate upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Original Notes (which they replace) and will be
entitled to the benefits of an Indenture dated as of August 22, 1997 governing
the Original Notes and the Exchange Notes (the "Indenture"). For a complete
description of the terms of the Exchange Notes, see "Description of the Notes."
There will be no cash proceeds to the Company from the Exchange Offer.
The Original Notes were sold on August 22, 1997, by the Company, a wholly
owned subsidiary of Cole National Corporation (the "Parent"), in connection with
the following transactions (collectively, the "Transactions"): (i) the making of
a tender offer (the "Tender Offer") for its 11 1/4% Senior Notes due 2001 (the
"Senior Notes"); (ii) the consent solicitation related to the Tender Offer and
(iii) the offering of the Original Notes (the "Offering").
Interest on the Notes will be payable in cash semi-annually on each
February 15 and August 15, commencing February 15, 1998. The Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after August 15, 2002, at the redemption prices set forth herein, plus accrued
and unpaid interest to the date of redemption. In addition, the Company, at its
option, may redeem in the aggregate up to 40% of the original principal amount
of the Notes at any time and from time to time prior to August 15, 2000 at
108.625% of the aggregate principal amount so redeemed plus accrued interest to
the redemption date, with the Net Proceeds (as defined herein) of one or more
Qualified Equity Offerings as defined herein of the Company or the Parent to the
extent such proceeds were contributed to the Company as common equity, provided
that at least $75.0 million of the principal amount of the Notes originally
issued remain outstanding immediately after the occurrence of any such
redemption and that any such redemption occurs within 90 days following the
closing of any such Qualified Equity Offering. See "Description of the
Notes -- Optional Redemption."
(continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September , 1997.
Cole National Group, Inc.
<PAGE> 3
(continued from prior page)
Upon a Change of Control (as defined herein), each holder of the Notes will
be entitled to require the Company to purchase such holder's Notes at 101% of
the principal amount thereof plus accrued interest to the purchase date. See
"Description of the Notes -- Change of Control Offer." If a Change of Control
occurs, there can be no assurance that the Company will have, or will have
access to, sufficient funds to enable it to repurchase the Notes. In addition,
the Company is obligated in certain instances to make an offer to repurchase the
Notes at a purchase price in cash equal to 100% of the principal amount thereof
plus accrued interest to the date of repurchase with the net cash proceeds of
certain asset sales. See "Description of the Notes -- Certain
Covenants -- Limitation on Certain Asset Sales."
The Notes will be general unsecured obligations of the Company subordinate
in right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Company and senior in right of payment to any subordinated
indebtedness of the Company and pari passu to the Company's existing 9 7/8%
Senior Subordinated Notes due 2006 (the "Existing Senior Subordinated Notes")
and all other future senior subordinated indebtedness. As of May 3, 1997, on a
pro forma basis, after giving effect to the Transactions, the Company and its
subsidiaries would have had $1.5 million aggregate principal amount of Senior
Indebtedness and $150.0 million aggregate principal amount of Existing Senior
Subordinated Notes outstanding. Substantially all of the Company's assets are
held through subsidiaries and the Notes will be effectively subordinated to the
obligations of such subsidiaries. As of May 3, 1997, subsidiaries of the Company
had $145.8 million of liabilities outstanding consisting primarily of trade
payables and accrued expenses. The Indenture governing the Notes will prohibit
the incurrence of additional indebtedness by any subsidiaries other than a
limited amount of purchase money indebtedness, capitalized lease obligations and
other limited indebtedness under the Credit Facility (as defined herein). See
"Description of Notes -- Certain Covenants."
The Original Notes were sold on August 22, 1997, in a transaction not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon an exemption provided in the Securities Act. Accordingly, the
Original Notes may not be offered, resold or otherwise pledged, hypothecated or
transferred in the United States unless registered under the Securities Act or
unless an exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered to satisfy the obligations of
the Company under the Registration Rights Agreement (as defined herein) relating
to the Original Notes. See "The Exchange Offer -- Purposes and Effects of the
Exchange Offer." Each holder receiving Exchange Notes, other than a
broker-dealer, will represent that the holder is not engaging in or intending to
engage in a distribution of such Exchange Notes. Exchange Notes issued pursuant
to the Exchange Offer in exchange for the Original Notes may be offered for
resale, resold or otherwise transferred by the holder thereof (other than any
holder that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "The Exchange Offer
- -- Purposes and Effects of the Exchange Offer" and "Plan of Distribution."
Broker-dealers may use this Prospectus, as amended or supplemented, in
connection with resales of the Exchange Notes received in exchange for the
Original Notes where such Original Notes were acquired by such broker-dealer as
a result of market making activities or other such trading.
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Company will accept
for exchange any and all validly tendered Original Notes not withdrawn prior to
5:00 P.M., New York City time, on October , 1997 unless extended by the
Company, in its sole discretion (the "Expiration Date"). Tenders of Original
Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is subject to certain customary conditions. See "The Exchange Offer
- -- Certain Conditions to the Exchange Offer." Original Notes may be tendered
only in integral multiples of $1,000. The Company will pay all expenses incident
to the Exchange Offer.
The Notes constitute securities for which there is no established trading
market. Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. The Company does not currently intend to list the Exchange
Notes on any securities exchange. To the extent that any Original Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Original Notes would be adversely affected. No assurances can be
given as to the liquidity of the trading market for either the Original Notes or
the Exchange Notes.
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Exchange Notes offered by this Prospectus. For the purposes
hereof, the term Registration Statement means the original Registration
Statement and any and all amendments thereto, including the schedules and
exhibits to such Registration Statement or any such amendment. This Prospectus,
which forms a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, to which reference is
hereby made. Each statement made in this Prospectus concerning a document filed
as an exhibit to the Registration Statement is qualified in its entirety by
reference to such exhibit for a complete statement of its provisions.
Pursuant to the terms of the Indenture, the Company files reports and other
information with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained at prescribed
rates by writing the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a Web site, located at
http://www.sec.gov, that contains reports and information statements and other
information regarding registrants, including the Company, that file
electronically with the Commission.
Pursuant to the Indenture, the Company has agreed to furnish to the Trustee
(as defined herein) and to registered holders of the Notes, without cost to the
Trustee or such registered holder, copies of all reports and other information
that would be required to be filed by the Company with the Commission under the
Securities Exchange Act of 1934 (the "Exchange Act"), whether or not the Company
is then required to file reports with the Commission. As a result of the
Exchange Offer, the Company will become subject to the periodic reporting and
other informational requirements of the Exchange Act. The Company has agreed
that, whether or not the Company is subject to filing requirements under Section
13 or 15(d) of the Exchange Act, and so long as any Notes remain outstanding, it
will file with the Commission (but only if the Commission at such time is
accepting such voluntary filings) and will send the Trustee copies of the
financial information, documents and reports that would have been required to be
filed with the Commission pursuant to the Exchange Act.
The principal address of the Company is 5915 Landerbrook Drive, Suite 300,
Mayfield Heights, Ohio 44124, telephone number (216) 449-4100.
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<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
As used herein, unless the context otherwise indicates, references in this
Prospectus to the "Company" refer to Cole National Group, Inc. and its wholly
owned subsidiaries and references to the "Parent" refer to Cole National
Corporation. The Company's fiscal year ends on the Saturday closest to January
31. Fiscal years are identified according to the calendar year in which they
begin. For example, the fiscal year ended February 1, 1997 is referred to as
"fiscal 1996." Unless otherwise indicated, references herein to the number of
stores for the Company are as of August 7, 1997.
The Prospectus contains certain forward-looking statements (including,
without limitation, statements that reflect beliefs or anticipations of future
operations, results or events) with respect to the business of the Company and
the industry in which it operates. These forward-looking statements are subject
to certain risks and uncertainties which may cause actual results to differ
materially from those stated in or suggested by such forward-looking statements.
See "Risk Factors."
THE COMPANY
The Company, a leading vision care and personalization retailer, is the
largest optical retail company in the United States, with approximately 2,000
company-owned and franchised optical locations in the United States, Canada and
the Caribbean. The Company's pro forma net revenue and EBITDA for the 52 week
period ended May 3, 1997 were $959.7 million and $98.6 million, respectively,
with approximately 70% of the Company's net revenue derived from its optical
business and the remaining 30% derived from its gift business, which operates in
approximately 1,300 retail locations. The Company conducts its business through
two principal operating units: (i) Cole Optical, consisting of Cole Vision
Corporation ("Cole Vision") and Pearle Inc. ("Pearle"); and (ii) Cole Gift,
consisting of Things Remembered, Inc. ("Things Remembered") and Cole Gift
Centers, Inc. ("CGC"). The Company differentiates itself from other specialty
retailers by providing value-added services at the point of sale at all of its
retail locations.
The Company is a wholly owned subsidiary of the Parent, a holding company
that has common stock traded on the New York Stock Exchange. The Parent also has
a 20% interest in Pearle Trust B.V., which as of May 3, 1997, had 193 optical
stores in the Netherlands and Belgium.
COLE OPTICAL
Cole Vision operates principally under the "Sears Optical," "Montgomery
Ward Vision Center" and "BJ's Optical Department" names. As of May 3, 1997, Cole
Vision operated 1,146 locations in 46 states and Canada, including 750
departments on the premises of Sears department stores, 213 departments in
Montgomery Ward stores, 76 departments in BJ's Wholesale Club stores, 24
departments located in five other retailers and 83 freestanding stores operated
under the name "Sears Optical." Cole Vision departments are generally operated
under a lease or license arrangement through which the host store collects the
sales receipts, retains an agreed upon percentage of sales and remits the
remainder to Cole Vision on a weekly basis. Cole Vision's product line includes
a broad selection of prescription eyeglasses, contact lenses and accessories at
all of its locations. At most Cole Vision locations, a doctor of optometry
provides eye examination services on the premises. Each of Cole Vision's optical
departments are computer linked to its five centralized manufacturing
laboratories, enabling it to provide next day delivery on most eyewear when
requested by its customers.
At May 3, 1997, Pearle's operations consisted of 355 company-owned and 327
franchised stores located in 43 states, Canada and the Caribbean. Pearle's
highly recognized brand name and slogan, Nobody Cares For Eyes More Than Pearle,
have been used for over 15 years. All Pearle stores operate in either an
"Express" or "Mainline" store format. Express stores contain a full surfacing
lab that can manufacture most glasses in approximately one hour. Mainline stores
can manufacture over 50% of prescriptions on-site in approximately one hour.
Other prescriptions are sent to a nearby Express location or to Pearle's main
laboratory in Dallas,
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<PAGE> 6
which can generally complete orders for next day delivery upon request. Like
Cole Vision, a doctor of optometry provides eye examination services at the
Pearle stores. While Pearle stores also sell a broad range of optical products,
Pearle features well-recognized designer brand names which appeal to the more
affluent and fashion-conscious consumer.
On August 5, 1997, the Parent acquired American Vision Centers, Inc.
("AVC"), the ninth largest retail optical chain in the United States, for $28.9
million, including debt assumed. Subsequent to the acquisition, the Parent
transferred AVC to the Company as an equity contribution. AVC operates 164
stores, including 85 franchised locations, under the names "NuVision Optical,"
"American Vision Center" and "EyesFirst Vision Center." The acquisition of AVC,
combined with the Company's existing company-owned and franchised locations,
created the largest optical retail company in the United States.
Cole Vision also offers a managed vision care program, which provides
comprehensive eyecare benefits marketed directly to employers, other employee
benefit plan sponsors and insurance companies, primarily under the name "Vision
One." Vision One's basic program gives employers the opportunity to offer their
employees a group discount at the managed vision care network with minimal
direct cost to the employer. An enhanced Vision One program allows employers to
provide their employees with prepaid eye examinations as well as pricing
discounts or reimbursements. Recently, all Pearle company-owned and a majority
of franchised locations were added to Cole Vision's managed vision care
programs.
COLE GIFT
Cole Gift operates the only nationwide chain of gift stores offering "while
you shop" gift personalization, key duplicating, engraving, monogramming and
related merchandise. At May 3, 1997, Things Remembered operated 793 locations
consisting of 342 kiosks, 366 in-line stores and 85 personalization superstores
and CGC operated 498 departments in host stores, primarily Sears. Things
Remembered and CGC each offer a broad assortment of both branded and private
label gift categories and items at prices generally ranging from $10 to $75.
Most locations also offer softgoods that can be monogrammed and custom
embroidered in the store or at a central fulfillment facility.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer.... The Original Notes were sold in a
transaction exempt from the registration
requirements of the Securities Act by the
Company on August 22, 1997 to CIBC Wood
Gundy Securities Corp., Credit Suisse First
Boston Corporation and McDonald & Company
Securities, Inc. (the "Initial
Purchasers"). In connection therewith, the
Company executed and delivered, for the
benefit of the holders of the Original
Notes, the Registration Rights Agreement
dated August 22, 1997 (the "Registration
Rights Agreement"), which is incorporated
by reference as an exhibit to the
Registration Statement of which this
Prospectus is a part, providing for, among
other things, the Exchange Offer so that
the Exchange Notes will be freely
transferable by the holders thereof without
registration or any prospectus delivery
requirements under the Securities Act,
except that a "dealer" or any of its
"affiliates" as such terms are defined
under the Securities Act, who exchanges
Original Notes held for its own account
will be required to deliver copies of this
Prospectus in connection with any resale of
the Exchange Notes issued in exchange for
such Original Notes. See "The Exchange
Offer -- Purposes and Effects of the
Exchange Offer" and "Plan of Distribution."
The Exchange Offer............... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Original Notes
that are properly tendered and accepted.
The Company will issue Exchange Notes on or
promptly after the Expiration Date. There
is $125,000,000 aggregate principal amount
of Original Notes outstanding. The Original
Notes and the Exchange Notes are
collectively referred to herein as the
"Notes." The terms of the Exchange Notes
are substantially identical in all respects
(including principal amount, interest rate
and maturity) to the terms of the Original
Notes for which they may be exchanged
pursuant to the Exchange Offer, except that
(i) the Exchange Notes are freely
transferable by holders thereof (other than
as provided herein), and are not subject to
any covenant restricting transfer absent
registration under the Securities Act and
(ii) holders of the Exchange Notes will not
be entitled to certain rights of holders of
the Original Notes under the Registration
Rights Agreement, which rights will
terminate upon the consummation of the
Exchange Offer. See "The Exchange Offer."
The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of
Original Notes being tendered for exchange.
Based on an interpretation by the staff of
the Commission set forth in no-action
letters issued to third parties, the
Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in
exchange for Original Notes may be offered
for resale, resold and otherwise
transferred by a
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<PAGE> 8
holder thereof (other than (i) a
broker-dealer who purchases such Exchange
Notes directly from the Company to resell
pursuant to Rule 144A under the Securities
Act or any other available exemption under
the Securities Act or (ii) a person that is
an affiliate (as defined in Rule 405 under
the Securities Act) of the Company),
without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that the holder is
acquiring the Exchange Notes in the
ordinary course of its business and is not
participating, and has no arrangement or
understanding with any person to
participate, in the distribution of the
Exchange Notes. The Company has not sought,
and does not currently intend to seek a
no-action letter. There can be no assurance
that the staff of the Securities and
Exchange Commission would make a similar
determination with respect to the Exchange
Offer. Each broker-dealer that receives the
Exchange Notes for its own account in
exchange for the Original Notes, where such
Notes were acquired by such broker-dealer
as a result of market-making activities or
other trading activities, must acknowledge
that it will deliver a prospectus in
connection with any resale of such Exchange
Notes.
Registration Rights Agreement.... The Original Notes were sold by the Company
on August 22, 1997 to the Initial
Purchasers pursuant to a Securities
Purchase Agreement dated as of August 15,
1997 by and between the Company and the
Initial Purchasers (the "Purchase
Agreement"). Pursuant to the Purchase
Agreement, the Company and the Initial
Purchasers entered into the Registration
Rights Agreement which grants the holders
of the Original Notes certain exchange and
registration rights. See "The Exchange
Offer -- Termination of Certain Rights."
This Exchange Offer is intended to satisfy
such rights, which terminate upon the
consummation of the Exchange Offer. The
holders of the Exchange Notes are not
entitled to any exchange of registration
rights with respect to the Exchange Notes.
Expiration Date.................. The Exchange Offer will expire at 5:00
p.m., New York City time, on October ,
1997, unless the Exchange Offer is extended
by the Company in its reasonable
discretion, in which case the term
"Expiration Date" shall mean the latest
date and time to which the Exchange Offer
is extended.
Accrued Interest on the Exchange
Notes and Original Notes......... Interest on the Exchange Notes will accrue
from August 22, 1997. Holders whose
Original Notes are accepted for exchange
will be deemed to have waived the right to
receive any interest accrued on the
Original Notes.
Conditions to the
Exchange Offer................. The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company. See "The Exchange
Offer -- Certain Conditions to the Exchange
Offer." The Exchange Offer is not
conditioned upon any mini-
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<PAGE> 9
mum aggregate principal amount of Original
Notes being tendered for exchange. The
Company reserves the right to terminate or
amend the Exchange Offer at any time prior
to the Expiration Date upon the occurrence
of any such conditions.
Procedures for Tendering
Original Notes................. Each holder of Original Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal, or
a facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter
of Transmittal, or such facsimile, together
with the Original Notes and any other
required documentation to the exchange
agent (the "Exchange Agent") at the address
set forth herein. Original Notes may be
physically delivered, but physical delivery
is not required if a confirmation of a
book-entry of such Original Notes to the
Exchange Agent's account at The Depository
Trust Company ("DTC" or the "Depository")
is delivered in a timely fashion. By
executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the Exchange Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such
Exchange Notes, whether or not such person
is the holder, that neither the holder nor
any such other person is engaged in, or
intends to engage in, or has an arrangement
or understanding with any person to
participate in, the distribution of such
Exchange Notes and that neither the holder
nor any such other person is an
"affiliate," as defined under Rule 405 of
the Securities Act, of the Company. Each
broker or dealer that receives Exchange
Notes for its own account in exchange for
Original Notes, where such Original Notes
were acquired by such broker or dealer as a
result of market-making activities or other
trading activities, must acknowledge that
it will deliver a prospectus in connection
with any resale of such Exchange Notes. See
"The Exchange Offer -- Procedures for
Tendering" and "Plan of Distribution."
Special Procedures for
Beneficial Owners.............. Any beneficial owner whose Original Notes
are registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender
should contact such registered holder
promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such
owner must, prior to completing and
executing the Letter of Transmittal and
delivering his Original Notes, either make
appropriate arrangements to register
ownership of the Original Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."
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<PAGE> 10
Guaranteed Delivery Procedures... Holders of Original Notes who wish to
tender their Original Notes and whose
Original Notes are not immediately
available or who cannot deliver their
Original Notes, the Letter of Transmittal
or any other documents required by the
Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, must tender
their Original Notes according to the
guaranteed delivery procedures set forth in
the "Exchange Offer -- Guaranteed Delivery
Procedures."
Acceptance of the Original Notes
and Delivery of the Exchange
Notes.......................... Subject to the satisfaction or waiver of
the conditions to the Exchange Offer, the
Company will accept for exchange any and
all Original Notes which are properly
tendered in the Exchange Offer prior to the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be
delivered on the earliest practicable date
following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange
Offer."
Withdrawal Rights................ Tenders of Original Notes may be withdrawn
at any time prior to the Expiration Date.
See "The Exchange Offer -- Withdrawal of
Tenders."
Exchange Agent................... Norwest Bank Minnesota, National
Association is serving as the Exchange
Agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange
Agent."
Effect on Holders of
the Original Notes............. As a result of the making of, and upon
acceptance for exchange of all validly
tendered Original Notes pursuant to the
terms of this Exchange Offer, the Company
will have fulfilled one of the covenants
contained in the Registration Rights
Agreement and, accordingly, there will be
no increase in the interest rate on the
Original Notes pursuant to the applicable
terms of the Registration Rights Agreement
due to the Exchange Offer. Holders of the
Original Notes who do not tender their
Original Notes will be entitled to all the
rights and limitations applicable thereto
under the Indenture between the Company and
Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"),
relating to the Original Notes and the
Exchange Notes, except for any rights under
the Indenture or the Registration Rights
Agreement, which by their terms terminate
or cease to have further effectiveness as a
result of the making of, and the acceptance
for exchange of all validly tendered
Original Notes pursuant to, the Exchange
Offer. All untendered Original Notes will
continue to be subject to the restrictions
on transfer provided for in the Original
Notes and in the Indenture. To the extent
that Original Notes are tendered and
accepted in the Exchange Offer, the trading
market for untendered Original Notes could
be adversely affected.
Use of Proceeds.................. There will be no cash proceeds to the
Company from the exchange pursuant to the
Exchange Offer.
6
<PAGE> 11
THE NOTES
The Exchange Notes............... The Exchange Offer applies to $125,000,000
aggregate principal amount of the Original
Notes. The form and terms of the Exchange
Notes are the same as the form and terms of
the Original Notes except that (i) the
exchange will have been registered under
the Securities Act and, therefore, the
Exchange Notes will not bear legends
restricting their transfer pursuant to the
Securities Act, and (ii) holders of the
Exchange Notes will not be entitled to
certain rights of holders of the Original
Notes under the Registration Rights
Agreement, which rights will terminate upon
consummation of the Exchange Offer. The
Exchange Notes will evidence the same debt
as the Notes (which they replace) and will
be issued under, and be entitled to the
benefits of, the Indenture. See
"Description of the Notes" for further
information and for definitions of certain
capitalized terms used below.
Issuer........................... Cole National Group, Inc.
Maturity Date.................... August 15, 2007.
Interest Rate.................... The Notes will bear interest at a rate of
8 5/8% per annum.
Interest Payment Dates........... Interest will accrue on the Notes from the
date of issuance (the "Issue Date") and
will be payable semi-annually on each
February 15 and August 15, commencing
February 15, 1998. Interest on the Notes
will be paid on the basis of a 360 day year
and twelve 30 day months.
Ranking.......................... The Notes will be general unsecured
obligations of the Company subordinate in
right of payment to all existing and future
Senior Indebtedness (as defined herein) of
the Company, senior in right of payment to
any subordinated indebtedness of the
Company and pari passu to the Company's
Existing Senior Subordinated Notes and all
other future senior subordinated
indebtedness. As of May 3, 1997, on a pro
forma basis, after giving effect to the
application of the net proceeds of the
Offering (assuming that all of the Senior
Notes are tendered and repurchased), the
Company and its subsidiaries would have had
$1.5 million aggregate principal amount of
Senior Indebtedness outstanding. Because
the Company's operations are conducted
through subsidiaries, the Notes will
effectively rank junior to all liabilities
of the Company's subsidiaries (which were
$145.8 million as of May 3, 1997,
consisting primarily of trade payables and
accrued expenses). The Indenture pursuant
to which the Notes will be issued will
prohibit the incurrence of additional
indebtedness by the Company's subsidiaries
other than certain Permitted Indebtedness
(as defined herein), including, without
limitation, up to $15 million in the
aggregate of purchase money indebtedness
and capital leases, up to $3 million in the
aggregate of guarantees of franchisee
obligations, and indebtedness under the
Credit Facility (as defined herein).
7
<PAGE> 12
Mandatory Redemption............. There will be no mandatory redemption
requirements with respect to the Notes.
Optional Redemption.............. The Notes will be redeemable at the option
of the Company, in whole or in part, at any
time on or after August 15, 2002, at the
redemption prices set forth herein plus
accrued interest to the date of redemption.
In addition, the Company, at its option,
may redeem in the aggregate up to 40% of
the original principal amount of the Notes
at any time and from time to time prior to
August 15, 2000 at a redemption price equal
to 108.625% of the principal amount thereof
plus accrued interest to the redemption
date with the Net Proceeds (as defined
herein) of one or more Qualified Equity
Offerings (as defined herein), provided
that at least $75 million principal amount
of Notes issued remain outstanding
immediately after the occurrence of any
such redemption and that any such
redemption occurs within 90 days following
the closing of any such Qualified Equity
Offering.
Change of Control................ In the event of a Change of Control (as
defined herein), the Company will be
required to make an offer to purchase all
outstanding Notes at a price equal to 101%
of the principal amount thereof plus
accrued interest to the date of repurchase.
See "Description of the Notes -- Certain
Covenants." There can be no assurance that
the Company will have sufficient funds or
will be contractually permitted by
outstanding Senior Indebtedness to pay the
required purchase price for all Notes
tendered by holders upon a Change of
Control.
Asset Sale Proceeds.............. The Company will be obligated in certain
instances to make offers to repurchase the
Notes at a purchase price in cash equal to
100%, of the principal amount thereof plus
accrued interest to the date of repurchase
with the net cash proceeds of certain asset
sales. See "Description of the Notes --
Certain Covenants -- Limitation on Certain
Asset Sales."
Certain Covenants................ The Indenture will contain covenants for
the benefit of the holders of the Notes
that, among other things, restrict the
ability of the Company and any Subsidiaries
(as defined herein) to: (i) incur
additional Indebtedness; (ii) pay dividends
and make distributions; (iii) issue stock
of subsidiaries; (iv) repurchase stock, (v)
create liens; (vi) enter into transactions
with affiliates; (vii) enter into sale and
leaseback transactions; (viii) merge or
consolidate the Company or any
subsidiaries; and (ix) transfer and sell
assets. These covenants are subject to a
number of important exceptions. See
"Description of the Notes -- Certain
Covenants."
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the
information set forth under the caption "Risk Factors" and all other information
set forth in this Prospectus in evaluating an investment in the Notes.
8
<PAGE> 13
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following sets forth summary unaudited pro forma condensed financial
information derived from the unaudited pro forma condensed consolidated
financial data contained elsewhere herein. The summary unaudited pro forma
condensed financial information for the fiscal year ended February 1, 1997 and
the 52 weeks ended May 3, 1997, gives effect to the acquisition of Pearle, the
issuance of the Existing Senior Subordinated Notes and the Transactions as if
each had occurred at the beginning of the respective periods. The summary pro
forma balance sheet data presented below presents the financial condition of the
Company as if the Transactions had occurred as of May 3, 1997. This summary
unaudited pro forma condensed financial information does not include any results
or other data for AVC, which was acquired by the Parent on August 5, 1997 and
transferred to the Company as an equity contribution.
The summary unaudited pro forma condensed financial information does not
purport to be indicative of the actual financial position or results of the
Company that would have actually been attained had the acquisition of Pearle or
the Transactions in fact occurred on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in the
future. Furthermore, the summary unaudited pro forma condensed financial
information presented below does not consider any future events which may occur
after the Transactions have been consummated. The summary unaudited pro forma
condensed financial information is based on certain assumptions and adjustments
described in the notes to the unaudited pro forma condensed consolidated
financial data and should be read in conjunction therewith.
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------
FISCAL YEAR ENDED 52 WEEKS ENDED
FEB. 1, MAY 3,
1997 1997
------------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING RESULTS:
Net revenue............................................ $933,816 $ 959,650
Cost of goods sold and operating expenses (a).......... 839,222 861,041
Business integration and other non-recurring charges
(b)................................................. 59,633 59,580
Depreciation and amortization.......................... 31,211 30,938
-------- ---------
Income from operations................................. 3,750 8,091
Interest expense....................................... 27,938 28,047
Interest income........................................ (965) (1,432)
Income tax benefit..................................... (2,413) (323)
-------- ---------
Loss before extraordinary item......................... $(20,810) $ (18,201)
======== =========
OTHER DATA:
EBITDA (c)............................................. $ 94,594 $ 98,609
Ratio of EBITDA to interest expense (c)................ 3.5x 3.6x
Ratio of total debt to EBITDA.......................... 2.8x
NUMBER OF UNITS (AT END OF PERIOD):
Cole Vision............................................ 1,138 1,146
Pearle (d)............................................. 686 682
Things Remembered...................................... 790 793
CGC.................................................... 501 498
-------- ---------
Total.......................................... 3,115 3,119
======== =========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........................................... $ 533,222
Total debt............................................. 275,376
Stockholder's equity (e)............................... 12,330
</TABLE>
See accompanying Notes to Summary Unaudited Pro Forma Condensed Financial
Information.
9
<PAGE> 14
NOTES TO SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
(a) Prior to the acquisition date, gross profit and gross margin for Pearle were
not determined on a basis consistent with that of the Company. Pearle
included certain store occupancy costs and depreciation in cost of goods
sold, whereas the Company reports such costs as operating expenses or
depreciation and amortization. In addition, Pearle included payroll,
supplies and other costs related to the making of eyeglasses at its in-store
labs in selling, general and administrative expenses; the Company and Pearle
both classify similar costs of making eyeglasses at their central
laboratories in cost of goods sold. Information to reclassify Pearle's
historical costs and expenses on a basis consistent with the Company is not
readily available. For the purposes of the pro forma operating results
presented above, depreciation normally included in Pearle's cost of goods
sold and operating expenses has been reclassified to depreciation and
amortization.
(b) Represents a pretax charge for business integration and other non-recurring
items primarily related to the acquisition of Pearle.
(c) EBITDA is defined as income from operations before depreciation and
amortization and nonrecurring charges, including restructuring charges, net
shown above. The Company has included information concerning EBITDA here as
it is relevant for covenant analysis under the Indentures for the Existing
Senior Subordinated Notes, the Notes and the Senior Notes and because it is
used by certain investors as a measure of a company's ability to service its
debt. EBITDA is not a performance measure under generally accepted
accounting principles and should not be considered more meaningful than
operating income or cash flows as an indicator of operating performance. For
the purposes of computing the ratio of EBITDA to interest expense, interest
expense excludes the amortization of deferred financing costs. Amortization
of deferred financing costs used to compute the pro forma ratios of EBITDA
to interest expense was $0.8 million for the fiscal year ended February 1,
1997 and the 52 weeks ended May 3, 1997.
(d) Includes Pearle franchised locations.
(e) Reflects the contribution to capital of $58.4 million from the Parent in
connection with the Transactions and the extraordinary charge of $11.9
million, net of tax benefit of $7.0 million, which would be incurred as a
result of a premium on the retirement of the Senior Notes and the
accelerated amortization of the related unamortized debt discount.
10
<PAGE> 15
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the following
factors, as well as other information set forth in this Prospectus, before
making an investment in the Notes.
LEVERAGE
The Company is highly leveraged. As of May 3, 1997, the Company had
aggregate principal indebtedness of $317.3 million, comprised principally of
$165.8 million aggregate principal amount of the Senior Notes and $150.0 million
aggregate principal amount of the Company's Existing Senior Subordinated Notes.
Pro forma for the completion of the Transactions, the Company's consolidated
total principal indebtedness on May 3, 1997 would have been $276.5 million.
Although this Prospectus assumes that all of the Senior Notes will be tendered
pursuant to the Tender Offer and retired, there is no assurance that this will
happen. If less than all of the Senior Notes are retired, the Company's
consolidated indebtedness may increase, rather than decrease. The consequences
of such leverage include, but are not limited to, the following: (i) the ability
of the Company to obtain additional financing for acquisitions, working capital,
capital expenditures or other purposes, if necessary, may be impaired or such
financing may not be on terms favorable to the Company; (ii) the Company has and
will continue to have significant cash requirements for debt service; (iii)
financial and other covenants and operating restrictions imposed by the terms of
the Indenture entered into in connection with the Offering, along with the terms
of the existing indenture (the "Existing Senior Subordinated Note Indenture")
relating to the Existing Senior Subordinated Notes will limit, among other
things, its ability to borrow additional funds or to dispose of assets; (iv) the
Company may be at a competitive disadvantage because the Company is more highly
leveraged than some of its competitors; (v) a downturn in the Company's business
will have a more significant impact on its results of operations and (vi) the
Company may have indebtedness senior to the Notes.
The Senior Notes were issued pursuant to an indenture (the "Senior Notes
Indenture"), which contains financial and other covenants and operating
restrictions. The Company has received commitments from holders of a majority of
Senior Notes to enter into a supplemental indenture to eliminate such covenants
and restrictions. Although the Company anticipates that such supplemental
indenture will become effective, there can be no assurance that such
supplemental indenture will become effective.
The Company currently expects it will be able to service the principal
obligations on its indebtedness out of cash flow from operations. The ability of
the Company to satisfy its obligations will be primarily dependent upon the
future financial and operating performance of the Company's subsidiaries and
upon the Company's ability to renew or refinance borrowings or to raise
additional equity capital. Each of these alternatives is dependent upon
financial, business and other general economic factors affecting the Company's
subsidiaries and the retailing business in particular, many of which are beyond
the control of the Company and its subsidiaries. If the Company and its
subsidiaries are unable to generate sufficient cash flow to meet their debt
service obligations, they will have to pursue one or more alternatives, such as
reducing or delaying capital expenditures, refinancing debt, or selling assets.
There can be no assurance that any such alternatives could be accomplished on
satisfactory terms or that such actions would yield sufficient funds to retire
the Notes and the indebtedness senior to the Notes. While the Company believes
that cash flow from operations will provide an adequate source of long-term
liquidity, a significant drop in operating cash flows resulting from economic
conditions, competition or other uncertainties beyond the Company's control
would increase the need for alternative sources of liquidity. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SUBORDINATION OF THE NOTES
The Notes are subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the Indenture) of the Company, including the
Senior Notes and the Credit Facility, and will rank pari passu to the Existing
Senior Subordinated Notes and all other future senior subordinated indebtedness.
The Notes are also structurally subordinated to all existing and future
liabilities of the Company's subsidiaries. In addition, under the Indenture,
provided certain incurrence tests are met, the Company is able to borrow
11
<PAGE> 16
additional Senior Indebtedness. In the event of a bankruptcy, liquidation or
reorganization of the Company or in the event that any default in payment of, or
the acceleration of, any indebtedness occurs, holders of Senior Indebtedness
will be entitled to payment in full from the proceeds of all assets of the
Company prior to any payment of such proceeds to the holders of the Notes. In
addition, the Company may not make any principal or interest payments in respect
of the Notes if any payment default exists with respect to Senior Indebtedness
and the maturity of such indebtedness is accelerated, or in certain
circumstances prior to such acceleration for a specified period of time, unless,
in any case, such default has been cured or waived, any such acceleration has
been rescinded or such indebtedness has been repaid in full. Consequently, there
can be no assurance that the Company will have sufficient funds remaining after
such payments to make payments to the holders of the Notes. Because the assets
of the Company are and will be held by operating subsidiaries, the claims of
holders of the Notes (which are not guaranteed by the operating subsidiaries)
are and will be structurally subordinated to all existing and future liabilities
and obligations (whether or not for borrowed money), including trade payables,
accrued expenses, litigation costs and borrowings under the Credit Facility (as
defined herein) of such subsidiaries. See "Description of the
Notes -- Subordination" and "Description of the Notes -- Certain
Covenants -- Limitation on Additional Indebtedness."
Although the Indenture requires the Company to make an offer to repurchase
the Notes using the proceeds of certain asset sales, the indentures relating to
the Senior Notes and the Existing Senior Subordinated Notes require that the
Company first offer such proceeds to the holders of the Senior Notes and the
Existing Senior Subordinated Notes. Accordingly, there may be no net proceeds
available from asset sales to make an offer to the holders of the Notes.
ABSENCE OF GUARANTEE
The Notes are being issued solely by the Company and none of the Company's
subsidiaries or the Parent are or will be a guarantor under the Notes, and the
Indenture expressly provides that no person or entity other than the Company
will have any liability for any obligations of the Company under the Notes or
such Indenture or any claim based on, in respect of or by reason of such
obligations, and that by accepting the Notes, each holder of the Notes waives
and releases such liability, which waiver and release are part of the
consideration for the Notes. The operations of the Company are and will be
conducted through its subsidiaries and, therefore, the Company is and will be
dependent on the cash flow of its subsidiaries to meet its obligations. As of
May 3, 1997, the subsidiaries of the Company had $145.8 million of liabilities
outstanding, consisting primarily of trade payables and accrued expenses. The
Indenture pursuant to which the Notes have been issued prohibits the incurrence
of additional indebtedness by the Company's subsidiaries other than a limited
amount of purchase money indebtedness, capital leases and guarantees of
franchisee obligations, as well as indebtedness under the Credit Facility. The
Company's Credit Facility includes restrictions on the activities of the
Company's subsidiaries, including restrictions on payments to the Company. Such
restrictions do not include restrictions on distributions to the Company for the
purpose of paying the interest and principal on the Notes or payments to the
Company for certain administrative and operating expenses. In the event of a
default under the Credit Facility, the Company's subsidiaries may not be allowed
to make new cash borrowings under the Credit Facility. Management believes such
restrictions will not have an adverse affect on the Company's or its
subsidiaries' operations. See "Description of Other Indebtedness -- Credit
Facility."
FRAUDULENT TRANSFER CONSIDERATIONS
The Company incurred the indebtedness represented by the Senior Notes in a
transaction involving the refinancing of certain indebtedness of the Parent.
Under fraudulent transfer law, if a court were to find, in a lawsuit by an
unpaid creditor or representative of creditors of the Company, that the Company
received less than fair consideration or reasonable equivalent value for
incurring the indebtedness represented by the Notes, and, at the time of such
incurrence, the Company (i) was insolvent or was rendered insolvent by reason of
such incurrence, (ii) was engaged or about to engage in a business or
transaction for which its remaining property constituted unreasonably small
capital or (iii) intended to incur, or believed or reasonably should have
believed that it would incur, debts beyond its ability to pay as such debts
mature, such court could, among other things, (a) void all or a portion of the
Company's obligations to the holders of the Notes and/or
12
<PAGE> 17
(b) subordinate the Company's obligations to the holders of the Notes to other
existing and future indebtedness of the Company, the effect of which would be to
entitle such other creditors to be paid in full before any payment could be made
on the Notes. The measure of insolvency for purposes of determining whether a
transfer is avoidable as a fraudulent transfer varies depending upon the law of
the jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all of its liabilities were greater than the
value of all of its property at a fair valuation, or if the present fair salable
value of the debtor's assets was less than the amount required to repay its
probable liability on its debts as they become absolute and mature. There can be
no assurance as to what standard a court would apply in order to determine
solvency.
On the basis of its historical financial information, its recent operating
history as discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other factors, the Company believes
that, at the time of the issuance of the Senior Notes, the Company was, and that
it is solvent, had and will have sufficient capital for the business in which it
is engaged and did not and will not have incurred debts beyond its ability to
pay such debts as they mature. There can be no assurance, however, that a court
would necessarily agree with these conclusions.
CHANGE OF CONTROL
In the event of a "Change of Control" of the Company or of the Parent (as
defined in the Indenture, the Senior Note Indenture and the Existing Senior
Subordinated Note Indenture), the Company will be required to offer to
repurchase all of the outstanding Senior Notes, Existing Senior Subordinated
Notes and Notes at 101% of the principal amount thereof plus any accrued and
unpaid interest thereon to the date of the purchase. A Change of Control under
the Indenture, Senior Note Indenture and the Existing Senior Subordinated Note
Indenture will result in a default under the Credit Facility. The exercise by
the holders of the Senior Notes, Existing Senior Subordinated Notes and the
Notes of their right to require the Company to repurchase the Senior Notes,
Existing Senior Subordinated Notes and the Notes upon a Change of Control could
also cause a default under other indebtedness of the Company (including the
Credit Facility), even if the Change of Control itself does not, because of the
financial effect of such repurchase on the Company. The Company's ability to pay
cash to the holders of the Senior Notes, Existing Senior Subordinated Notes and
the Notes upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that in the event of a Change of
Control, the Company will have, or will have access to, sufficient funds or will
be contractually permitted under the terms of outstanding indebtedness to pay
the required purchase price for all Senior Notes, Existing Senior Subordinated
Notes and Notes tendered by holders upon a Change of Control. The obligations of
the Company to offer to repurchase the Notes are subject to its obligations to
offer to repurchase the Senior Notes and redeem amounts outstanding under the
Credit Facility. Even if the Company can satisfy its obligations to the holders
of the Senior Notes, the Existing Senior Subordinated Notes and under the Credit
Facility, there can be no assurance that it would be able to fund the repurchase
of any Notes. See "Description of the Notes -- Certain Covenants" and
"Description of Other Indebtedness -- Credit Facility."
RESTRICTIVE DEBT COVENANTS
The Credit Facility, the Senior Note Indenture and the Existing Senior
Subordinated Note Indenture each contain a number of covenants that, among other
things, limit the Company's ability to incur additional indebtedness, pay
dividends, prepay subordinated indebtedness, dispose of certain assets, create
liens, make capital expenditures, make certain investments or acquisitions and
otherwise restrict corporate activities. The Credit Facility, the Senior Note
Indenture and the Existing Senior Subordinated Note Indenture also require the
Company to comply with certain financial ratios and tests, under which the
Company is required to achieve certain financial and operating results. The
ability of the Company to comply with such provisions may be affected by events
beyond its control. A breach of any of these covenants would result in a default
under the Credit Facility, the Senior Note Indenture and the Existing Senior
Subordinated Note Indenture. In the event of any such default, depending on the
actions taken by the lenders under the Credit Facility, the Senior Note
Indenture and the Existing Senior Subordinated Note Indenture, the Company could
be
13
<PAGE> 18
prohibited from making any payments on the Notes. In addition, such lenders
could elect to declare all amounts borrowed under the Credit Facility, together
with accrued interest, to be due and payable, which would be an event of default
under the Senior Note Indenture, the Existing Senior Subordinated Note Indenture
and the Indenture. As a result of the priority and/or security afforded the
Credit Facility, there can be no assurance that the Company would have
sufficient assets to pay indebtedness then outstanding under the Credit
Facility, the Senior Note Indenture, the Existing Senior Subordinated Note
Indenture and the Note Indenture. Any refinancing of the Credit Facility is
likely to contain similar restrictive covenants. See "Description of Other
Indebtedness -- Credit Facility."
INTEGRATION OF ACQUIRED OPERATIONS
The acquisitions of Pearle and AVC have been the largest acquisitions made
by the Company or the Parent in the last ten years. Acquisitions of such
magnitude are inherently subject to significant risk. There can be no assurance
that the Company will be able to integrate the acquired Pearle and AVC
operations successfully. Although the integration of Pearle has commenced, the
full benefits of the integration of the acquired Pearle and AVC operations will
require some further consolidation of management, control and administrative
systems. These steps will require substantial attention from and place
substantial demands upon the senior management of Cole Vision and/or the
Company, as well as the cooperation of the acquired companies' management,
employees and franchisees.
As a result of the acquisition of Pearle, the Company's consolidated gross
margin has declined from its historical levels as Pearle has a lower gross
margin than the Company due to the higher costs of in-store laboratories and
lower margin wholesale sales to franchised stores.
In addition, the Company, as a franchisor, will be required to operate such
business in accordance with applicable franchise laws and regulations. The
Company's plans for Pearle and AVC depend, in part, on the Company's ability to
continue the franchised operations, to improve relationships with franchisees,
and to attract new franchisees. The Company's flexibility in making changes to
franchisee operations are limited by the terms of the agreements entered into
with the franchisees, laws and regulations governing the relationship with the
franchisees and other obligations. As a result, the ability of the Company to
realize the benefits from the acquisitions of Pearle and AVC may be limited with
respect to the franchise operation. See "Business -- Government Regulations."
RELATIONSHIPS WITH MAJOR HOST STORES
All of the CGC and the vast majority of Cole Vision locations are operated
under the names of their respective host stores under leases or licenses from
such host stores that are terminable upon 60-90 days notice. In addition, Cole
Vision operates its freestanding stores under the name "Sears Optical" pursuant
to a license agreement with Sears that is cancelable on 90 days notice. The
Company has enjoyed excellent relationships with its major host stores for over
40 years and has never had a lease terminated, other than in connection with a
store closing, relocation or major remodeling. However, there can be no
assurance that relationships with major host stores will remain stable in the
future or that any lease or license agreement between a host store and the
Company will not be terminated or adversely changed. There could be a material
adverse effect on the Company if the relationship with any major host store were
to terminate or change materially. See "Business -- Host Relationships."
SEASONALITY
The Company's business historically has been seasonal with, on average,
approximately 30% of the Company's net revenue and approximately 50% of its
income from operations occurring in the fourth fiscal quarter because of the
importance of gift sales during the Christmas retailing season. Although the
acquisitions of Pearle and AVC will moderate the seasonality of the Company's
business due to relatively lower levels of optical product sales during the
Christmas holiday season, the Company's business will remain seasonal. See
"Business -- Seasonality."
14
<PAGE> 19
COMPETITION AND OTHER BUSINESS FACTORS
The Company operates in highly competitive businesses. Cole Optical
competes with other optical companies, private ophthalmologists, optometrists,
opticians and a growing number of health maintenance organizations ("HMOs") in a
highly fragmented marketplace. Pearle competes on the basis of its highly
recognized brand name, one-hour express service and by offering products which
appeal to the more affluent and fashion-conscious consumer. Cole Vision competes
primarily on the basis of the service it provides as well as price and product
quality, and the reputation of its host stores. Cole Gift competes with other
gift store retailers on the basis of the value-added point of sales services
that it provides as well as price and product quality. Some of the Company's
competitors have greater financial resources than the Company. See
"Business -- Competition." The Company's future performance may be subject to a
number of factors beyond its control, including economic downturns and cyclical
variations in the retail areas it serves, the Company's ability to select and
stock merchandise attractive to customers, weather factors affecting retail
operations, its quality controls in optical manufacturing and engraving,
operating factors affecting customer satisfaction, the mix of goods sold,
pricing and other competitive factors, and the seasonality of the Company's
businesses. Moreover, the implementation of the Company's growth strategies is
subject to a number of factors, including general economic and competitive
conditions as well as on-going evaluation by the Company of its opportunities
for investment in its businesses. In addition, the optical retail industry may
be subject to new technological advances, such as alternative surgical
techniques. If such new advances were to provide a practical alternative to
vision correction, the demand for contact lenses and eyeglasses may decrease.
LACK OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON RESALE
There is no existing trading market for the Notes, and the Company does not
intend to list any Notes on any securities exchange; however, Notes will be
eligible for trading in the PORTAL Market of the National Association of
Securities Dealer, Inc. The Initial Purchasers have advised the Company that
they currently intend to make a market in the Notes. The Initial Purchasers are
not obligated to do so, however, and any market-making with respect to the Notes
may be discontinued at any time without notice. In addition, any market making
activities in the Original Notes may be limited during the pending of the
Exchange Offering. Therefore, there can be no assurance as to the liquidity of
any trading market for the Notes or that an active public market for the Notes
will develop. See "The Exchange Offer."
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon as a consequence of the offer or sale of the Original Notes pursuant to
an exemption from or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act or applicable state securities laws. The
Company does not currently expect that it will register the Original Notes under
the Securities Act. Based on interpretations by the staff of the Commission
issued in no-action letters to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Original
Notes may be offered for resale, resold or otherwise transferred by the Holder
thereof (other than any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business and
such Holder has no arrangement with any person to participate in the
distribution of such Exchange Notes. Such no-action letters are not binding
interpretations of the law. The Company has not sought, and does not currently
intend to seek a no-action letter. There can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer. Any Holder of Original Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes would not be
acting consistently with such interpretation by the staff of the Commission and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Thus, any Exchange
Notes acquired by such Holder will not be freely transferable except in
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compliance with the Securities Act. Each Restricted Holder that receives
Exchange Notes for its own account in exchange for the Original Notes, where
such Original Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution."
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THE EXCHANGE OFFER
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Original Notes were sold by the Company on August 22, 1997 to the
Initial Purchasers pursuant to a Purchase Agreement dated as of August 15, 1997.
As a condition to the sale of the Original Notes, the Company and the Initial
Purchasers entered into the Registration Rights Agreement on August 22, 1997.
Pursuant to the Registration Rights Agreement, the Company agreed that, unless
the Exchange Offer is not permitted by applicable law or Commission policy, it
would (i) file with the Commission a Registration Statement under the Securities
Act with respect to the Exchange Notes within 45 days after the Issue Date, (ii)
use its best efforts to cause such Registration Statement to become effective
under the Securities Act within 120 days after the Issue Date and (iii) upon
effectiveness of the Registration Statement, commence the Exchange Offer, keep
the Exchange Offer open for at least 30 days (or a longer period if required by
law) and deliver to the Exchange Agent Exchange Notes in the same aggregate
principal amount at maturity as the Original Notes that were tendered by holders
thereof pursuant to the Exchange Offer. Under existing Commission
interpretations, the Exchange Notes would in general be freely transferable
after the Exchange Offer without further registration under the Securities Act;
provided, that in the case of broker-dealers, a prospectus meeting the
requirements of the Securities Act be delivered as required. The Company has
agreed to make available a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any such
Exchange Notes acquired as described below for such period of 180 days after the
Expiration Date. A broker-dealer that delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act, and will be bound by the
Registration Rights Agreement (including certain indemnification rights and
obligations). A copy of the Registration Rights Agreements has been incorporated
by reference as an exhibit to the Registration Statement of which this
Prospectus is a part. The Registration Statement of which this Prospectus is a
part is intended to satisfy certain of the Company's obligations under the
Registration Rights Agreement and the Purchase Agreement.
The Company is generally not required to file any registration statement to
register any outstanding Original Notes. Holders of Original Notes who do not
tender their Original Notes or whose Original Notes are tendered but not
accepted will have to rely on exemptions to registration requirements under the
securities laws, including the Securities Act, if they wish to sell their
Original Notes.
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchanges Original Notes for Exchange Notes in
the ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. The Company has not
sought, and does not currently intend to seek a no-action letter. There can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. However, if any holder acquires the Exchange
Notes in the Exchange Offer for the purpose of distributing or participating in
the distribution of the Exchange Notes or is a broker-dealer, such holder cannot
rely on the position of the staff of the Commission enumerated in certain
no-action letters issued to third parties and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within
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<PAGE> 22
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with the resales of Exchange Notes received in exchange for Original Notes where
such Original Notes were acquired by such broker-dealer as a result of
market-making or other trading activities. Pursuant to the Registration Rights
Agreement, the Company has agreed to make this Prospectus, as it may be amended
or supplemented from time to time, available to broker-dealers for used in
connection with any resale for a period of 180 days after the Expiration Date.
See "Plan of Distribution."
REGISTRATION RIGHTS; ADDITIONAL INTEREST
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the date of the
Registration Rights Agreement, the Company will, at its own expense, (a) as
promptly as practicable, file a shelf registration statement covering resales of
the Notes (the "Shelf Registration Statement"), (b) use its best efforts to
cause the Shelf Registration Statement to be declared effective under the
Securities Act, and (c) use its best efforts to keep effective the Shelf
Registration Statement until three years after its effective date. The Company
will, in the event of the Shelf Registration Statement, provide to each holder
of the Notes copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Notes has become effective and take certain other actions as are required to
permit unrestricted resales of the Notes. A holder of the Notes that sells such
Notes pursuant to the Shelf Registration Statement generally would be required
to be named as a selling securityholder in the related prospectus and to deliver
a prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Act in connection with such sales, and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification rights and obligations).
Although the Company intends to file one of the registration statements
described above, there can be no assurance that such registration statement will
be filed or, if filed, that it will become effective. If the Company fails to
comply with the above provisions or if such registration statement fails to
become effective, then, as liquidated damages, additional interest shall become
payable in respect of the Notes as follows:
If (i) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 45 days after the Issue Date;
(ii) an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 120 days after the Issue Date;
or
(iii) either (A) the Company has not exchanged the Exchange Notes for
all Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 60 days after the date on which the Exchange Offer
Registration Statement was declared effective or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
third anniversary of its effective date;
(each such event referred to in clauses (i) through (iii) above is a
"Registration Default"), then the sole remedy available to holders of the Notes
will be the immediate assessment of additional interest ("Additional Interest")
as follows: the per annum interest rate on the Notes will increase by 50 basis
points; and the per annum interest rate will increase by an additional 25 basis
points for each subsequent 90-day period during which the Registration Default
remains uncured, up to a maximum additional interest rate of 200 basis points
per annum in excess of the interest rate on the cover of this Prospectus. All
Additional Interest will be payable to holders of the Notes in cash on each
February 15 and August 15, commencing with the first such date occurring after
any such Additional Interest commences to accrue, until such Registration
Default is cured. After the date on which such Registration Default is cured,
the interest rate on the Notes will revert to the interest rate originally borne
by the Notes (as shown on the cover of this Prospectus).
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<PAGE> 23
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, which has been incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part, a copy of which will
be available upon request to the Company.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept any and
all Original Notes validly tendered and not withdrawn prior to the Expiration
Date. The Company will issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of outstanding Original Notes
surrendered pursuant to the Exchange Offer. Holders may tender some or all of
their Original Notes pursuant to the Exchange Offer; provided, however, that
Original Notes may be tendered only in integral multiples of $1,000. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount of
Original Notes being tendered for exchange.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes will be registered
under the Securities Act and, therefore, will not bear legends restricting their
transfer and (ii) holders of the Exchange Notes will not be entitled to the
certain rights of holders of Original Notes under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer. The Exchange Notes will evidence the same debt as the Original Notes
(which they replace) and will be issued under, and be entitled to the benefits
of, the Indenture, which also authorized the issuance of the Original Notes,
such that all outstanding Notes will be treated as a single class of debt
securities under the Indenture.
Interest on the Exchange Notes will accrue from the last interest payment
date on which interest was paid on the Original Notes surrendered in exchange
therefor or, if no interest has been paid, from August 22, 1997. Accordingly,
registered holders of Exchange Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the last interest payment date on which interest
was paid or, if no interest has been paid on the Notes, from August 22, 1997.
Original Notes accepted for exchange will cease to accrue interest from and
after the date of the consummation of the Exchange Offer. Holders whose Original
Notes are accepted for exchange will not receive any payment in respect of
interest on such Original Notes otherwise payable on any interest payment date,
the record date for which occurs on or after consummation of the Exchange Offer.
As of the date of this Prospectus, $124,250,000 aggregate principal amount
of the Original Notes are outstanding and registered in the name of Cede & Co.,
as nominee for the Depository Trust Company ("DTC") and $750,000 are registered
in the names of Dev & Co. Only a registered holder of the Original Notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders of
the Original Notes entitled to participate in the Exchange Offer.
Holders of the Original Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Original Notes for the purposes of receiving the Exchange Notes from
the Company.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, or due to the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Original Notes will be
returned without expense to the tendering holders thereof (or in the case of
Original Notes tendered by book-entry transfer, such Original Notes will be
credited to the account of such holder maintained at the Depository), as
promptly as practicable after the expiration or termination of the Exchange
Offer.
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Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See " -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; TERMINATION
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
October , 1997 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer the Company will notify the Exchange
Agent of any extension by oral (promptly confirmed in writing) or written notice
and will make a public announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date of the Exchange Offer. Without limiting the manner in which the Company may
choose to make a public announcement of any delay, extension, amendment or
termination of the Exchange Offer, the Company shall have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by making a timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, (ii) to extend the Exchange Offer, (iii) if any
conditions set forth below under "-- Certain Conditions to the Exchange Offer"
shall not have been satisfied, to terminate the Exchange Offer by giving oral or
written notice of such delay, extension or termination to the Exchange Agent or
(iv) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of
Original Notes, and the Company will extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to such registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period. The rights
reserved by the Company in this paragraph are in addition to the Company's
rights set forth below under the caption "-- Certain Conditions to the Exchange
Offer."
If the Company extends the period of time during which the Exchange Offer
is open, or if it is delayed in accepting for exchange of, or in issuing and
exchanging the Exchange Notes for, any Original Notes, or is unable to accept
for exchange of, or issue Exchange Notes for, any Original Notes pursuant to the
Exchange Offer for any reason, then, without prejudice to the Company's rights
under the Exchange Offer, the Exchange Agent may, on behalf of the Company,
retain all Original Notes tendered, and such Original Notes may not be withdrawn
except as otherwise provided below in "-- Withdrawal of Tenders." The adoption
by the Company of the right to delay acceptance for exchange of, or the issuance
and the exchange of the Exchange Notes, for any Original Notes is subject to
applicable law, including Rule 14e-1(c) under the Exchange Act, which requires
that the Company pay the consideration offered or return the Original Notes
deposited by or on behalf of the holders thereof promptly after the termination
or withdrawal of the Exchange Offer.
PROCEDURES FOR TENDERING
Only a registered holder of Original Notes may tender such Original Notes
in the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or facsimile thereof, have the
signature thereon guaranteed if required by the Letter of Transmittal and mail
or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer of such
Notes, if such procedure is available, into the Exchange Agent's account at DTC
pursuant to the procedure for book-entry transfer described below, must be
received by the
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Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below.
Any financial institution that is a participant in the Depository's
Book-Entry Transfer Facility system may make book-entry delivery of the Original
Notes by causing the Depository to transfer such Original Notes into the
Exchange Agent's account in accordance with the Depository's procedure for such
transfer. Although delivery of Original Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Depository, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
or confirmed by the Exchange Agent at its addresses set forth under "-- Exchange
Agent" below prior to 5:00 p.m., New York City time, on the Expiration Date.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY IN ACCORDANCE WITH ITS PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute a binding agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner of the Original Notes whose Original Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owners's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Original Notes, either make appropriate
arrangements to register ownership of the Notes in such owner's name (to the
extent permitted by the Indenture) or obtain a properly completed assignment
from the registered holder. The transfer of registered ownership may take
considerable time.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes (which term includes any participants in
DTC whose name appears on a security position listing as the owner of the
Original Notes) or if delivery of the Exchange Notes is to be made to a person
other than the registered holder, such Original Notes must be endorsed or
accompanied by a properly completed bond power, in either case signed by such
registered holder as such registered holder's name appears on such Original
Notes with the signature on the Original Notes or the bond power guaranteed by
an Eligible Institution (as defined below).
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution unless the Original Notes tendered pursuant thereto
are tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be made by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or another "Eligible Guarantor Institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (any of the foregoing,
an "Eligible Institution").
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If the Letter of Transmittal or any Original Notes or assignments are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Exchange Agent and the Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository's Automated Tender Offer Program to tender Original Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Original Notes not properly tendered or any Original Notes, the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Original Notes must be cured within such time as the Company shall determine.
Although the Company intends to request the Exchange Agent to notify holders of
defects or irregularities with respect to tenders of Original Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Original Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived.
While the Company has no present plan to acquire any Original Notes which
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Original Notes which are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Original Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "-- Certain
Conditions to the Exchange Offer," to terminate the Exchange Offer and, to the
extent permitted by applicable law, purchase Original Notes in the open market,
in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Original
Notes in connection with the Exchange Offer are being acquired by the holder in
the ordinary course of business of the holder, (ii) the holder has no
arrangement or understanding with any person to participate in the distribution
of Exchange Notes, (iii) the holder acknowledges and agrees that any person who
is a broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Original Notes acquired
by such holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission, and (v) the holder is not an "affiliate," as defined in Rule 405 of
the Securities Act, of the Company. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Original Notes that
were acquired as a result of market-making activities or other trading
activities, the holder is required to acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the holder
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
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RETURN OF NOTES
If any tendered Original Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Original Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Original Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Original Notes tendered by book-entry transfer into the Exchange Agent's
account at the Depository pursuant to the book-entry transfer procedures
described below, such Original Notes will be credited to an account maintained
with the Depository) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Depository for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's system may make book-entry
delivery of Original Notes by causing the Depository to transfer such Original
Notes into the Exchange Agent's account at the Depository in accordance with the
Depository's procedures for transfer. However, although delivery of Original
Notes may be effected through book-entry transfer at the Depository, the Letter
of Transmittal or facsimile thereof, with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
by the Exchange Agent at the address set forth below under "-- Exchange Agent"
on or prior to the Expiration Date or pursuant to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
Notes (or complete the procedures for book-entry transfer), the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Original Notes (if
available) and the principal amount of Original Notes tendered, stating
that the tender is being made thereby guaranteeing that, within five New
York Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or a facsimile thereof) together with the certificate(s)
representing the Original Notes in proper form for transfer (or a
confirmation of a book-entry transfer into the Exchange Agent's account at
the Depository of Original Notes delivered electronically), and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Original
Notes in proper form for transfer (or a confirmation of a book-entry
transfer into the Exchange Agent's account at the Depository of Original
Notes delivered electronically), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to the Expiration Date.
23
<PAGE> 28
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original
Notes to be withdrawn (including the certificate number or numbers (if
applicable) and principal amount of such Original Notes), and (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Original Notes were tendered (including any required
signature guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company in
its sole discretion, whose determination shall be final and binding on all
parties. Any Original Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Original Notes so withdrawn are validly
retendered. Properly withdrawn Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Original Notes not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided herein before the acceptance of such Original
Notes, if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the reasonable judgment of the Company, might impair the ability of the Company
to proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company or there shall have
occurred any material adverse development in any existing action or proceeding
with respect to the Company or any of its subsidiaries; or
(b) there shall have been any material change, or development involving a
prospective change, in the business or financial affairs of the Company or any
of its subsidiaries which, in the reasonable judgment of the Company, could
reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated benefits
of the Exchange Offer to the Company; or
(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the judgment of the Company, could reasonably be
expected to materially impair the ability of the Company to proceed with the
Exchange Offer or materially impair the contemplated benefits of the Exchange
Offer to the Company; or
(d) any governmental approval which the Company shall, in its reasonable
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby shall not have been obtained.
If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Original
Notes and return all tendered Original Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Original Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Original Notes (see "-- Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Original Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Original Notes, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
Holders may have certain rights and remedies against the Company under the
Registration Rights Agreement should the Company fail to consummate the Exchange
Offer, notwithstanding a failure of the conditions stated above. Such conditions
are not intended to modify those rights or remedies in any respect.
24
<PAGE> 29
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in the Company's reasonable discretion. The failure by the
Company at any time to exercise the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Original Notes eligible to participate in this
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify the
holders (including any broker-dealers) and certain parties related to the
holders against certain liabilities (including liabilities under the Securities
Act), (ii) to provide, upon the request of any holder of a transfer-restricted
Original Note, the information required by Rule 144A(d)(4) under the Securities
Act in order to permit resales of such Original Notes pursuant to Rule 144A,
(iii) to use its best efforts to keep the Registration Statement effective to
the extent necessary to ensure that it is available for resales of transfer
restricted Notes by broker-dealers for a period of 180 days from the date on
which the Registration Statement is declared effective and (iv) to provide
copies of the latest version of the Prospectus to broker-dealers upon their
request for a period of 180 days from the date on which the Registration
Statement is declared effective. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent for the Exchange Offer. All questions and requests for assistance as well
as all correspondence in connection with the Exchange Offer and the Letter of
Transmittal should be addressed to the Exchange Agent, as follows:
By Registered or Certified Mail:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
P.O. Box 1517
Minneapolis, MN 55480-1517
By Hand:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
Northstar East, 12th Floor
608 2nd Avenue
Minneapolis, MN 55479-0113
By Overnight Courier:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0113
By Facsimile:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
(612) 667-4927
Confirm by telephone:
(612) 667-9764
Requests for additional copies of this Prospectus, the Letter of
Transmittal or the Notice of Guaranteed Delivery should be directed to the
Exchange Agent.
25
<PAGE> 30
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$200,000. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes, or Original Notes for principal amounts not
tendered or acceptable for exchange, are to be delivered to, or are to be issued
in the name of, any person other than the registered holders of the Original
Notes tendered, or if tendered Original Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Original Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder of Original
Notes.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Original
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Original Notes which are not exchanged for the Exchange Notes pursuant
to the Exchange Offer will remain restricted securities. Accordingly, such
Original Notes may be resold only (i) to a person whom the seller reasonably
believes is a qualified institutional buyer (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, (ii) in
a transaction meeting the requirements of Rule 144 under the Securities Act,
(iii) outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
26
<PAGE> 31
THE COMPANY
The Company, a leading vision care and personalization retailer, is the
largest optical retail company in the United States, with approximately 2,000
company-owned and franchised optical locations in the United States, Canada and
the Caribbean. The Company's pro forma net revenue and EBITDA for the 52 week
period ended May 3, 1997 were $959.7 million and $98.6 million, respectively,
with approximately 70% of the Company's net revenue derived from its optical
business and the remaining 30% derived from its gift business, which operates in
approximately 1,300 retail locations. The Company conducts its business through
two principal operating units: (i) Cole Optical, consisting of Cole Vision and
Pearle ; and (ii) Cole Gift, consisting of Things Remembered, and CGC. The
Company differentiates itself from other specialty retailers by providing
value-added services at the point of sale at all of its retail locations.
The Company is a wholly owned subsidiary of the Parent, a holding company
that has common stock traded on the New York Stock Exchange. The Parent also has
a 20% interest in Pearle Trust B.V., which as of May 3, 1997, had 193 optical
stores in the Netherlands and Belgium.
The Company was incorporated in July 1993. Immediately prior to the
Company's issuance and sale of its Senior Notes on September 30, 1993, all of
the Parent's assets, except for the stock of the Company, were contributed to
the Company and the Company assumed all of the Parent's liabilities (the
"Initial Capitalization") other than $50.0 million of the Parent's obligations
under the Parent's 13% Senior Subordinated Notes, which were later retired.
Prior to the Initial Capitalization, all operations were conducted by
subsidiaries of the Parent.
COLE OPTICAL
Cole Vision operates principally under the "Sears Optical," "Montgomery
Ward Vision Center" and "BJ's Optical Department" names. As of May 3, 1997, Cole
Vision operated 1,146 locations in 46 states and Canada, including 750
departments on the premises of Sears department stores, 213 departments in
Montgomery Ward stores, 76 departments in BJ's Wholesale Club stores, 24
departments located in five other retailers and 83 freestanding stores operated
under the name "Sears Optical." Cole Vision departments are generally operated
under a lease or license arrangement through which the host store collects the
sales receipts, retains an agreed upon percentage of sales and remits the
remainder to Cole Vision on a weekly basis. Cole Vision's product line includes
a broad selection of prescription eyeglasses, contact lenses and accessories at
all of its locations. At most Cole Vision locations, a doctor of optometry
provides eye examination services on the premises. Each of Cole Vision's optical
departments are computer linked to its five centralized manufacturing
laboratories, enabling it to provide next day delivery on most eyewear when
requested by its customers.
At May 3, 1997, Pearle's operations consisted of 355 company-owned and 327
franchised stores located in 43 states, Canada and the Caribbean. Pearle's
highly recognized brand name and slogan, Nobody Cares For Eyes More Than Pearle,
have been used for over 15 years. All Pearle stores operate in either an
"Express" or "Mainline" store format. Express stores contain a full surfacing
lab that can manufacture most glasses in approximately one hour. Mainline stores
can manufacture over 50% of prescriptions on-site in approximately one hour.
Other prescriptions are sent to a nearby Express location or to Pearle's main
laboratory in Dallas, which can generally complete orders for next day delivery
upon request. Like Cole Vision, a doctor of optometry provides eye examination
services at the Pearle stores. While Pearle stores also sell a broad range of
optical products, Pearle features well-recognized designer brand names which
appeal to the more affluent and fashion-conscious consumer.
On August 5, 1997, the Parent acquired AVC, the ninth largest retail
optical chain in the United States, for $28.9 million, including debt assumed.
Subsequent to the acquisition, the Parent transferred AVC to the Company as an
equity contribution. AVC operates 164 stores, including 85 franchised locations,
under the names "NuVision Optical," "American Vision Center" and "EyesFirst
Vision Center." The acquisition of AVC, combined with the Company's existing
company-owned and franchised locations, created the largest optical retail
company in the United States.
27
<PAGE> 32
Cole Vision also offers a managed vision care program, which provides
comprehensive eyecare benefits marketed directly to employers, other employee
benefit plan sponsors and insurance companies, primarily under the name "Vision
One." Vision One's basic program gives employers the opportunity to offer their
employees a group discount at the managed vision care network with minimal
direct cost to the employer. An enhanced Vision One program allows employers to
provide their employees with prepaid eye examinations as well as pricing
discounts or reimbursements. Recently, all Pearle company-owned and a majority
of franchised locations were added to Cole Vision's managed vision care
programs.
COLE GIFT
Cole Gift operates the only nationwide chain of gift stores offering "while
you shop" gift personalization, key duplicating, engraving, monogramming and
related merchandise. At May 3, 1997, Things Remembered operated 793 locations
consisting of 342 kiosks, 366 in-line stores and 85 personalization superstores
and CGC operated 498 departments in host stores, primarily Sears. Things
Remembered and CGC each offer a broad assortment of both branded and private
label gift categories and items at prices generally ranging from $10 to $75.
Most locations also offer softgoods that can be monogrammed and custom
embroidered in the store or at a central fulfillment facility.
28
<PAGE> 33
THE TRANSACTIONS
The Company has undertaken a series of related financing Transactions
consisting of the offering of Original Notes, the Tender Offer and related
consent solicitation which are intended to reduce overall indebtedness and debt
service costs, as well as to provide the Company with greater financial
flexibility. To accomplish this goal, the Company has commenced the Tender Offer
to purchase for cash all of the Senior Notes, and a related consent solicitation
to modify certain terms of the indenture for the Senior Notes. The Tender Offer
provides for a purchase price to be paid in respect of validly tendered Senior
Notes and related consents at 110.56%, plus accrued interest up to, but not
including the date of purchase. The net proceeds from the sale of the Original
Notes will be used, together with cash on hand and an equity contribution from
the Parent, to finance the repurchase of the Senior Notes, for payment of fees
and expenses and, in the event that all of the Senior Notes are not repurchased,
for general corporate purposes, which may include retirement of the Senior
Notes.
The Company has received from holders of at least a majority of the
outstanding Senior Notes (i) written consents to incur the indebtedness
represented by the Notes and (ii) written commitments to consent to an amendment
of the Senior Note Indenture (the "Proposed Amendments") to delete substantially
all of the restrictive covenants contained in the Senior Note Indenture. On
August 14, 1997, the Senior Note Indenture was amended to permit the incurrence
of the debt represented by the Notes.
29
<PAGE> 34
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Original Notes in like principal amount, the terms of which are substantially
identical to the Exchange Notes. The Original Notes surrendered in exchange for
Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any increase in
the indebtedness of the Company.
The following identifies the sources and uses related to the issuance of
the Original Notes:
<TABLE>
<S> <C>
Sources of funds:
Proceeds of Original Notes.......................................... $125,000
Cash on hand........................................................ 5,177
Equity contribution from the Parent................................. 58,352
--------
$188,529
========
Uses of funds:
Principal amount of Senior Notes(a)................................. $165,838
Accrued interest on Senior Notes(a)(b).............................. 1,677
Tender premium(a)................................................... 17,514
Estimated fees and expenses(c)...................................... 3,500
--------
$188,529
========
</TABLE>
- ---------------
(a) Assumes all such Senior Notes are tendered in the Tender Offer at a price of
110.56% of the aggregate principal amount of the Senior Notes.
(b) The actual amount of accrued interest will vary depending on the date of the
consummation of the Tender Offer.
(c) The estimated fees and expenses consist of placement fees for the Notes, and
legal, accounting and other professional fees.
30
<PAGE> 35
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at May 3, 1997 and as adjusted to reflect the Transactions. This table
should be read in conjunction with the information contained in "Use of
Proceeds," "Unaudited Pro Forma Condensed Consolidated Financial Data" and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" as well as the Company's consolidated financial
statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
MAY 3, 1997
-------------------------
COMPANY PRO FORMA
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Credit Facility................................................ $ -- $ --
Other Indebtedness(a).......................................... 1,470 1,470
Senior Notes................................................... 165,838 --
Discount on Senior Notes....................................... (1,394) --
Existing Senior Subordinated Notes............................. 150,000 150,000
Discount on Existing Senior Subordinated Notes................. (1,094) (1,094)
Notes.......................................................... -- 125,000
--------- ---------
314,820 275,376
Stockholder's equity:
Common stock................................................... -- --
Paid-in capital(b)............................................. 122,681 181,033
Foreign currency translation adjustment........................ (182) (182)
Accumulated deficit(c)......................................... (156,609) (168,521)
--------- ---------
Total stockholder's equity............................. (34,110) 12,330
--------- ---------
Total capitalization................................... $ 280,710 $ 287,706
========= =========
</TABLE>
- ---------------
(a) Includes $0.5 million of current maturities of long-term indebtedness.
(b) Reflects the contribution to capital of $58.4 million from the Parent in
connection with the Transactions.
(c) Reflects the extraordinary charge of $11.9 million, net of tax benefit of
$7.0 million, which would be incurred as a result of a premium on the
retirement of the Senior Notes and the accelerated amortization of the
related unamortized debt discount.
31
<PAGE> 36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited condensed consolidated balance sheet as of May 3,
1997 and unaudited condensed consolidated statements of operations for the 52
week period ended May 3, 1997, the fiscal year ended February 1, 1997 and the 13
weeks ended May 3, 1997 were derived by adjusting the consolidated financial
statements of the Company to reflect the following, in each case as if each had
occurred as of the beginning of the periods presented: (i) the acquisition of
Pearle and the related financing and (ii) the consummation of the Transactions.
The acquisition of Pearle was completed on November 15, 1996 and was accounted
for under the purchase method of accounting. The results of operations of Pearle
have been included in the consolidated financial statements since the date of
acquisition. The unaudited pro forma condensed consolidated financial data does
not include any results or other data for AVC, which was acquired by the Parent
on August 5, 1997 and transferred to the Company as an equity contribution.
The adjustments are based on currently available information and upon
certain assumptions that management believes are reasonable under the
circumstances. The unaudited pro forma consolidated financial data and
accompanying notes should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Prospectus. The
unaudited pro forma condensed consolidated financial data is presented for
informational purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred had the aforementioned
transactions occurred at the dates indicated, nor is it necessarily indicative
of future operating results or financial position.
32
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MAY 3, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
COMPANY ADJUSTMENTS PRO FORMA
--------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash investments................. $ 20,202 $ (5,177)(a) $ 15,025
Accounts receivable................................. 41,835 -- 41,835
Current portion of notes receivable................. 5,106 -- 5,106
Inventories......................................... 127,456 -- 127,456
Prepaid expenses and other.......................... 8,636 -- 8,636
Deferred income tax benefits........................ 24,925 -- 24,925
--------- --------- ---------
Total current assets........................ 228,160 (5,177) 222,983
--------- --------- ---------
Property and equipment, net........................... 111,333 -- 111,333
Other Assets:
Notes receivable, excluding current portion......... 22,039 -- 22,039
Deferred income taxes and other..................... 35,130 3,500(b) 38,630
Intangible assets, net.............................. 138,237 -- 138,237
--------- --------- ---------
Total assets................................ $ 534,899 $ (1,677) $ 533,222
========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt................... $ 457 $ -- $ 457
Accounts payable.................................... 44,672 -- 44,672
Payable to affiliates............................... 51,973 -- 51,973
Accrued interest.................................... 8,706 (1,677)(c) 7,029
Accrued liabilities................................. 121,882 (6,996)(d) 114,886
--------- --------- ---------
Total current liabilities................... 227,690 (8,673) 219,017
Long-term debt, net of discount and current portion... 314,363 (39,444)(a) 274,919
Other long-term liabilities........................... 26,956 -- 26,956
Stockholder's equity (deficit):
Common stock........................................ -- -- --
Paid-in capital..................................... 122,681 58,352(e) 181,033
Foreign currency translation adjustment............. (182) -- (182)
Accumulated deficit................................. (156,609) (11,912)(f) (168,521)
--------- --------- ---------
Total stockholder's equity (deficit)........ (34,110) 46,440 12,330
--------- --------- ---------
Total liabilities and stockholder's
equity.................................... $ 534,899 $ (1,677) $ 533,222
========= ========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet.
33
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) Reflects the consummation of the Transactions as set forth under "Use of
Proceeds."
(b) Reflects the inclusion of estimated deferred financing costs associated with
the Transactions.
(c) Reflects the elimination of accrued interest related to the retirement of
outstanding indebtedness as of May 3, 1997 as described in "Use of
Proceeds."
(d) Reflects the tax benefit from the extraordinary charge.
(e) Reflects the contribution to capital of $58.4 million from the Parent in
connection with the Transactions.
(f) Reflects the extraordinary charge of $11.9 million, net of tax benefit of
$7.0 million, which would be incurred as a result of a premium on the
retirement of the Senior Notes and the accelerated amortization of the
related unamortized debt discount.
34
<PAGE> 39
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 52 WEEKS ENDED MAY 3, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
PEARLE
COMPANY ACQUISITION(a) TRANSACTIONS PRO FORMA
----------- -------------- ------------ ---------
<S> <C> <C> <C> <C>
Net revenue.............................. $ 789,642 $170,008 $ -- $ 959,650
Costs and expenses:
Cost of goods sold and operating
expenses(b)......................... 708,588 152,453 -- 861,041
Business integration and other
non-recurring charges............... 64,400 (4,820)(c) -- 59,580
Depreciation and amortization.......... 23,217 7,721 -- 30,938
--------- -------- -------- ---------
Total costs and expenses....... 796,205 155,354 -- 951,559
--------- -------- -------- ---------
Income (loss) from operations............ (6,563) 14,654 -- 8,091
Interest expense......................... 28,106 7,709 (7,768)(d) 28,047
Interest income and other................ (2,092) 660(e) -- (1,432)
--------- -------- -------- ---------
Income (loss) before income taxes........ (32,577) 6,285 7,768 (18,524)
Income tax provision (benefit)........... (5,976) 2,779(f) 2,874(f) (323)
--------- -------- -------- ---------
Income (loss) before extraordinary
item................................... $ (26,601) $ 3,506 $ 4,894 $ (18,201)
========= ======== ======== =========
Ratio of earnings to fixed charges(g).... -- -- -- --
EBITDA data(h):
Income (loss) from operations.......... $ (6,563) $ 14,654 $ -- $ 8,091
Integration and other non-recurring
charges............................. 64,400 (4,820) -- 59,580
Depreciation and amortization.......... 23,217 7,721 -- 30,938
--------- -------- -------- ---------
EBITDA.............................. $ 81,054 $ 17,555 $ -- $ 98,609
========= ======== ======== =========
Ratio of EBITDA to interest
expense(h).......................... 2.9x 3.6x
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations.
35
<PAGE> 40
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------
PEARLE
COMPANY ACQUISITION(a) TRANSACTIONS PRO FORMA
----------- -------------- ------------ ---------
<S> <C> <C> <C> <C>
Net revenue................................ $ 683,990 $249,826 $ -- $ 933,816
Costs and expenses:
Cost of goods sold and operating
expenses(b)........................... 612,167 227,055 -- 839,222
Business integration and other
non-recurring charges................. 64,400 (4,767)(c) -- 59,633
Depreciation and amortization............ 19,812 11,399 -- 31,211
--------- -------- -------- ---------
Total costs and expenses......... 696,379 233,687 -- 930,066
--------- -------- -------- ---------
Income (loss) from operations.............. (12,389) 16,139 -- 3,750
Interest expense........................... 24,372 11,334 (7,768)(d) 27,938
Interest income and other.................. (1,613) 648(e) -- (965)
--------- -------- -------- ---------
Income (loss) before income taxes.......... (35,148) 4,157 7,768 (23,223)
Income tax provision (benefit)............. (7,106) 1,819(f) 2,874(f) (2,413)
--------- -------- -------- ---------
Income (loss) before extraordinary item.... $ (28,042) $ 2,338 $ 4,894 $ (20,810)
========= ======== ======== =========
Ratio of earnings to fixed charges(g)...... -- --
EBITDA data(h):
Income (loss) from operations............ $ (12,389) $ 16,139 $ -- $ 3,750
Integration and other non-recurring
charges............................... 64,400 (4,767) -- 59,633
Depreciation and amortization............ 19,812 11,399 -- 31,211
--------- -------- -------- ---------
EBITDA................................ $ 71,823 $ 22,771 $ -- $ 94,594
========= ======== ======== =========
Ratio of EBITDA to interest expense(h)... 3.0x 3.5x
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations.
36
<PAGE> 41
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 13 WEEKS ENDED MAY 3, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
COMPANY ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C>
Net revenue............................................. $ 248,542 $ -- $ 248,542
Costs and expenses:
Cost of goods sold and operating expenses............. 228,335 -- 228,335
Depreciation and amortization......................... 7,607 -- 7,607
--------- ------- ---------
Total costs and expenses...................... 235,942 -- 235,942
--------- ------- ---------
Income from operations.................................. 12,600 -- 12,600
Interest expense........................................ 8,783 (1,942)(d) 6,841
Interest income and other............................... (470) -- (470)
--------- ------- ---------
Income before income taxes.............................. 4,287 1,942 6,229
Income tax provision.................................... 1,886 719(f) 2,605
--------- ------- ---------
Income before extraordinary item........................ $ 2,401 $ 1,223 $ 3,624
========= ======= =========
Ratio of earnings to fixed charges(g)................... 1.3x 1.5x
EBITDA data(h):
Income from operations................................ $ 12,600 $ -- $ 12,600
Depreciation and amortization......................... 7,607 -- 7,607
--------- ------- ---------
EBITDA................................................ $ 20,207 $ -- $ 20,207
========= ======= =========
Ratio of EBITDA to interest expense(h)................ 2.4x 3.1x
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Operations.
37
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(a) Reflects the results of Pearle from the beginning of the respective periods
through November 15, 1996 (the date of acquisition) after giving effect to
certain pro forma adjustments, including adjustments to reflect the
amortization of tradenames and goodwill, the elimination of transactions
between Pearle and its former parent, the elimination of Pearle's provision
for impairment of intangible assets and related costs which resulted from
the acquisition and increased interest expense. Results of Pearle since the
date of acquisition are included in the "Company" amounts. The acquisition
of Pearle was accounted for under the purchase method of accounting. The
purchase price was allocated to the assets acquired and liabilities assumed
based upon their relative fair values as of the closing date. This resulted
in an excess of purchase price over net assets acquired of $20.2 million.
The relative fair values of the assets acquired and liabilities assumed
were based upon valuations and other studies and included tradenames of
$49.5 million. Refer to Note 2 of the Audited Consolidated Financial
Statements.
(b) Prior to the acquisition date, gross profit and gross margin for Pearle
were not determined on a basis consistent with that of the Company. Pearle
included certain store occupancy costs and depreciation in cost of goods
sold, whereas the Company reports such costs as operating expenses or
depreciation and amortization. In addition, Pearle included payroll,
supplies and other costs related to the making of eyeglasses at its
in-store labs in selling, general and administrative expenses; the Company
and Pearle both classify similar costs of making eyeglasses at their
central laboratories in cost of goods sold. Information to reclassify
Pearle's historical costs and expenses on a basis consistent with the
Company is not readily available. For the purposes of the pro forma
operating results presented above, depreciation normally included in
Pearle's cost of goods sold and operating expenses has been reclassified to
depreciation and amortization.
(c) In fiscal 1996, Pearle recorded net credit adjustments to reduce
restructuring reserves previously established.
(d) Reflects the effect on interest expense resulting from the adjustments
below (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
52 WEEKS ENDED 13 WEEKS
ENDED FEB. 1, ENDED
MAY 3, 1997 1997 MAY 3, 1997
----------- ----------- ------------
<S> <C> <C> <C>
Interest on the Notes, including amortization
of deferred financing costs................. $11,131 $ 11,131 $ 2,783
Elimination of interest expense on the Senior
Notes, including amortization of discount... (18,899) (18,899) (4,725)
------- --------- --------
$(7,768) $ (7,768) $ (1,942)
======= ========= ========
</TABLE>
(e) Reflects elimination of interest income on temporary cash investments used
to fund the Pearle acquisition.
(f) Reflects the tax effect of the adjustments referred to above. Income tax
expense includes the provision for state, local and federal income taxes.
The pro forma effective tax rate differs from the federal statutory rate of
35% principally because of state and local taxes and permanent differences
arising from amortization of goodwill.
(g) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes and fixed charges. Fixed charges
consist of interest expense, including amortization of deferred debt
issuance costs and one-third of minimum rental expense less sublease rental
income (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges on the "Company" and "Pro Forma"
bases for the 52 weeks ended May 3, 1997 by $32.5 million and $18.5
million, respectively, and for the fiscal year ended February 1, 1997 by
$35.1 million and $23.2 million, respectively. Earnings included the
business integration and other non-recurring charges.
(h) EBITDA is defined as income from operations before depreciation and
amortization and nonrecurring charges including restructuring and store
closure costs. The Company has included information
38
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
concerning EBITDA here as it is relevant for covenant analysis under the
Indentures for the Notes, the Existing Senior Subordinated Notes and the
Senior Notes and because it is used by certain investors as a measure of a
company's ability to service its debt. EBITDA is not a performance measure
under generally accepted accounting principles and should not be considered
more meaningful than operating income or cash flows as an indicator of
operating performance. For purposes of computing the ratio of EBITDA to
interest expense, interest expense excludes the amortization of deferred
financing costs. Amortization of deferred financing costs used to compute
the pro forma ratios of EBITDA to interest expense were $0.8 million for
the 52 weeks ended May 3, 1997 and for the fiscal year ended February 1,
1997 and $0.3 million for the 13 weeks ended May 3, 1997.
39
<PAGE> 44
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
Set forth below are selected historical financial and other data of the
Company for fiscal years 1992 through 1996 which have been derived from the
Company's audited consolidated financial statements for those years. Also set
forth below are selected summary financial data of the Company for the 13 weeks
ended May 4, 1996 and May 3, 1997, which have been derived from unaudited
financial statements for those periods. Results for interim periods are not
necessarily indicative of full year results. See "Risk Factors--Seasonality."
Prior to the Initial Capitalization, all operations of the Company were
conducted by subsidiaries of the Parent. The selected historical financial and
other data set forth below for fiscal years 1992 and 1993 are based on the
historical cost as if the Initial Capitalization had occurred at the beginning
of fiscal 1992 and the Company had been in existence for such period.
Accordingly, transactions of the Parent prior to the Initial Capitalization on
September 30, 1993, except for those relating to the debt not assumed by the
Company and the interest expense thereon, have been included in the selected
historical financial and other data below. The Company's fiscal year ends on the
Saturday closest to January 31. Fiscal years are identified according to the
calendar year in which they begin. For example, the fiscal year ended February
1, 1997 is referred to as "fiscal 1996." Fiscal 1995 consisted of a 53-week
period; all other fiscal years presented consisted of 52-week periods. The
information presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 13 WEEKS ENDED
-------------------------------------------------------- --------------------
JAN. 30, JAN. 29, JAN. 28, FEB. 3, FEB. 1, MAY 4, MAY 3,
1993 1994 1995 1996 1997(a) 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net revenue............................ $428,066 $472,888 $528,049 $577,091 $683,990 $142,890 $248,542
Gross profit........................... 304,012 331,936 363,326 394,157 462,686 98,390 162,772
Operating expenses..................... 258,534 281,149 305,470 332,540 390,863 87,414 142,565
Depreciation and amortization.......... 13,581 13,516 14,892 15,686 19,812 4,202 7,607
Business integration and other
non-recurring charges (b)............ -- -- -- -- 64,400 -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations.......... 31,897 37,271 42,964 45,931 (12,389) 6,774 12,600
Interest expense, net.................. 18,770 17,651 21,823 21,382 22,759 5,058 8,313
Income tax provision (benefit)......... 6,161 2,361 (3,703) 10,799 (7,106) 756 1,886
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations........................... $ 6,966 $ 17,259 $ 24,844 $ 13,750 $(28,042) $ 960 $ 2,401
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Gross margin........................... 71.0% 70.2% 68.8% 68.3% 67.6% 68.9% 65.5%
EBITDA (c)............................. $ 45,478 $ 50,787 $ 57,856 $ 61,617 $ 71,823 $ 10,976 $ 20,207
EBITDA margin (c)...................... 10.6% 10.7% 11.0% 10.7% 10.5% 7.7% 8.1%
Capital expenditures................... $ 9,580 $ 13,074 $ 18,527 $ 19,675 $ 23,269 $ 3,324 $ 7,041
Ratio of earnings to fixed charges
(d).................................. 1.5x 1.7x 1.7x 1.8x -- 1.2x 1.3x
NUMBER OF UNITS (AT END OF PERIOD):
Cole Vision............................ 769 774 938 1,013 1,138 1,022 1,146
Pearle (e)............................. -- -- -- -- 686 -- 682
Things Remembered...................... 717 737 760 778 790 782 793
CGC.................................... 594 586 589 587 501 504 498
-------- -------- -------- -------- -------- -------- --------
Total................................ 2,080 2,097 2,287 2,378 3,115 2,308 3,119
======== ======== ======== ======== ======== ======== ========
COMPARABLE STORE SALES GROWTH (f)
Cole Vision............................ (1.4)% 10.7% 9.8% 5.6% 10.7% 10.8% 10.9%
Things Remembered...................... (0.7)% 1.8% 0.1% 3.1% 2.3% 4.6% (3.1)%
CGC.................................... 1.8% 31.6% 5.8% (4.8)% (1.8)% (2.7)% (6.1)%
Pearle................................. -- -- -- -- -- -- --
Total................................ (0.7)% 9.4% 5.5% 3.4% 6.3% 7.6% 5.4%
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........................... $225,861 $257,945 $283,303 $298,187 $572,825 $287,909 $534,899
Long-term debt......................... 190,556 188,299 184,388 180,218 314,359 180,146 314,363
Stockholder's equity (deficit)......... (58,902) (29,793) 1,139 2,497 (36,355) 3,457 (34,110)
</TABLE>
See accompanying Notes to Selected Historical Financial and Other Data.
40
<PAGE> 45
NOTES TO SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(a) Includes results for Pearle from November 15, 1996 through February 1, 1997.
On a pro forma basis, if the Pearle acquisition and the related financing
had occurred at the beginning of the period, the unaudited consolidated net
revenue would have been $933.8 million and the pro forma loss from
continuing operations would have improved by $2.3 million.
(b) Represents a pretax charge for business integration and other non-recurring
items in fiscal 1996 primarily related to the acquisition of Pearle.
(c) EBITDA is defined as income from operations before depreciation and
amortization and nonrecurring charges, if any. The Company has included
information concerning EBITDA here as it is relevant for covenant analysis
under the Indentures for the Senior Notes and the Existing Senior
Subordinated Notes and because it is used, by certain investors as a measure
of a company's ability to service its debt. EBITDA is not a performance
measure under generally accepted accounting principles and should not be
considered more meaningful than operating income or cash flows as an
indicator of operating performance.
(d) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) before income taxes plus fixed charges. Fixed charges consist
of interest on indebtedness, amortization of deferred financing fees and the
portion of minimum rent expense less sublease rental income that represents
interest. Earnings were insufficient to cover fixed charges for the fiscal
year ended February 1, 1997 by $35.1 million. Earnings included the business
integration and other non-recurring charges.
(e) Includes Pearle franchised locations.
(f) Comparable stores sales growth is calculated using sales for all stores open
at least twelve months, for the weeks that the stores were open in both the
previous and current periods. For the year ended January 29, 1994, the
growth in comparable store sales for CGC includes the addition of greeting
card merchandise to 171 locations in February 1993.
41
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is a direct wholly owned subsidiary of the Parent. The
following discussion should be read in conjunction with the selected historical
financial and other data and the unaudited pro forma condensed consolidated
financial data and the notes thereto.
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years are identified according to the calendar year in which they begin.
For example, the fiscal year ended February 1, 1997 is referred to as "fiscal
1996." Fiscal 1996 consisted of a 52-week period. Fiscal 1995 and fiscal 1994
consisted of 53- and 52-week periods, respectively.
As a result of the acquisition of AVC, which was acquired by the Parent and
transferred to the Company as an equity contribution in the amount of
approximately $28.9 million, including debt assumed, the Company intends to
closely evaluate the various operations of AVC for opportunities to effect
operational efficiencies. The Company expects that it will take a non-recurring
business integration charge in fiscal 1997 representing the costs to integrate
the AVC stores into the Company.
The following is a discussion of the results of the Company's operations
for the three fiscal years ended February 1, 1997 and for the 13 week periods
ended May 3, 1997 and May 4, 1996.
SECOND QUARTER RESULTS OF OPERATIONS
For the second quarter ended August 2, 1997, the Company had net revenue of
$254.0 million and net income of $7.3 million. Increased sales and earnings
compared to last year were primarily due to the acquisitions of Pearle and Sears
Optical of Canada in November 1996, along with comparable store sales growth at
Cole Vision of 7.8% for the quarter.
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
--------------------------------- ---------------------------------
AUGUST 2, 1997 AUGUST 3, 1996 AUGUST 2, 1997 AUGUST 3, 1996
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue......................... $254,030 $153,465 $502,572 $296,355
Income from operations.............. 20,992 13,970 33,592 20,744
Net income.......................... 7,265 5,067 9,666 6,027
</TABLE>
RESULTS OF OPERATIONS
13 Weeks Ended May 3, 1997 Compared to 13 Weeks Ended May 4, 1996
Net revenue for the first quarter of fiscal 1997 increased 73.9% to $248.5
million from $142.9 million for the same period in fiscal 1996. The increase was
primarily attributable to the acquisitions of Pearle and Sears Optical of Canada
in November 1996, which accounted for $85.5 million of the increase. For the
quarter, the Company's consolidated comparable store sales increased 5.4% in
fiscal 1997 and 7.6% in fiscal 1996. A strong comparable store sales increase of
10.9% at Cole Vision was primarily a result of successful eyewear promotions and
growth in managed vision care sales. Comparable store sales decreased 3.7% at
Cole Gift which was negatively impacted by the lower levels of mall traffic and
unseasonably bad weather in the early spring. In the first quarter of fiscal
1997, the Company began classifying capitation and other fees associated with
its growing managed vision care business as revenue, which previously had been
netted with operating expenses. The opening of additional Cole Gift and Cole
Vision units also contributed to the first quarter revenue increase. At May 3,
1997, the Company had 3,119 specialty service retail locations, including 327
franchised locations, compared to 2,308 at May 4, 1996.
Gross profit increased to $162.8 million in the first quarter of fiscal
1997 from $98.4 million in the same period last year. The gross profit increase
was primarily attributable to the addition of Pearle, increased revenue at Cole
Vision and the classification of managed vision care fees as revenue. Gross
margins for the first quarter of fiscal 1997 and fiscal 1996 were 65.5% and
68.9%, respectively. The lower gross margin percentage resulted primarily from
the addition of Pearle which has a lower gross margin than the Company
42
<PAGE> 47
has historically experienced due to the higher costs of in-store laboratories
and lower margin wholesale sales to franchised stores. This was partially offset
by revenue generated by Pearle's franchise royalties and fees, interest income
on Pearle's franchise notes receivable and the managed vision care fees, each of
which has no corresponding cost of goods sold.
Operating expenses increased 63.1% to $142.6 million in the first quarter
of fiscal 1997 from $87.4 million in fiscal 1996, but as a percentage of
revenue, operating expenses decreased to 57.4% in fiscal 1997 from 61.2% in
fiscal 1996. The leverage improvement was primarily a result of the addition of
Pearle, which has lower operating expenses as a percentage of revenue than the
rest of the Company, along with leverage gains achieved by Cole Vision's
comparable store sales increase. Fiscal 1997 depreciation and amortization
expense of $7.6 million was $3.4 million more than fiscal 1996 reflecting the
addition of Pearle and an increase in capital expenditures.
Income from operations increased 86.0% to $12.6 million for the first
quarter of fiscal 1997 from $6.8 million for the same period a year ago,
primarily the result of the Pearle acquisition and strong sales growth at Cole
Vision, offset in part by softer sales performance at Cole Gift.
Net interest expense increased $3.3 million over the first quarter of
fiscal 1996 to $8.3 million. The increase was primarily attributable to the
additional interest on $150.0 million of Existing Senior Subordinated Notes
issued in connection with financing the acquisition of Pearle, partially offset
by a decrease in interest expense due to the retirement of $15.1 million of
Senior Notes in the fourth quarter of fiscal 1996.
An income tax provision was recorded in the first quarter of both fiscal
1997 and fiscal 1996 using the Company's estimated annual effective tax rate of
44%.
Net income increased to $2.4 million for the first quarter of fiscal 1997
from $1.0 million for the first quarter of fiscal 1996. The increase was due to
improvement in income from operations offset, in part, by the increase in net
interest expense.
The Company's business historically has been seasonal with approximately
30% of its net revenue and approximately 50% of its income from operations
occurring in the fourth fiscal quarter because of the importance of gift sales
during the Christmas retailing season. Although the acquisition of Pearle will
moderate the seasonality of the Company due to relatively lower levels of
optical product sales during the Christmas holiday season, the Company's
business will remain seasonal. Therefore, results of operations for interim
periods are not necessarily indicative of full year results.
Fiscal 1996 Compared to Fiscal 1995
On November 15, 1996, the Company acquired certain assets and all of the
issued and outstanding common stock of Pearle. A significant portion of the
purchase price was financed by the issuance of $150.0 million of Existing Senior
Subordinated Notes. The acquisition of Pearle was accounted for under the
purchase method of accounting. Accordingly, Pearle's results of operations have
been included in the Company's consolidated statement of operations since the
date of acquisition. For the eleven-week period, Pearle operated at
approximately a break-even level with net revenue of $58.3 million reflecting
the relatively lower level of optical retail sales during the holiday season. At
February 1, 1997, the Pearle system included 348 company-operated optical stores
and 338 franchised locations in the United States, Canada and the Caribbean. See
Notes 2 and 3 of the Notes to Audited Consolidated Financial Statements for
further discussion of the Pearle acquisition. Except as otherwise indicated, the
following discussion of net revenue, gross profit and operating expenses relates
to the Company on an historical basis without giving effect to the Pearle
acquisition.
Net revenue increased 8.4% to $625.7 million in fiscal 1996 from $577.1
million in fiscal 1995. The increase in consolidated revenue was due to a
comparable store sales increase of 6.3% and to the opening of additional Cole
Gift and Cole Vision units including 75 optical locations in Canada as a result
of the acquisition of AOCO Limited in November 1996. This was partially offset
by one less week of sales in fiscal 1996 compared to fiscal 1995 and the closing
of 95 low-volume Cole Gift departments. Comparable store sales increased 10.7%
at Cole Vision primarily as a result of successful eyewear promotions and growth
in the
43
<PAGE> 48
managed vision care program. Comparable store sales increased 1.4% at Cole Gift
benefiting from the roll-out of monogrammed softgoods and the introduction of
new merchandise. At February 1, 1997, the Company had 3,115 specialty service
retail locations including the Pearle company-operated stores and 338 franchised
locations, versus 2,378 at the end of the prior year.
Gross profit increased to $429.4 million in fiscal 1996 from $394.2 million
in fiscal 1995. Gross margins for fiscal 1996 and fiscal 1995 were 68.6% and
68.3%, respectively. The increase in gross margin percentage was the result of
lower product costs, improved optical lab productivity and a higher level of
personalization in the sales mix at Things Remembered. In fiscal 1997, the
Company's consolidated gross margin is expected to decline from its historical
levels as Pearle has a lower gross margin than the Company due to the higher
costs of in-store laboratories and lower margin wholesale sales to franchised
stores partially offset by franchise royalties, fees and interest income on
franchise notes receivable which have no corresponding cost of goods sold.
Operating expenses increased 8.3% to $360.2 million in fiscal 1996 from
$332.5 million the prior year. As a percentage of revenue, operating expenses
were 57.6% in fiscal 1996 and fiscal 1995. Operating expenses increased
primarily due to higher advertising expenditures, payroll costs and store
occupancy expenses, partly offset by one less week in fiscal 1996. Advertising
expenditures at Cole Vision were increased for optical promotions to encourage
continued sales growth above last year's successful promotions. Payroll costs
increased because of more higher-volume retail units open in 1996, including an
increased number of Things Remembered personalization superstores, and
additional payroll to support increased sales. Store occupancy expenses
increased primarily as a result of the increased number of Things Remembered
personalization superstores and higher percentage rents caused by increased
comparable store sales. Fiscal 1996 depreciation and amortization expense of
$17.3 million was $1.6 million more than fiscal 1995 reflecting an increase in
capital expenditures.
In the fourth quarter of fiscal 1996, the Company recorded a $64.4 million
pre-tax charge for certain unusual and non-recurring items. Such charge was
primarily related to the acquisition of Pearle and included costs incurred
related to the integration and consolidation of Pearle into the Company's
operations, as well as certain other non-recurring charges. See Note 3 of the
Notes to Audited Consolidated Financial Statements for further discussion of the
business integration and other non-recurring charges.
Income from operations excluding the charge for non-recurring items
increased 13.0% to $51.9 million in fiscal 1996 from $45.9 million the prior
year. The increase was primarily attributable to increased revenue and higher
gross margin.
Net interest expense for fiscal 1996 of $22.8 million was $1.4 million more
than that of the prior year. This increase was primarily due to $3.4 million of
additional interest expense related to the financing of the Pearle acquisition
offset by decreases in interest expense due to the retirement of $5.0 million of
the Senior Notes in November 1995, the purchase and subsequent retirement of
$15.1 million of Senior Notes in November of fiscal 1996, the elimination of
working capital borrowings and increased interest income from an increase in
temporary cash investments.
The income tax benefit of $7.1 million for fiscal 1996 includes a $20.0
million income tax benefit related to the charge for business integration and
other non-recurring items. The effective income tax rate on income excluding the
charge for business integration and other non-recurring items was 44.0% in
fiscal 1996 and 1995. This rate reflects the significant impact of
non-deductible amortization of goodwill in both years. A more complete
discussion of income taxes is included in Note 7 of the Notes to Audited
Consolidated Financial Statements.
Fiscal 1995 Compared to Fiscal 1994
Net revenue increased 9.3% to $577.1 million in fiscal 1995 from $528.0
million in fiscal 1994. The increase in consolidated revenue was due to a
comparable store sales increase of 3.4%, sales for the 53rd week of
approximately $9.3 million and additional Things Remembered and Cole Vision
units open in fiscal 1995. Comparable store sales increased primarily as a
result of successful eyewear promotions and growth in the
44
<PAGE> 49
managed vision care program at Cole Vision and expanded gift and softgoods
merchandise at Things Remembered locations. Fourth quarter comparable store
sales were even with last year as the retail industry in general experienced a
very difficult Christmas season and severe weather conditions in many major
markets. At February 3, 1996, the Company operated 2,378 specialty service
retail locations versus 2,287 at the end of the prior year. The net increase in
retail units includes the acquisition by Cole Vision on May 21, 1995, of 59
optical departments located in BJ's Wholesale Club stores and the sale of the
Company's 39 Sunspot fashion sunglass kiosks as of April 29, 1995.
Gross profit increased to $394.2 million in fiscal 1995 from $363.3 million
in fiscal 1994. Gross margins for fiscal 1995 and fiscal 1994 were 68.3% and
68.8%, respectively. The decrease in gross margin percentage was primarily due
to an increase in the sales of lower margin optical products, including
disposable contact lenses, and a lower mix of higher margin merchandise,
primarily keys, at CGC. Gross margin in the fourth quarter of fiscal 1995,
however, improved to 67.1% from 66.9% in fiscal 1994, benefiting from fiscal
1994 and 1995 investments aimed at increasing optical laboratory capacity and
production efficiency and from reduced material costs for spectacles.
Operating expenses increased 8.9% to $332.5 million in fiscal 1995 from
$305.5 million the prior year. As a percentage of net revenue, operating
expenses decreased to 57.6% in fiscal 1995 from 57.8% in fiscal 1994. Operating
expenses increased primarily because of higher payroll costs, store occupancy
expenses and advertising expense due, in part, to the 53rd week. The higher
payroll costs were also the result of more retail units in fiscal 1995 and
additional payroll to support the higher level of sales. Partially offsetting
the payroll increases were savings from outsourcing the Company's data
processing operations in fiscal 1995. Store occupancy expense increased because
of the increased number of retail units and higher percentage rents due to
increased comparable store sales. Advertising costs increased primarily as a
result of additional efforts to support eyewear promotions. Also included in
operating expense in fiscal 1995 was a $0.2 million provision for the closing of
approximately 90 low volume leased key and gift departments in the first quarter
of fiscal 1996. The closings are expected to improve the Company's operating
results during the first nine months of the fiscal year. Fiscal 1995
depreciation and amortization expense of $15.7 million was $0.8 million more
than fiscal 1994 reflecting an increase in capital expenditures that began in
the latter part of fiscal 1993.
Income from operations increased 6.9% to $45.9 million in fiscal 1995 from
$43.0 million the prior year. The increase was primarily attributable to the
increased revenue. The lower gross margin percentage was partially offset by
improved leveraging of operating expenses.
Net interest expense for fiscal 1995 of $21.4 million was $0.4 million less
than that of the prior year. This decrease was primarily due to an increase in
interest income and lower borrowings on the Senior Notes.
The income tax provision of $10.8 million for fiscal 1995 represents an
effective tax rate of 44.0%. This rate reflects the significant impact of
non-deductible amortization of goodwill. The income tax benefit of $3.7 million
in fiscal 1994 included the effects of utilizing all of the Company's net
operating loss carryforwards and the reversal of a valuation allowance on net
deferred tax assets in the fourth quarter of fiscal 1994. A more complete
discussion of income taxes is included in Note 7 of Notes to Audited
Consolidated Financial Statements.
Net income in fiscal 1994 of $24.7 million included a loss on early
extinguishment of debt of $0.1 million to reflect the payment of premiums, the
write-off of unamortized debt discount and other costs associated with retiring
the debt in connection with the Parent's initial public offering.
45
<PAGE> 50
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is funds provided from operations
of its wholly owned subsidiaries. In addition, the Company's operating
subsidiaries have available to them working capital commitments of $75.0
million, reduced by commitments under letters of credit, under a credit facility
put in place at the time of the acquisition of Pearle (the "Credit Facility").
The Credit Facility replaced a $50.0 million revolving credit facility. There
were no working capital borrowings outstanding during the first quarter of
fiscal 1997 or at any time during fiscal 1996. The maximum amounts outstanding
during fiscal 1995 and fiscal 1994 were $3.5 million and $13.0 million,
respectively.
The Credit Facility contains covenants restricting the ability of the
Company's operating subsidiaries to, among other things, pay dividends or make
other restricted payments to the Company or the Parent. The Credit Facility
permits the Company's subsidiaries to pay dividends to the Company to the extent
necessary to permit the Company to pay all interest and principal on the Senior
Notes, the Existing Senior Subordinated Notes and the Notes when due.
During the second quarter of fiscal 1996, the Parent completed a public
offering of 1,437,500 shares of its common stock at an offering price of $19.25
per share. The net proceeds from the offering were $26.2 million. The Parent
used a portion of the net proceeds to purchase $15.1 million of the Senior Notes
plus accrued interest thereon in the open market. In connection with the
acquisition of Pearle in the fourth quarter, the Company purchased and retired
the $15.1 million of Senior Notes held by the Parent at a price equal to net
book value.
During the fourth quarter of fiscal 1996, in connection with the
acquisition of Pearle, the Company issued the Existing Senior Subordinated Notes
in the aggregate amount of $150.0 million. Issuance of the Existing Senior
Subordinated Notes and the retirement of $15.1 million of Senior Notes will
result in a net increase in annual interest expense in fiscal 1997 compared to
fiscal 1996 of approximately $10.4 million including amortization of the
discount on the Existing Senior Subordinated Notes and related deferred
financing costs.
As of May 3, 1997, the Company had outstanding $165.8 million aggregate
principal amount of Senior Notes and $150.0 million aggregate principal amount
of Existing Senior Subordinated Notes. The Senior Notes and the Existing Senior
Subordinated Notes are unsecured and mature October 1, 2001 and December 31,
2006, respectively, with no earlier scheduled redemption or sinking fund
payment. The Senior Notes bear interest at a rate of 11.25% per annum, payable
semi-annually on each April 1 and October 1. The Existing Senior Subordinated
Notes bear interest at a rate of 9.875% per annum, payable semi-annually on each
June 30 and December 31, commencing June 30, 1997. The indentures pursuant to
which the Senior Notes and the Existing Senior Subordinated Notes were issued
contain certain optional and mandatory redemption features and other financial
covenants, including restrictions on the ability of the Company to pay dividends
or make other restricted payments. The indentures permit dividend payments to
the Parent of one-half of the Company's consolidated net income, provided that
no default or event of default has occurred under the indentures and that the
Company has met a specified fixed charge coverage ratio test. The indentures
also permit payments to the Parent for certain tax obligations and for
administrative expenses of the Parent not to exceed 0.25% of net revenue. See
Note 5 of the Notes to Audited Consolidated Financial Statements.
Subject to its commitment to proceed with the Tender Offer, the Company has
no significant principal payment obligations under any of its outstanding
indebtedness until the Senior Notes mature in 2001. The ability of the Company
and its subsidiaries to satisfy its obligation will be primarily dependent upon
future financial and operating performance of the subsidiaries and upon the
Company's ability to renew or refinance borrowings or to raise additional equity
capital.
All cash balances of the Parent are maintained by the Company. As of May 3,
1997, the Company had an intercompany payable to affiliates of $52.0 million.
Such payable arose primarily from the Parent's loan to the Company of proceeds
from the Parent's 1996 public offering of common stock, cash that had earlier
been received as dividends from the Company and subsequently borrowed by the
Company and other cash receipts and disbursements of the Parent.
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On July 18, 1997 the Parent completed a public offering of its common
stock, with net proceeds totalling $116.1 million, of which $58.4 million will
be transferred to the Company as an equity contribution in conjunction with the
Transactions.
Cash balances at May 3, 1997 were $20.2 million compared to $73.1 million
at February 1, 1997. Operations used net cash of $24.8 million in the first
quarter of 1997 compared to $12.7 million net cash used in the first quarter of
1996. The $12.1 million increase in cash used by operations was primarily
attributable to increased payments related to inventory disbursements and
payment of certain business integration and other non-recurring charges accrued
in fiscal 1996, partially offset by an increase in net income and higher
depreciation and amortization expense.
Cash balances at February 1, 1997 were $73.1 million compared to $29.3
million at February 3, 1996. Operations generated net cash of $68.9 million in
fiscal 1996, $36.2 million in fiscal 1995 and $19.1 million in fiscal 1994. The
$32.7 million increase in cash provided by operations in fiscal 1996 compared to
fiscal 1995 was primarily attributable to an increase in accounts payable and
accrued liabilities of $35.1 million excluding amounts related to the
non-recurring charge, increased income from operations of $6.1 million excluding
the non-recurring charge, increased depreciation and amortization expense of
$4.1 million and increased accrued income taxes. These cash flow increases were
partly offset by an increase in inventories of $3.6 million versus a $2.5
million reduction in fiscal 1995. The $64.4 million charge for business
integration and other non-recurring items recorded in fiscal 1996 had little
effect on the change in cash flow for fiscal 1996 since most of the items were
either non-cash or were accrued at year end. The total cash outlay related to
this charge is expected to be approximately $41.1 million ($21.1 million after
tax), of which $2.9 million has been paid as of February 1, 1997. The remaining
amount is expected to be incurred within the next 12 to 18 months, except for
certain lease costs which may be incurred over the remaining life of the leases.
The $17.1 million increase in cash provided by operations in fiscal 1995
compared to fiscal 1994 was primarily due to a $2.5 million reduction in
inventory, despite a 9.3% increase in revenue, compared to an $8.7 million
increase in inventory the prior year. Also, income from operations in fiscal
1995 was higher by $3.0 million and interest expense was lower by $0.4 million
than in fiscal 1994.
Net capital additions were $7.0 million and $3.3 million in the first
quarter of fiscal 1997 and fiscal 1996, respectively, and $23.3 million, $19.7
million and $18.5 million in fiscal 1996, 1995 and 1994, respectively. In
addition, the Company used $157.4 million for the purchases of Pearle and AOCO
Limited in fiscal 1996, $0.8 million for the purchase of the BJ's Wholesale Club
optical departments in fiscal 1995 and $4.7 million for the purchase of 107
Montgomery Ward optical departments in fiscal 1994. The majority of the capital
additions were for store fixtures, equipment and leasehold improvements for new
stores and the remodeling of existing stores. Expenditures of $4.4 million were
also incurred in the first quarter of 1997 in connection with the construction
of Cole Gift's new warehouse and distribution facility. For fiscal 1997, the
Company expects to continue to expand the number of stores as well as remodel
and relocate stores. The Company currently estimates capital expenditures in
fiscal 1997 will exceed $30.0 million.
The Company has constructed a new warehouse and distribution facility for
Cole Gift that is expected to improve distribution efficiencies. The facility is
expected to be financed through a sale and lease-back transaction or through
conventional secured real estate financing. The Company estimates the cost of
this facility to be approximately $9 million.
The Company believes that funds provided from operations along with funds
available under the Credit Facility will provide adequate sources of long-term
liquidity to allow the Company's operating subsidiaries to continue to expand
the number of stores.
This Prospectus contains and incorporates by reference certain statements
that are "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Those statements include,
among other things, the discussions of the Company's business strategy and
expectations concerning the Company's position in the industry, future
operations, margins, profitability, liquidity and capital resources, as well as
statements concerning the integration of the acquisition of Pearle and AVC and
achievement of cost savings and other efficiencies in connection therewith.
Investors in the Notes
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offered hereby are cautioned that reliance on any forward-looking statement
involves risks and uncertainties, and that although the Company believes that
the assumptions on which the forward-looking statements contained herein are
based are reasonable, any of those assumptions could prove to be inaccurate, and
as a result, the forward-looking statements based on those assumptions also
could be materially incorrect. The uncertainties in this regard include, but are
not limited to, those identified in the risk factors discussed above. In light
of these and other uncertainties, the inclusion of a forward-looking statement
herein should not be regarded as a representation by the Company that the
Company's plans and objectives will be achieved.
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BUSINESS
GENERAL
The Company, a leading vision care and personalization retailer, is the
largest optical retail company in the United States, with approximately 2,000
company-owned and franchised optical locations in the United States, Canada and
the Caribbean. The Company's pro forma net revenue and EBITDA for the 52 week
period ended May 3, 1997 were $959.7 million and $98.6 million, respectively,
with approximately 70% of the Company's net revenue derived from its optical
business and the remaining 30% derived from its gift business, which operates
approximately 1,300 retail locations. The Company conducts business, through two
principal operating units: (i) Cole Optical, consisting of Cole Vision and
Pearle and (ii) Cole Gift, consisting of Things Remembered and CGC. The Company
differentiates itself from other specialty retailers by providing value-added
services at the point of sale at all of its retail locations.
The Company is a wholly owned subsidiary of the Parent, a holding company
that has common stock traded on the New York Stock Exchange. The Parent also has
a 20% interest in Pearle Trust B.V., which as of May 3, 1997, had 193 optical
stores in the Netherlands and Belgium.
The Company, which is headquartered at 5915 Landerbrook Road, Mayfield
Heights, Ohio, ((216) 449-4100), was incorporated as a Delaware corporation in
July 1993. The Company and its predecessor companies have operated optical and
gift businesses for more than 50 years. Immediately prior to the Company's
issuance and sale of its Senior Notes on September 30, 1993, all of the Parent's
assets, except for the stock of the Company, were contributed to the Company and
the Company assumed all of the Parent's liabilities (the "Initial
Capitalization") other than $50.0 million of the Parent's obligations under the
Parent's 13% Senior Subordinated Notes, which were later retired. Prior to the
Initial Capitalization, all operations were conducted by subsidiaries of the
Parent.
COLE OPTICAL
On August 5, 1997, the Company acquired AVC, the ninth largest retail
optical chain in the United States, for $28.9 million, including debt assumed.
AVC operates 164 stores, including 85 franchise locations, under the names
"NuVision Optical," "American Vision Center" and "EyesFirst Vision Center." The
acquisition of AVC, combined with the Company's existing company-owned and
franchised locations, created the largest optical retail company in the United
States. AVC was acquired by the Parent and transferred to the Company as an
equity contribution.
Cole Vision
Cole Vision operates principally under the "Sears Optical," "Montgomery
Ward Vision Center" and "BJ's Optical Department" names. As of May 3, 1997, Cole
Vision operated 1,146 departments in 46 states and Canada, including 750
departments on the premises of Sears department stores, 213 departments in
Montgomery Ward stores, 76 departments in BJ's Wholesale Club stores, 24
departments located in five other retailers and 83 freestanding stores operated
under the name "Sears Optical." Cole Vision departments are generally operated
under a lease or license arrangement through which the host store collects the
sales receipts, retains an agreed upon percentage of sales and remits the
remainder to Cole Vision on a weekly basis.
Cole Vision optical departments are, in most cases, full-service retail
eyecare stores offering brand name and private label prescription eyeglasses,
contact lenses and accessories with an on-premises doctor of optometry who
performs complete eye examinations and prescribes eyeglasses and contact lenses.
Most Cole Vision optical departments, which are typically 1,000 square feet in
size, operate with a doctor of optometry, a department manager, and from one to
seven opticians depending on store sales volume. A majority of the doctors of
optometry are independent, as is often required by state law, with the remainder
being employed by Cole Vision. The independent doctors sublease space and
equipment from Cole Vision where permitted by law, or from the host, and retain
their examination fees.
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Each of Cole Vision's optical departments is computer linked to Cole
Vision's five centralized manufacturing laboratories, which grind, cut and fit
lenses to order and ship them to the stores. Cole Vision provides next day
delivery on most of the eyewear it offers when requested by its customers. Cole
Vision purchases all of the frames and lenses used in its eyeglasses from
outside suppliers, both in the United States and several foreign countries.
Cole Vision conducts a variety of marketing and promotional efforts to
build and maintain its customer base. Cole Vision primarily uses newspaper,
direct mail, yellow pages and host advertising. Host advertising includes the
placement of promotional material within sales circulars or credit card billings
sent out by the host store to its customers. Cole Vision also promotes its next
day service as "Eyewear Express."
Managed Vision Care
In the last several years, Cole Vision has expanded its managed vision care
program that provides comprehensive eyecare benefits marketed directly to
employers, other employee benefit plan sponsors and insurance companies,
primarily under the name "Vision One." Vision One's basic program gives
employers the opportunity to offer their employees a group discount at the
managed vision care network with minimal direct cost to the employer. An
enhanced Vision One program allows employers to provide their employees with
prepaid eye examinations as well as pricing discounts or reimbursements. Cole
Vision added the Pearle company-owned and a majority of franchised locations to
its managed vision care programs in fiscal 1997.
Pearle
At May 3, 1997, Pearle's operations consisted of 355 company-owned and 327
franchised stores located in 43 states, Canada, and the Caribbean. All Pearle
stores operate in either an "Express" or "Mainline" store format. Express stores
contain a full surfacing lab that can manufacture most glasses in approximately
one hour. Mainline stores can manufacture over 50% of prescriptions on-site in
approximately one hour. Other prescriptions are sent to a nearby Express
location or to the main laboratory in Dallas. The main laboratory generally is
able to complete orders for next day delivery if requested. At May 3, 1997,
approximately 78% of the company-owned stores and approximately 36% of the
franchised stores were Express, with the balance being Mainline.
The Express stores typically are located in high traffic freestanding,
strip center and mall locations with most stores averaging 3,000 square feet.
The Express stores are usually staffed with two managers and a support staff of
four to eight people. Mainline stores have an average size of 1,700 square feet
and are also located in freestanding buildings, or in smaller strip or regional
centers. Mainline stores generally carry a smaller assortment of inventory than
Express stores and are usually staffed with one manager and two to three
associates. Most Pearle stores have a doctor of optometry on site with
approximately 80% leasing space from Pearle on an independent basis and the
remaining being direct employees of Pearle.
Pearle's marketing strategy employs a wide range of media at both the
national and local levels. The franchised and company-owned stores each
contribute a percentage of revenues to Pearle's marketing budget with
approximately half of Pearle's marketing expenditures devoted to television.
Pearle's brand positioning of high quality eyecare products and services has
been reinforced by an advertising and promotions program, which includes
Pearle's advertising slogan, Nobody Cares for Eyes More Than Pearle.
Pearle operates a warehouse facility in Dallas which inventories and
distributes a comprehensive product line including frames, eyeglass lenses,
contact lenses, optical supplies and eyewear accessories to company-owned and
franchised locations.
Franchise Operations
Pearle has maintained a franchise program since 1980. Most of the
franchised stores are single franchise operations, with no franchisee operating
more than five stores. With the proper financial approvals, a franchise purchase
can be financed through Pearle. Currently, Pearle offers financing over seven to
ten years at a rate of prime plus three points adjusted quarterly.
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Each franchisee is required to enter into a Franchise Agreement requiring
payment of an initial franchise fee. The term of the typical franchise agreement
is equal to the earlier of ten years or the expiration or termination of the
underlying base lease. Royalty and advertising contributions typically are based
on a percentage of the franchisee's gross revenues from the retail operation
and/or nonsurgical professional fee revenues. The total monthly advertising
contribution is distributed between Pearle's system-wide advertising fund and
the local co-op market advertising fund.
While Pearle franchisees representing over 70% of the franchised locations
have agreed to enter into new franchising arrangements with the Company, the
Company's flexibility in making changes to Pearle's franchised operations is
limited by laws and regulations governing the relationships with franchisees and
certain other obligations. The new franchising arrangements reduce the royalty
and advertising fees paid by the franchisees and provide, among other things,
for the franchisee's participation in Cole Vision's managed vision care
programs.
COLE GIFT
Cole Gift, pro forma for the Pearle acquisition, contributed approximately
30% of the Company's net revenue in fiscal 1996. As of May 3, 1997, Cole Gift
operated nearly 1,300 locations throughout the United States. Things Remembered
and CGC share management expertise, purchasing power, warehousing, distribution
systems and corporate support functions.
Things Remembered
As of May 3, 1997, Things Remembered operated 793 stores and kiosks
generally located in large, enclosed shopping malls located in 45 states. Each
location carries a wide assortment of engravable items and provides "while you
shop" personalization and engraving services for any occasion including holiday,
business and special occasion gift events. Things Remembered offers engraving
for items purchased at the store as well as for items purchased elsewhere.
Merchandise sold at Things Remembered stores consists of a broad assortment
of gift categories and items at prices generally ranging from $10 to $75. Things
Remembered's offering of gifts includes writing instruments, clocks, music
boxes, picture frames and albums, executive desk sets and accessories, ID
bracelets, glassware, lighters, keys and key rings, door knockers and Christmas
ornaments. Things Remembered features brand name merchandise as well as higher
margin private label merchandise. At some locations, the Company utilizes
computer-controlled embroidery equipment for the personalization of merchandise
such as throws, sweaters, bathrobes, jackets, baseball caps, towels and baby
blankets.
At May 3, 1997, Things Remembered locations consisted of 366 in-line
stores, 85 personalization superstores and 342 kiosks. The typical in-line store
consists of about 1,000 square feet, while kiosks, which are units located in
the center of the common mall area, are typically 200 square feet in size.
Personalization superstores average approximately 2,200 square feet in size.
In fiscal 1995, Cole Gift established a central fulfillment facility with
computer-controlled embroidery equipment. In fiscal 1996, the Company added
softgoods to most of Things Remembered's other locations providing these stores
with personalization services from the central facility.
CGC
As of May 3, 1997, CGC operated 498 leased locations primarily in Sears
stores in 44 states. CGC stores are generally operated under a lease or license
arrangement under which the host store collects the sales receipts, retains an
agreed upon percentage of sales and remits the remainder to CGC on a weekly
basis.
CGC locations sell gifts and gift engraving and other services similar to
those offered by Things Remembered, in addition to key duplicating and watch
repair services. As of May 3, 1997, 93 of the CGC locations in operation were
standard format shops occupying approximately 150 square feet. Since 1989, CGC
has also operated greeting card locations in Sears stores and combined them with
the CGC operations in such stores. Locations in this enhanced format, which
numbered 63 as of May 3, 1997, average approximately 1,000
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square feet in size. Over approximately four years, 289 CGC locations have been
converted to gift centers. Gift centers, which occupy approximately 1,200 square
feet of space, typically carry a substantially expanded line of engravable and
non-engravable gifts along with greeting cards. In the fourth quarter of fiscal
1995, gift centers began offering selected softgoods supported by the Cole Gift
central fulfillment operation. CGC also operates 53 key kiosks, of approximately
80 square feet in size, that provide key duplicating and key related products
only.
In fiscal 1995, CGC opened the first "Personally Yours" department within
Sears. Personally Yours is a concept designed to generate additional customer
traffic and increase sales by offering personalization for hard and soft line
products for both CGC and Sears merchandise.
General
Cole Gift locations are usually operated by one or two employees during
non-peak periods and up to 15 employees during the peak Christmas season.
Locations typically employ a store manager on a full-time basis and a full or
part-time assistant manager, while the balance of the employees are part-time
sales associates.
Nearly all Cole Gift locations are equipped with gift engravers and key
duplicating machines. Cole Gift has computerized engraving equipment in most
Things Remembered stores and kiosks. Many Things Remembered stores also have
equipment for etching glassware items. All Cole Gift locations are equipped with
point of sale terminals.
The Company ships most of Cole Gift's store merchandise, other than
greeting cards, through its centralized distribution system at its warehouse in
North Jackson, Ohio. The warehouse, which services both Things Remembered and
CGC, utilizes a computerized carousel system to automate the process of locating
merchandise needed to fill a store order.
HOST RELATIONSHIPS
The Company believes it has developed excellent relationships with major
host stores in which CGC and Cole Vision operate. The Company has maintained its
relationships with Sears and Montgomery Ward for over 40 years in the gift and
key business and over 35 years in the optical business. Of the Sears and
Montgomery Ward stores that offer optometric services, virtually all are
operated by Cole Vision. Although CGC's and Cole Vision's leases with their
major hosts are terminable by either party upon relatively short notice, neither
has ever had a lease terminated other than in connection with a store closing,
relocation or major remodeling. See "Risk Factors -- Relationships with Major
Host Stores."
SEASONALITY
The Company's business historically has been seasonal, with, on average,
approximately 30% of its net revenue and approximately 50% of its income from
operations generated in the fourth fiscal quarter because of the importance of
gift sales during the important Christmas retailing season. Although the
acquisitions of Pearle and AVC will moderate the seasonality of the Company due
to relatively lower levels of optical product sales during the Christmas holiday
season, the Company's business will remain seasonal.
PURCHASING
The merchandise, supplies and component parts required for the various
products sold by the Company are purchased from a large number of suppliers and
manufacturers and are generally readily available. In most cases, such purchases
are not made under long-term contracts. In fiscal 1996, no single supplier or
manufacturer accounted for as much as 10% of total purchases.
COMPETITION
The Company operates in highly competitive businesses. Cole Optical
competes with other optical companies, private ophthalmologists, optometrists
and opticians and a growing number of HMO's in a highly fragmented marketplace.
Pearle competes on the basis of its highly recognized brand name, one-hour
express
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service and by offering quality eyecare products. Cole Vision competes primarily
on the basis of the service it provides as well as price and product quality,
and the reputation of its host stores. The Company is the largest retail optical
Company in the United States with approximately 2,000 company-owned and
franchised optical locations in the United States, Canada and the Caribbean.
Although Cole Gift operates the only two nationwide chains of gift stores
offering "while you shop" gift engraving, key duplicating, glass etching and
monogramming, as well as related merchandise, it competes with many other
retailers that sell gift items. Cole Gift competes with such other gift stores
retailers primarily on the basis of the value-added point of sale services that
it provides as well as price and product quality. Some of the Company's
competitors have greater financial resources than the Company.
STORE LOCATIONS AND ACQUISITIONS
The Company has increased the number of its retail locations from a total
of approximately 2,050 as of February 1, 1992 to more than 3,100 company-owned
and franchised locations as of May 3, 1997. The increase was accomplished
through new store openings and by acquisitions. The following table shows the
number of stores open or franchised at the end of each of the last five fiscal
years:
LOCATIONS OPEN AT PERIOD END
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------ MAY 3,
1992 1993 1994 1995 1996 1997
---- ---- ---- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
COLE OPTICAL
Cole Vision........................ 769 774 938 1,013 1,138 1,146
Pearle, owned...................... -- -- -- -- 348 355
Pearle, franchised................. -- -- -- -- 338 327
COLE GIFT
Things Remembered.................. 717 737 760 778 790 793
CGC................................ 594 586 589 587 501 498
</TABLE>
The Company has completed the following acquisitions (involving more than 5
locations) since fiscal 1992:
- In February 1993, the Company acquired the greeting card locations
operated by American Greetings in 171 Sears stores.
- In September 1993, the Company acquired Contact Lens Supply, Inc., a mail
order contact lens supplier.
- In January 1994, the Company acquired 107 optical locations in Montgomery
Wards stores that had been operated by others.
- In May 1995, the Company acquired 59 optical locations in B.J.'s
Wholesale Club stores that had been operated by others.
- In November 1996, the Company acquired 346 company-owned and 340
franchised Pearle locations.
- In November 1996, Cole Vision acquired 73 Sears Optical departments and
two freestanding Vision Club stores in Canada.
- In August 1997, the Company acquired 79 company-owned and 85 franchised
AVC locations.
EMPLOYEES
As of February l, 1997, the Company and its subsidiaries had approximately
8,600 full-time and 5,100 part-time employees. During October, November and
December, the Company employs additional full- and part-time employees. In
fiscal 1996, approximately 5,000 additional employees were employed during such
period. The hourly employees at Cole Gift's distribution center (approximately
80 employees in the aggregate) and approximately 140 employees at certain Pearle
store locations are represented by labor unions.
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In addition, certain AVC employees are subject to collective bargaining
agreements. The Company considers its present labor relations to be
satisfactory.
PROPERTIES
The Company owns an office and warehouse in Highland Heights, Ohio that is
subject to a mortgage and leases its executive offices and another office in
Cleveland, Ohio. All of Cole Vision's and Cole Gift's retail locations are
leased or operated under a license with the host store, and none of the
individual retail locations is material to the Company's operations. Leases for
stores operated in Sears stores and freestanding stores operated under the name
"Sears Optical" are generally for terms of 90 days and five years, respectively.
Leases for Things Remembered stores and kiosks are generally for terms of ten
and five years, respectively. The Company believes that its relationships with
its lessors are generally good. The Company leases its five Cole Vision optical
laboratories, two of which are located in Knoxville, Tennessee; Memphis,
Tennessee; Salt Lake City, Utah; and Richmond, Virginia, pursuant to leases
expiring (including renewals at the option of the Company) in 1999, 2005, 2002,
2006 and 2002, respectively.
At May 3, 1997, Pearle had 629 stores based in forty-three states, 18
stores in Canada and 35 stores in the Caribbean. Stores are located in malls,
strip centers and freestanding locations. Pearle leases most of its retail
stores under noncancellable operating leases with terms generally ranging from
five to ten years and which generally contain renewal options for additional
periods. Pearle also is the principal lessee on a majority of stores operated by
franchisees, who sublease the facilities from Pearle. Pearle owns its Dallas
Support Center, which comprises approximately 88,721 square feet of office space
and 147,336 square feet of laboratory and distribution facilities. Pearle also
owns a small headquarters and laboratory in Puerto Rico.
The Company has constructed a new warehouse and distribution facility for
Cole Gift that is expected to improve distribution efficiencies. The facility
will most likely be financed through a sale and lease-back transaction or
through conventional secured real estate financing. The Company estimates the
cost for this facility to be approximately $9 million.
PATENTS AND TRADEMARKS
The Company has received a license to use the names of its host stores for
use in communicating with customers or potential customers. The Company also is
licensed to operate its Sears freestanding locations under the name "Sears
Optical."
Pearle has registered numerous trademarks and service marks worldwide.
Pearle Trust B.V. has received a royalty-free license to the Pearle name in
Europe.
GOVERNMENT REGULATIONS
The offer and sale of franchises is subject to the Federal Trade
Commission's (the "FTC") rule entitled Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures, which requires, among
other things, that the franchisor prepare and update periodically a
comprehensive disclosure document in connection with the sale of its franchises.
A franchisor also must comply with state franchising laws and a wide range of
other state rules and regulations governing its ongoing relationship with its
franchisees. While the Company believes that the Pearle franchises are in
compliance in all material respects with all such applicable laws and
regulations, continued compliance with this broad federal and state regulatory
network by the Company will be essential and costly, and the failure to comply
with such regulations may have an adverse effect on the Company and its
operations. Violations of franchising laws and/or state laws and regulations
regulating substantive aspects of doing business as a franchisor in a particular
state could subject the Company and its affiliates to rescission offers,
monetary damages, civil and criminal penalties and/or injunctive proceedings. In
addition, absolute vicarious liability has been imposed upon franchisors based
upon claims made against franchisees. Further, franchisors are subject to an
implied covenant of good faith and fair dealing in their franchise
relationships, which implied covenant may restrict the manner in which the
Company operates. Even if the Company is able to obtain insurance coverage for
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such claims, there can be no assurance that such insurance will be sufficient to
cover potential claims against the Company.
Cole Vision and Pearle are subject to extensive federal, state and local
laws, rules and regulations affecting the health care industry and the delivery
of health care, including laws and regulations prohibiting the practice of
medicine and optometry by persons not licensed to practice medicine or
optometry, prohibiting the unlawful rebate or unlawful division of fees and
limiting the manner in which prospective patients may be solicited. The
regulatory requirements that Cole Vision and Pearle must satisfy to conduct its
business will vary from state to state. In particular, some states have enacted
laws governing the ability of ophthalmologists and optometrists to enter into
contracts to provide professional services with business corporations or lay
persons, and some states prohibit Cole Vision and Pearle from computing their
fee for management services based upon a percentage of the gross revenues of the
ophthalmological practice being managed.
The field of optical retailing is regulated by state or provincial
governments in those regions in which Cole Vision, Pearle and other retail
optical firms do business. The legality of Cole Vision's and Pearle's
relationships with optical professionals in the jurisdictions in which it
operates has been and may be challenged from time to time, and if challenged,
Cole Vision and Pearle may be required to alter the manner in which they conduct
their business in the jurisdictions in which they are challenged. Such
alterations may adversely affect the Company's business.
LEGAL PROCEEDINGS
The Company is subject to a variety of routine legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND PARENT
The following table sets forth certain information concerning the directors
and executive officers of the Company and the Parent. Directors serve for a term
of one year and until their successors are elected. Officers hold office until
their successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- ------ ---------------------------------------------------------------
<S> <C> <C>
Jeffrey A. Cole 55 Chairman, Chief Executive Officer, Chief Financial Officer and
Director
Brian B. Smith 44 President, Chief Operating Officer and Director
Leslie D. Dunn 52 Senior Vice President -- Business Development, Secretary and
General Counsel
Joseph Gaglioti 51 Vice President and Treasurer
Wayne L. Mosley 43 Vice President, Controller, Assistant Secretary and Assistant
Treasurer
Timothy F. Finley 53 Director
Irwin N. Gold 40 Director
Peter V. Handal 54 Director
Charles A. Ratner 55 Director
Walter J. Salmon 66 Director
</TABLE>
Mr. Cole has been Chairman, Chief Executive Officer, Chief Financial
Officer and a Director of the Company since its formation. Mr. Cole has been a
Director of the Parent since 1984, and since 1969 had been a director of a
predecessor company which operated the business of the Parent prior to 1984 (the
"Predecessor"), serving as Chairman of the Predecessor's Executive Committee
from 1978 to 1984. He has been Chairman and Chief Executive Officer of the
Parent since 1992, Chief Financial Officer of the Parent since 1991 and was
President and Chief Executive Officer of the Parent from 1984 to 1992. He was
Chief Financial Officer and Treasurer of the Predecessor from 1978 to 1983 and
was Vice Chairman of the Board of Directors, President and Chief Operating
Officer of the Predecessor from 1983 to 1984. He is also a Director of Hartmarx
Corporation.
Mr. Smith has been President and Chief Operating Officer of the Company
since its formation, and a Director since November 1994. Mr. Smith has been
President and Chief Operating Officer of the Parent since 1992, and a Director
since November 1994. From January 1992 until September 1992, he was President
and Chief Operating Officer of a subsidiary company that merged into the Parent
in September 1992 ("CNCD"). He was Executive Vice President and Chief Operating
Officer of CNCD until January 1992. Mr. Smith has been Vice Chairman of Cole
Vision and CGC, each of which is a wholly owned subsidiary of the Company, since
January 1995 and previously was President of Cole Vision and CGC since 1987 and
1990, respectively. He has been President of Things Remembered, a wholly owned
subsidiary of the Company, since 1990.
Ms. Dunn has held her position with the Company and an identical position
with the Parent since September 3, 1997. For more than five years prior to that
date, she was a partner with the law firm of Jones, Day, Reavis & Pogue.
Mr. Gaglioti has been Vice President and Treasurer of the Company since its
formation. Mr. Gaglioti has been Vice President of the Parent since 1992 and
Treasurer of the Parent since 1991. He was Assistant Treasurer of the Parent and
CNCD from 1984 to 1991 and has served in various capacities with the Predecessor
from 1981 to 1984.
Mr. Mosley has been Vice President and Controller of the Company since its
formation. Mr. Mosley has been Vice President and Controller (principal
accounting officer), Assistant Secretary and Assistant Treasurer of the Parent
since 1992. Mr. Mosley served as Vice President, Controller -- Finance of CNCD
from 1991 to 1992, was Chief Accounting Officer of CNCD from 1990 to 1991 and
Assistant Corporate Controller of CNCD from 1986 to 1990.
56
<PAGE> 61
Mr. Finley has been a Director of the Company since its formation and has
been a Director of the Parent since 1992. Since 1990, Mr. Finley has been
Chairman and Chief Executive Officer of Jos. A. Bank Clothiers, Inc., a clothing
retailer, and Chairman and President of The Finley Group since 1986. He is also
a director of Venture Stores, Inc.
Mr. Gold has been a Director of the Company since its formation and has
been a Director of the Parent since 1992. Mr. Gold has been a Managing Director
of Houlihan Lokey Howard & Zukin, Inc. ("Houlihan Lokey"), an investment banking
firm, since 1988.
Mr. Handal has been a Director of the Company since its formation and has
been a Director of the Parent since 1992. Currently, Mr. Handal is President of
the consulting company COWI International Group, Managing Partner 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., a clothing retailer.
Mr. Ratner has been a Director of the Company and the Parent since 1995.
Mr. Ratner has served as the President, the Chief Executive Officer and a
director of Forest City Enterprises, Inc., a national real estate development
and management company, since 1993, prior to which he served as its Executive
Vice President. Mr. Ratner is Chairman of Forest City Rental Properties
Corporation, a subsidiary of Forest City Enterprises, Inc., a position he has
held for at least five years. He is also a director of Forest City Enterprises,
Inc.
Mr. Salmon is the Stanley Roth Sr., Professor of Retailing 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 the 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; and The Quaker Oats Company.
EXECUTIVE COMPENSATION
The following table sets forth for the last three fiscal years certain
compensation information about the Company's chief executive officer and the
other persons who served as executive officers of the Company during fiscal
1996.
57
<PAGE> 62
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------------
ANNUAL AWARDS
COMPENSATION(1) RESTRICTED SECURITIES
--------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(3) OPTIONS(#) COMPENSATION(5)
- -------------------------------- ---- -------- -------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Cole -- 1996 $638,452 $553,752 240,000 $ 78,491
Chairman, Chief 1995 617,692 193,440 25,000 74,649
Executive Officer and 1994 600,385 295,331 131,815(4) 320,239
Chief Financial Officer
Brian B. Smith -- 1996 $437,586 $282,207(2) $ 124,344 180,000 $ 39,845
President and Chief 1995 400,192 125,654 17,500 37,617
Operating Officer 1994 371,154 183,056 79,322(4) 34,515
Joseph Gaglioti -- 1996 $132,117 $ 85,309(2) 37,580 20,000 $ 12,366
Vice President and 1995 122,231 38,376 3,500 10,885
Treasurer 1994 116,846 61,644 4,666(4) 10,433
Wayne L. Mosley -- 1996 $132,117 $ 85,309(2) 37,580 20,000 $ 11,704
Vice President and 1995 122,231 38,376 3,500 10,721
Controller 1994 116,846 61,644 4,666(4) 10,312
</TABLE>
- ---------------
(1) 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.
(2) Reflects a portion of incentive compensation awarded on March 20, 1997 as
shares of 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 Common Stock at such date. Such shares are not transferable prior
to March 20, 1998.
(3) Reflects March 20, 1997 awards pursuant to the Company's Management
Incentive Bonus Program as follows: (i) Mr. Smith (1,951 shares that vest
March 20, 1998 and 1,950 shares that vest March 20, 1999); (ii) Mr. Gaglioti
(590 shares that vest March 20, 1998 and 589 shares that vest March 20,
1999); and (iii) Mr. Mosley (590 shares that vest March 20, 1998 and 589
shares that vest March 20, 1999). Although such shares are restricted and
subject to a risk of forfeiture, the value of such awards shown is based on
the value of unrestricted shares of Common Stock as of March 20, 1997.
(4) Reflects options repriced during 1994.
(5) The amounts listed consist of (i) payments by the Parent pursuant to an
agreement between the Parent and an insurance company that provides for
reimbursements to Messrs. Cole and Smith in amounts up to $20,000 per year
for certain medical expenses for themselves and their families not otherwise
covered by the Parent's group medical insurance plan, (ii) contributions to
the Parent's 401(k) Plan to match pre-tax elective deferral contributions,
(iii) the value of life insurance provided by the Parent for the benefit of
the executive officers and (iv) contribution credits in fiscal 1995 and 1994
provided under the Company's Supplemental Retirement Benefit Plan. See
"Supplemental Executive Retirement Plans."
CERTAIN AGREEMENTS
Effective April 1, 1996, Jeffrey A. Cole and Brian B. Smith entered into
separate agreements with the Parent and its principal subsidiaries, which
replaced earlier employment agreements, pursuant to which Messrs. Cole and Smith
are employed by the Parent and each of its principal subsidiaries. The
agreements provide for a three-year term that, on the first anniversary of the
agreement and each successive anniversary thereafter, automatically extends for
an additional year up to and until 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 not less than $640,000 for Mr. Cole and $440,000 for Mr. Smith, along with
participation in bonus programs and other customary benefits. For 1997,
58
<PAGE> 63
Mr. Cole's salary has been fixed at $675,000 and Mr. Smith's salary will be
$525,000. Under the agreements, upon their termination of employment (including
a self-termination during a period following a change of control of the Parent)
except (i) termination by reason of death or disability, (ii) voluntary
resignation other than (a) a voluntary resignation involving a substantial
adverse change in duties without consent or (b) following a change of control of
the Company, (iii) the expiration of the term of the agreement or (iv)
termination for cause, Messrs. Smith and Cole are entitled to receive a lump sum
payment equal to three times the sum of (x) their respective salaries at the
time of such termination and (y) their respective average bonuses for the last
five fiscal years. 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.
Each of the other executive officers of the Company has agreed not to
compete with the Parent or its affiliates or to do certain other acts contrary
to its interests following cessation of employment. Such agreements provide,
upon termination by the Parent or its subsidiaries of such executive officer's
employment other than for cause, for up to 12 monthly payments of the difference
(if any) between such executive officer's base salary with the Parent or its
affiliates and any base salary received from new employment. The exact amount of
such payment obligations cannot be determined prior to termination of the
officer's employment.
Leslie D. Dunn has entered into an arrangement with the Company that will
provide her with a salary of $205,000 and participation in the Management
Incentive Bonus Program at up to 100% of her base salary level. Ms. Dunn is also
entitled to participate in the Company's supplemental executive retirement plans
(as defined herein). Ms. Dunn has also received a grant of options to acquire
15,000 shares of Parent Common Stock (as defined herein) with an exercise price
equal to the fair market value on the date of grant.
COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS OF THE COMPANY
Described below are certain employee benefit plans of the Company pursuant
to which cash or non-cash compensation was paid or distributed to its executive
officers during the last fiscal year, or is proposed to be paid or distributed
to its executive officers in the future.
RETIREMENT PLAN
The Cole National Group, Inc. Retirement Plan (the "Retirement Plan")
provides non-contributory benefits that are integrated with Social Security
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 of an employee's base
salary, not including bonuses or any other form of compensation. Under the
Internal Revenue Code of 1986, as amended (the "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 and Brian B. Smith will be reduced because of these
limits.
Credited service under the Retirement Plan for each of the individuals
named in the Summary Compensation Table is as follows: Jeffrey A. Cole -- 18
years; Brian B. Smith -- 13 years; Joseph Gaglioti -- 15 years; and Wayne L.
Mosley -- 10 years.
Participants in the Retirement Plan may elect payment of retirement
benefits under various alternative 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.
59
<PAGE> 64
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE (1)
--------------------------------------------------------
REMUNERATION 10 15 20 25 30 OR MORE
------------------ ------- ------- -------- -------- ----------
<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
</TABLE>
- ---------------
(1) Based on retirement in 1996.
(2) The 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),
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
The Company has two supplemental executive retirement plans (the "SERPs")
that provide for payment of benefits to the participating executives (who
include, among others, the officers named in the Summary Compensation Table)
supplementing amounts payable under the Retirement Plan. The Cole National
Group, Inc. Supplemental Pension Plan (the "Pension Plan SERP") is an excess
benefit plan designed to replace benefits that would otherwise have been payable
under the Retirement Plan but that were limited as a result of certain Code
limitations. 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 Pension Plan SERP will vest in the excess benefits after five years of
service (with credit for past service). 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 for each year of
future service). Benefits under the Pension Plan SERP will be payable on the
same basis as the Retirement Plan benefits, while benefits under the Benefit
Plan SERP will generally be payable upon retirement (at age 55 or older) in ten
annual installments or in another form elected by the participant prior to
retirement. The following contribution credits were provided in 1996 under the
Benefit Plan SERP to the named individuals and are included in "All Other
Compensation" in the Summary Compensation Table: Mr. Cole -- $64,000; Mr.
Smith -- $35,200; Mr. Gaglioti -- $10,640; and Mr. Mosley -- $10,640.
COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS OF THE PARENT
Described below are certain employee benefit plans of the Parent pursuant
to which cash or non-cash compensation was paid or distributed to its executive
officers during the last fiscal year, or is proposed to be paid or distributed
to its executive officers in the future.
60
<PAGE> 65
STOCK OPTION PLANS
The Parent's 1992 Management Stock Option Plan (the "1992 Plan") provides
for the granting of stock options for up to 555,556 shares of the Parent's
Common Stock to the officers or key employees of the Parent and its
subsidiaries, including the Company. The 1993 Management Stock Option Plan (the
"1993 Plan") provides for the granting of stock options for up to 600,000 shares
of the Parent's Common Stock to the officers or key employees of the Parent and
its subsidiaries, including the Company. The Parent's 1996 Management Stock
Option Plan (the "1996 Plan") provides for the granting of stock options for up
to 884,000 shares of the Parent's Common Stock to the officers or key employees
of the Parent and its subsidiaries, including the Company. The 1992 Plan and the
1993 Plan were approved by the stockholders of the Parent in February 1994 prior
to the Parent's initial public offering and the 1996 Plan was approved by the
Parent's stockholders at the 1996 annual meeting.
The stock options under the 1992 Plan provided for periodic vesting over
five years, with early vesting of all or a portion of the unvested options in
the case of certain events, such as consummation of a public offering of the
Parent's Common Stock, a sale of all or substantially all of the assets of the
Parent, certain change in control transactions, certain mergers or the voluntary
dissolution of the Parent. In May 1993, the Parent's Board of Directors
authorized amendments (the "May Amendments") to the stock option agreements
under the 1992 Plan for all of the Parent's executive officers and for certain
senior personnel of the Parent's subsidiaries, including the Company. The May
Amendments provided for the immediate vesting of the stock options under such
option agreements, but provided that any shares acquired upon exercise of the
options in excess of the number of shares that would have been vested under the
option agreements at the date of exercise had the May Amendments not been
adopted would be subject to forfeiture in the event that the employee ceased to
be employed by the Parent or any of its subsidiaries, as a result of either
voluntary departure or termination for cause, during the period during which the
vesting provision applicable to such shares prior to such amendment would not
have expired. There were no grants made under the 1992 Plan in fiscal 1995 to
the individuals included in the Summary Compensation Table.
The stock options under the 1993 Plan provide for periodic vesting over
five years, with early vesting of all or a portion of the unvested options in
circumstances similar to those that apply to the options under the 1992 Plan.
The original option grants under the 1993 Plan were amended in 1994 to reduce
their exercise prices, to extend their vesting period from four to five years,
and to reduce the number of options granted. The following table contains
information concerning options granted under the 1993 Plan during fiscal 1995 to
the executive officers of the Parent included in the Summary Compensation Table.
The stock options granted as of the date hereof under the 1996 Plan 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 or following certain terminations of an employee's
service to the Company. In addition, certain options provide for early vesting
if the Company's Common Stock trades at a target price for a period of 20
consecutive trading days; in 1996, options for 77,500 shares vested as a result
of such provision. None of the options granted to the named executive officers
contain such a provision.
61
<PAGE> 66
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT
OF TOTAL
OPTIONS POTENTIAL REALIZABLE
GRANTED VALUE AT ASSUMED ANNUAL
NUMBER OF TO RATES OF STOCK PRICE
SECURITIES EMPLOYEES EXERCISE APPRECIATION FOR OPTION
UNDERLYING IN OR BASE TERM(1)
OPTIONS FISCAL PRICE EXPIRATION -------------------------
NAME GRANTED(#) YEAR(%) ($/SH) DATE 5%($) 10%($)
- ------------------------ --------- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Cole 240,000 30.1% $10.81 2/22/06 $1,631,982 $4,135,762
Brian B. Smith 180,000 22.6 10.81 2/22/06 1,223,986 3,101,821
Joseph Gaglioti 16,000 2.0 10.81 2/22/06 108,799 275,717
4,000 0.5 28.63 1/23/07 72,008 182,484
Wayne L. Mosley 16,000 2.0 10.81 2/22/06 108,799 275,717
4,000 0.5 28.63 1/23/07 72,008 182,484
</TABLE>
- ---------------
(1) The value, if any, one may realize upon the exercise of a stock option
depends on the excess of the then current market value per share over the
exercise price per share. There is no assurance that the values to be
realized upon exercise of the stock options listed above will be at or near
the amounts shown.
The following table contains information concerning options exercised
during fiscal 1995 and unexercised stock options held as of February 1, 1997.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FEB. FEB. 1, 1997
SHARES 1, 1997(#) ($)(1)
ACQUIRED ON --------------- --------------------
EXERCISE EXERCISABLE/ EXERCISABLE/
NAME (#) UNEXERCISABLE UNEXERCISABLE
----------------- ----------- --------------- --------------------
<S> <C> <C> <C>
Jeffrey A. Cole -- 136,388/316,927 $2,318,731/5,541,013
Brian B. Smith -- 82,892/227,930 1,409,787/3,992,571
Joseph Gaglioti -- 14,700/ 24,466 326,583/ 358,864
Wayne L. Mosley -- 14,700/ 24,466 326,583/ 358,864
</TABLE>
- ---------------
(1) Based on the closing price of $28.50 per share of the Parent's Common Stock
on the New York Stock Exchange on January 31, 1997, the last trading day of
fiscal 1996.
The 1992 Plan, the 1993 Plan and the 1996 Plan and the option agreements
thereunder, subject to certain restrictions, permit each optionee to exercise
options through borrowing funds from the Parent. The principal on such loans is
payable five years following the date of exercise, with interest payable
annually at a rate fixed at the date of exercise 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 Parent the
full amount of the exercise price of such shares granted under the 1992 Plan. As
of January 31, 1997, 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 payable by such individual is shown in
parentheses): Jeffrey A. Cole -- $666,666 (5.47%) and Brian B. Smith -- $333,336
(5.47%).
The Board of Directors and the Compensation Committee are authorized to
determine the time at which options granted under the 1996 Plan will become
exercisable and will terminate. Notwithstanding the
62
<PAGE> 67
foregoing, the 1996 Plan provides that an option will immediately become fully
exercisable upon the occurrence of a "Sale Transaction" prior to the fifth
anniversary of the date on which such option was granted. For purposes of the
foregoing, a "Sale Transaction" means (a) the sale, transfer or other
disposition of all or substantially all of the assets of the Parent, except a
sale, transfer or disposition (i) to a subsidiary of the Parent or (ii) that
results in the holders of the then-outstanding securities of the Parent
generally eligible to vote in the election of directors of the Parent
possessing, in the aggregate, a majority ownership interest in the corporation,
partnership, association, firm, entity or individuals (collectively, a "Person")
acquiring such assets, (b) any transaction resulting in a majority of the
then-outstanding securities of the Parent generally eligible to vote in the
election of directors of the Parent being held or owned beneficially by one
Person or an affiliated group of Persons, (c) a merger or consolidation of the
Parent with another Person, except a merger or consolidation of the Parent (i)
with a subsidiary of the Parent or (ii) that results in the holders of the then-
outstanding securities of the Parent generally eligible to vote in the election
of directors of the Parent possessing, in the aggregate, a majority ownership
interest in the surviving Person or (d) the voluntary liquidation or dissolution
of the Parent. The 1996 Plan further provides that no option may run for more
than ten years from the date of grant.
EXECUTIVE LIFE INSURANCE PLAN
The Parent's 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 such officers
and key employees 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 Parent 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 March 1996, the Board of Directors approved the adoption by the Parent
of the Management Incentive Bonus Program (the "Incentive Program"), to replace
the Parent's existing bonus plans for certain senior managers. The Incentive
Program was approved by the Parent's stockholders at the 1996 annual meeting.
Under the Incentive Program, the Compensation Committee establishes performance
goals within 90 days of the commencement of a fiscal year. The performance goals
for the Parent as a whole or the operating units of the Parent may include
earnings, operating income, increases in revenue, return on assets, investment,
sales or equity, total stockholder return or any combination thereof.
The actual level of achievement of the performance goals serves 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. The highest award that may be given under
the Incentive Program is 100% of base salary. The Incentive Program provides
that awards under the Incentive Plan may be made in cash or shares of Common
Stock at the discretion of the Compensation Committee. The Compensation
Committee approves the list of participants for the fiscal year who include the
Parent's executive officers and certain other senior managers. For fiscal 1996,
the Compensation Committee designated nine senior managers, including Messrs.
Cole, Smith, Gaglioti and Mosley, to participate in the Incentive Program.
401(k) PLAN
The Parent provides a defined contribution plan, including features under
section 401(k) of the Internal Revenue Code of 1986, which provides retirement
benefits to its employees. Eligible employees may contribute up to 15% 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 no mandatory matching of employee contributions by the
Company, but a discretionary match is determined annually by the Board of
Directors. The Board of Directors approved the Company's contribution of
$325,000 to be used to partially match employee contributions made in 1996.
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<PAGE> 68
COMPENSATION OF DIRECTORS
The Parent pays each Director who is not an employee of the Parent or its
subsidiaries, including the Company, an annual fee of no less than $20,000 plus
reasonable out-of-pocket expenses. Members of the Audit Committee and the
Compensation Committee receive $500 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 $2,000 and $3,000 per year, respectively.
In January 1993, options to purchase 7,500 shares of the Parent's Common
Stock were issued to Messrs. Finley, Gold and Handal. The options are fully
vested and are exercisable at $3.00 per share. At February 1, 1997, options to
purchase 7,500 shares were exercisable for each of those Directors.
The Parent's Amended and Restated Nonqualified Stock Option Plan for
Nonemployee Directors (the "Directors' Plan") provides for the granting of stock
options for up to 100,000 shares of the Parent's Common Stock to Directors of
the Parent who are not employees of the Parent or any of its subsidiaries,
including the Company. The Directors' Plan was approved by the stockholders of
the Parent prior to the Parent's initial public offering in April 1994. The
Directors' Plan provides for the automatic grant of a nonqualified option to
purchase 1,500 shares of Common Stock to each newly elected or appointed
nonemployee Director of the Parent on January 1 of the year immediately
following the year in which he or she is elected or appointed and on each
January 1 thereafter for as long as he or she is elected or appointed and on
each January 1 thereafter for as long as he or she continues to serve.
Nonemployee Directors serving at the time of the adoption of the Directors' Plan
received option grants under such plan on January 1, 1997. Options granted under
the Directors' 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 Directors' Plan is the average of the high and low selling prices of the
Parent's Common Stock on the New York Stock Exchange on the date of grant, or,
if no such prices are quoted on the date of grant, on the last date on which
such prices are quoted prior to the date of grant. Mr. Ratner received an
automatic grant of options for 1,500 shares on January 1, 1996 with an exercise
price of $13.6875, the average of the high and low selling prices for the Common
Stock on December 29, 1995. On January 1, 1997, Messrs. Finley, Gold, Handal and
Ratner received automatic grants of options for 1,500 shares with an exercise
price of $26.125, the average of the high and low selling prices for the Common
Stock on December 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS, INSIDER PARTICIPATION AND CERTAIN
TRANSACTIONS
Deliberations concerning compensation for fiscal 1996 generally involved
the Compensation Committee, the Special Compensation Committee and the full
Board of Directors of the Parent, including Jeffrey A. Cole and Brian B. Smith,
who are employees of the Company.
The Company currently leases its headquarters office space in a building
which is owned by a partnership in which Jeffrey A. Cole currently has a 46.5%
limited partnership interest. The Company believes that the lease terms are
equivalent to those that could have been obtained pursuant to an arm's length
transaction with unaffiliated parties. Lease payments to the partnership
totalled $344,637, $354,194 and $338,174, net of payments made by the Company's
subtenant, during fiscal 1994, 1995 and 1996, respectively.
Until August 1995, when American Consumer Products, Inc. ("ACP") was
acquired by Vista 2000, Stephan W. Cole, the brother of Jeffrey A. Cole, was the
controlling shareholder, Chief Executive Officer and a director of ACP, and
Jeffrey A. Cole was a beneficial owner of 16.62% of the shares of common stock
of ACP and a director of ACP. In fiscal 1993, 1994 and 1995, the Company
acquired approximately $1.6 million, $1.3 million and $1.1 million,
respectively, of key blanks and other related products from ACP in transactions
the Company believes were on terms equivalent to those that could have been
obtained pursuant to arm's length transactions with unaffiliated parties. These
amounts are not considered material to either the Company or ACP, as they
represent less than 5% of the annual gross revenues of each entity.
Mr. Ratner is the President, Chief Executive 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
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<PAGE> 69
shopping malls in which the Company's stores may operate. Things Remembered
currently operates thirteen stores under leases with Forest City or its
affiliates. Under such leases, which expire at different times during the period
from 1996 to 2005, Things Remembered paid aggregate rent of $545,443 during
1996. Additional common area charges, insurance charges, taxes and similar
charges were paid. The Company believes that the terms of its 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.
Effective as of March 1992, Joseph E. Cole, founder of the Company and the
father of Jeffrey A. Cole, who was then serving as Chairman of the Company,
relinquished that title and took on the title of Senior Chairman. Joseph E.
Cole, who served as Chairman of the Board and as a Director of the Company until
March 1992, was compensated prior to his death in January 1995 pursuant to an
employment agreement with the Company that provided for an annual salary of
$200,000, commencing in fiscal 1993. Under the agreement, Joseph E. Cole
received payments of $200,000 in fiscal 1993 and 1994. In fiscal 1995, Jeffrey
A. Cole's mother, who is the widow of Joseph E. Cole, received a final $200,000
payment under Joseph E. Cole's employment agreement with the Company.
Houlihan Lokey of which Mr. Irwin Gold, a director of the Company, is a
managing director, served as a financial advisor to the Company in connection
with the Parent's Acquisition of Pearle and was compensated
by the Company in the amount of $50,000, as a non-refundable retainer fee.
Following the consummation of the Pearle Acquisition, the Company paid Houlihan
Lokey an additional payment of $950,000.
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.
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<PAGE> 70
PRINCIPAL STOCKHOLDERS
The Company is a wholly owned subsidiary of the Parent, which owns 1,100
shares of the Company Common Stock, par value $.01 per share, which are the only
shares of the Company's Capital Stock that are outstanding. The following table
sets forth certain information as of August 29, 1997 (except as otherwise noted)
as to the ownership of the Common Stock of the Parent, par value $.001 per share
(the "Parent Common Stock"), by each of those persons owning of record or known
to the Parent to be the beneficial owner of more than five percent of the Parent
Common Stock; each of the Parent's Directors; each of the Parent's executive
officers; and all Directors and executive officers of the Parent as a group. The
number of shares of the Parent's Common Stock outstanding on August 29, 1997 was
14,724,935. Except as noted, all information with respect to beneficial
ownership has been furnished by the respective Director or officer or is based
on filings with the Commission. Unless otherwise indicated below, the persons
named below have sole voting and investment power with respect to the number of
shares set forth opposite their names. Beneficial ownership of the Parent's
Common Stock has been determined for this purpose in accordance with Rules 13d-3
and 13d-5 under the Exchange Act, which provide, among other things, that a
person is deemed to be the beneficial owner of the Parent's Common Stock if such
person, directly or indirectly, has or shares voting power or investment power
in respect of such stock or has the right to acquire such ownership within sixty
days. Accordingly, the amounts shown in the table do not purport to represent
beneficial ownership for any purpose other than compliance with Commission
reporting requirements. Further, beneficial ownership as determined in this
manner does not necessarily bear on the economic incidence of ownership of the
Parent's Common Stock.
<TABLE>
<CAPTION>
PERCENT
NAME OF BENEFICIAL OWNER NO. OF SHARES OF CLASS
------------- ----------------
<S> <C> <C>
FMR Corp.(1) 1,141,700 7.75%
82 Devonshire Street
Boston, MA 02109-3614
Palisade Capital Management, L.L.C.(2) 819,600 5.57%
One Bridge Plaza, Suite 695
Fort Lee, NJ 07024
T. Rowe Price Associates, Inc.(3) 1,100,000 7.47%
100 E. Pratt Street
Baltimore, MD 21202
Jeffrey A. Cole (4) 484,793 3.25%
Timothy F. Finley (4)(5) 12,159 *
Irwin N. Gold (4)(5) 17,355 *
Peter V. Handal (4)(5) 19,878 *
Charles A. Ratner 1,500 *
Brian B. Smith (4)(6) 256,093 1.73%
Leslie D. Dunn -- *
Joseph Gaglioti (6)(7) 18,382 *
Wayne L. Mosley (6)(7) 18,439 *
Walter Salmon 500 *
All Directors and executive officers 829,099 5.49%
as a group (10 persons) (4)(5)(6)(7)
</TABLE>
- ---------------
* Less than one percent
(1) Stock ownership is based on a Schedule 13G dated February 14, 1997 and does
not include transactions since such date. Fidelity Management & Research
Company, a wholly owned subsidiary of FMR Corp. and an investment adviser
registered under the Investment Advisers Act of 1940 ("Fidelity"), 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 "Fidelity Funds").
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<PAGE> 71
The ownership of one investment company, Fidelity Low-Priced Stock Fund,
amounted to 1,100,000 shares or 7.47% of the Common Stock outstanding.
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), and the
Fidelity Funds each has sole power to dispose of the 1,141,700 shares owned
by the Fidelity Funds. 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 Funds, which power resides with the Fidelity
Funds' Boards of Trustees. Fidelity carries out the voting of the shares
under written guidelines established by the Fidelity Funds' Boards of
Trustees.
Edward C. Johnson 3d and Abigail P. Johnson own respectively 12.0% and 24.5%
of the outstanding voting common stock of FMR Corp. Mr. Johnson 3d is
Chairman of FMR Corp. Various Johnson family members and trusts for the
benefit of Johnson family members own approximately 49% of FMR Corp. voting
common stock. These Johnson family members, through their ownership of
voting common stock and the execution of a family shareholders' voting
agreement, may be deemed to form a controlling group with respect to FMR
Corp.
(2) Stock ownership is based on a Schedule 13G filed on February 1, 1997 and
does not include transactions since such date.
(3) Stock ownership is based on a Schedule 13G filed on February 14, 1997 and
does not include transactions since such date. These shares 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 800,000 shares, representing 5.43%
of the shares outstanding), for which T. Rowe Price Associates, Inc. ("Price
Associates") serves as investment adviser with power to direct investments
and/or vote the securities. For purposes of the reporting requirements of
the Exchange Act, Price Associates is deemed to be a beneficial owner of
such shares; however, Price Associates disclaims that it is, in fact, the
beneficial owner of such shares.
(4) Includes shares of Parent Common Stock that may be acquired pursuant to the
exercise of warrants exercisable within 60 days held by the following
individuals: Mr. Cole -- 2,707 shares; Mr. Gold -- 625 shares; Mr.
Handal -- 2,760 shares; Mr. Smith -- 1,888; and Mr. Finley -- 1,228 shares.
Included in Mr. Cole's and Mr. Smith's Parent Common Stock shares are
185,209 and 113,089 shares, respectively, that may be acquired within 60
days pursuant to the exercise of options granted under the Company's 1993
Management Stock Option Plan (the "1993 Plan").
(5) Includes 7,500 shares of Parent Common Stock that may be acquired within 60
days pursuant to the exercise of options granted under stock option
agreements.
(6) Includes shares of Parent Common Stock awarded under the Management
Incentive Bonus Program as follows: Mr. Smith -- 1,951 shares; Mr.
Gaglioti -- 590 shares; and Mr. Mosley -- 590 shares. Certain of such shares
are restricted and subject to a risk of forfeiture. See note (3) to Summary
Compensation Table.
(7) Includes shares of the Parent Common Stock that may be acquired within 60
days pursuant to the exercise of options granted under the 1992 Plan and the
1993 Plan as follows: Mr. Gaglioti -- 17,300 shares and Mr. Mosley -- 17,300
shares.
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<PAGE> 72
DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR NOTES
Initially, $190.0 million of Senior Notes were issued pursuant to the
Senior Note Indenture between the Company and Norwest Bank Minnesota, N.A., as
trustee. Currently, there is $165.8 million aggregate principal amount of Senior
Notes outstanding. The Senior Notes are unsecured and mature October 1, 2001
with no earlier scheduled redemption or sinking fund payments. Interest on the
Senior Notes accrues at the rate of 11.25% per annum and is payable semiannually
on April 1 and October 1 of each year. The Senior Notes are not redeemable at
the Company's option prior to October 1, 1998. Thereafter, the Senior Notes will
be subject to redemption at the option of the Company, in whole or in part, at
redemption prices ranging from 105.625% to 100% of the principal amount, plus
accrued and unpaid interest thereon.
Upon the occurrence of a change of control of the Company, each holder of
Senior Notes will have the right to require the repurchase of all or any part of
such holder's Senior Notes at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon. A "change of
control" would occur if a single purchaser or purchasers acting together as a
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
acquire more than 50% of the total voting power of the voting stock of the
Company and/or warrants or options to acquire such voting stock, calculated on a
fully diluted basis, or if there is a change in the Company's Board of Directors
not approved by a majority of directors who constitute continuing directors. So
long as no single purchaser or purchasers acting together as a "group" acquire
50% or more of the shares outstanding following the offering, the sale of the
shares of Common Stock made pursuant to this offering will not constitute a
change of control under the Senior Note Indenture.
The Senior Note Indenture pursuant to which the Senior Notes were issued
contains certain optional and mandatory redemption features.
Assuming the successful completion of the Tender Offer and related consent
solicitation, the restrictive covenants contained in the Senior Note Indenture
will be eliminated. See "Risk Factors -- Leverage."
Under the Senior Note Indenture each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in the payment when due of principal on the Senior
Notes; (iii) failure by the Company for 15 days after notice to comply with
certain "Change of Control," "Limitations on Restricted Payments" or "Limitation
on Indebtedness and Preferred Stock" provisions, as described in the Indenture;
(iv) failure by the Company for 60 days after notice to comply with other
agreements or covenants in the Senior Note Indenture or the Senior Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness, as
defined in the Senior Note Indenture, for money borrowed by the Company or any
of its subsidiaries (or the payment of which is guaranteed by the Company or any
of its subsidiaries) (other than the Senior Notes) whether such Indebtedness or
guarantee now exists, or is created after the date of the Senior Note Indenture;
(vi) failure by the Company or any of its subsidiaries to pay final judgments
(other than any judgment as to which a reputable insurance company has accepted
full liability) aggregating in excess of $5.0 million which judgments are not
stayed within 60 days after their entry; and (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its significant
subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Senior Notes will
become due and payable without further action or notice. Holders of the Senior
Notes may not enforce the Senior Note Indenture or the Senior Notes except as
provided in the Senior Note Indenture. Subject to certain limitations, holders
of a majority in principal amount of the then outstanding Senior Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Senior Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default in payment of principal
or interest) if it determines that withholding notice is in their interest.
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<PAGE> 73
EXISTING SENIOR SUBORDINATED NOTES
The Existing Senior Subordinated Notes in an aggregate principal amount of
$150.0 million were issued and are outstanding under the Existing Senior
Subordinated Note Indenture between the Company and Norwest Bank Minnesota,
N.A., as trustee. The Existing Senior Subordinated Notes are unsecured and
mature December 31, 2006 with no earlier scheduled redemption or sinking fund
payments. Interest on the Existing Senior Subordinated Notes accrues at the rate
of 9 7/8% per annum and is payable semiannually on June 30 and December 31 of
each year. The Existing Senior Subordinated Notes are not redeemable at the
Company's option prior to December 31, 2001; however, any time up to December
31, 1999 the Company may redeem up to 35% of the original principal amount of
the Existing Senior Subordinated Notes pursuant to a Qualified Equity Offering
and provided certain restrictions and qualifications are met. Thereafter, the
Existing Senior Subordinated Notes will be subject to redemption at the option
of the Company, in whole or in part, at redemption prices ranging from 104.9375%
to 100% of the principal amount, plus accrued and unpaid interest thereon.
Upon the occurrence of a change of control of the Company, each holder of
Existing Senior Subordinated Notes will have the right to require the repurchase
of all or any part of such holder's Existing Senior Subordinated Notes at a
purchase price equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon. A "change of control" would occur if a
single purchaser or purchasers acting together as a "group" (which the meaning
of Section 13(d) and 14(d)(2) of the Exchange Act) acquire 50% or more of the
total voting power of the voting stock of the Company and/or warrants or options
to acquire such voting stock, calculated on a fully diluted basis, or if there
is a change in the Company's Board of Directors not approved by a majority of
directors who constitute continuing directors. So long as no single purchaser or
purchasers acting together as a "group" acquire 50% or more of the shares
outstanding following the offering, the sale of the shares of Common Stock made
pursuant to this offering will not constitute a change of control under the
Existing Senior Subordinated Note Indenture. See "Risk Factors -- Leverage."
The Existing Senior Subordinated Note Indenture pursuant to which the
Existing Senior Subordinated Notes were issued contains certain optional and
mandatory redemption features and other financial covenants, including
restrictions on the ability of the Company to pay dividends or make other
restricted payments to the Parent. The Existing Senior Subordinated Note
Indenture permits dividend payments to the Parent of one-half of the Company's
consolidated net income, provided that no default or event of default has
occurred under the Existing Senior Subordinated Note Indenture and that the
Company has met a specified fixed charge coverage ratio test. The indenture also
permits payments to the Parent for certain tax obligations and for
administrative expenses of the Parent not to exceed .25% of net sales.
In addition, the Existing Senior Subordinated Note Indenture contains
covenants restricting the ability of the Company and its subsidiaries to, among
other things, (i) sell or otherwise dispose of assets, (ii) create or incur
liens on their assets, (iii) incur or guaranty indebtedness (which is currently
more restrictive than is included in the Senior Notes), and (iv) merge or
consolidate with or into, or sell or otherwise dispose of all or substantially
all of the Company's assets to, another person.
Under the Existing Senior Subordinated Note Indenture each of the following
constitutes an Event of Default: (i) default for 30 days in the payment when due
of interest on the Existing Senior Subordinated Notes; (ii) default in the
payment when due of principal on the Existing Senior Subordinated Notes; (iii)
failure by the Company for 60 days after notice to comply with other agreements
or covenants in the Existing Senior Subordinated Note Indenture or the Existing
Senior Subordinated Notes; (iv) default in the amount of $5.0 million or more
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness, as defined in the
Existing Senior Subordinated Note Indenture, for money borrowed by the Company
or any of its subsidiaries (or the payment of which is guaranteed by the Company
or any of its subsidiaries) (other than the Existing Senior Subordinated Notes)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Existing Senior Subordinated Note Indenture; (v) failure by the Company
or any of its subsidiaries to pay final judgments (other than any judgment as to
which a reputable insurance company has accepted full liability) aggregating
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<PAGE> 74
in excess of $5.0 million which judgment are not stayed within 60 days after
their entry; and (vi) certain events of bankruptcy or insolvency with respect to
the Company or any of its significant subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of then outstanding Existing Senior
Subordinated Notes may declare all the Existing Senior Subordinated Notes to be
due and payable immediately. Holders of the Existing Senior Subordinated Notes
may not enforce the Existing Senior Subordinated Note Indenture or the Existing
Senior Subordinated Notes except as provided in the Existing Senior Subordinated
Note Indenture. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding Existing Senior Subordinated Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Existing Senior Subordinated Notes notice of any
continuing Default of Event of Default (except a Default or Event of Default in
payment of principal or interest) if it determines that withholding notice is in
their interest.
CREDIT FACILITY
The Company's primary source of liquidity is funds provided from operations
of its operating subsidiaries. On November 15, 1996, Cole Vision, Things
Remembered and CGC, the principal operating subsidiaries of the Company, Pearle
and Pearle Service Corporation (collectively, the "Borrowers"), entered into the
Credit Facility. The Credit Facility provides the Borrowers with a four-year
revolving line of credit of up to the lesser of a "borrowing base" and
$75,000,000. A portion of the Credit Facility not in excess of $30,000,000 is
available for the issuance of letters of credit. Borrowings under the Credit
Facility initially will bear interest at a rate equal to, at the option of the
Borrowers, either (a) the Eurodollar Rate plus 1.25% or (b) .25% plus the
highest of (i) the rate of interest publicly announced by Canadian Imperial Bank
of Commerce as its prime rate in effect at its principal office in New York
City, (ii) the secondary market rate for three-month certificates of deposit
(adjusted for statutory reserve requirements) plus 1% and (iii) the federal
funds effective rate from time to time plus 0.5%. These interest rates are
subject to quarterly adjustment after the first anniversary of the closing of
the Credit Facility based on the Company's achievement of certain interest
coverage ratio benchmarks. Proceeds of certain asset sales and proceeds of
casualty or condemnation recoveries by the Company or the Borrowers will be
required to be reinvested in specified capital assets of the Company or the
Borrowers or applied to reduce the commitments under the Credit Facility. The
Credit Facility requires the Borrowers to comply with various operating
covenants that restrict corporate activities, including covenants restricting
the Borrowers' ability to incur additional indebtedness, pay dividends, prepay
subordinated indebtedness, dispose of certain assets, create liens, make capital
expenditures and make certain investments or acquisitions. The Credit Facility
also requires the Borrowers to comply with certain financial covenants,
including covenants regarding minimum interest coverage, maximum leverage and
consolidated net worth. The Credit Facility permits the Company's subsidiaries
to pay dividends to the Company to the extent necessary to permit it to pay all
interest and principal on the Senior Notes, the Existing Senior Subordinated
Notes and the Notes when due so long as no default or event of default under the
Credit Facility has occurred and is continuing. The Credit Facility permits the
Company to use up to $20,000,000 to repurchase the Senior Notes and/or the
Existing Senior Subordinated Notes and/or the Notes so long as no default or
event of default under the Credit Facility has occurred and is continuing. The
Company is a limited guarantor under the Credit Facility, with recourse against
the Company limited to certain bank accounts. As of May 3, 1997, approximately
$10.4 million of letters of credit were outstanding under the Company's Credit
Facility.
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DESCRIPTION OF THE NOTES
The Original Notes were, and the Exchange Notes will be, issued under an
Indenture, dated as of August 22, 1997 between the Company and Norwest Bank
Minnesota, National Association, as Trustee. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") as in
effect on the date of the Indenture. The Notes are subject to all such terms,
and holders of the Notes are referred to the Indenture and the Act for a
statement of them. The following is a summary of the material terms and
provisions of the Notes. This summary does not purport to be a complete
description of the Notes and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the Notes and the Indenture
(including the definitions contained therein). A copy of the form of Indenture
may be obtained from the Company by any holder or prospective investor upon
request. Definitions relating to certain capitalized terms are set forth under
" -- Certain Definitions" and throughout this description. Capitalized terms
that are used but not otherwise defined herein have the meanings assigned to
them in the Indenture and such definitions are incorporated herein by reference.
GENERAL
The Notes will be limited in aggregate principal amount to $125,000,000.
The Notes will be general unsecured obligations of the Company, subordinate in
right of payment to all existing and future Senior Indebtedness of the Company,
senior in right of payment to any subordinated indebtedness of the Company and
pari passu to the Company's Existing Senior Subordinated Notes and all other
future senior subordinated indebtedness.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. The Notes will
be effectively subordinated to all indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of the Company's
Subsidiaries, including borrowings under the Credit Facility. Any right of the
Company to receive assets of any of its Subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the holders of the
Notes to participate in those assets) will be effectively subordinated to the
claims of that Subsidiary's creditors, except to the extent that the Company is
itself recognized as a creditor of such Subsidiary, in which case the claims of
the Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on August 15, 2007. The Notes will bear interest at a
rate of 8 5/8% per annum from the date of original issuance until maturity.
Interest is payable semi-annually in arrears on February 15 and August 15
commencing February 15, 1998, to holders of record of the Notes at the close of
business on the immediately preceding and, respectively. Interest on the Notes
will be paid on the basis of a 360 day year and twelve 30 day months. The
interest rate on the Notes is subject to increase, and such Additional Interest
will be payable on the payment dates set forth above, in certain circumstances,
if the Notes (or other securities substantially similar to the Notes) are not
registered with the Commission within the prescribed time periods. See "The
Exchange Offer."
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after August 15, 2002 at the following redemption prices
(expressed as a percentage of principal amount), together,
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in each case, with accrued interest to the redemption date, if redeemed during
the twelve-month period beginning on August 15, of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---------------------------------------------------------- ----------
<S> <C>
2002...................................................... 104.3125%
2003...................................................... 102.8750%
2004...................................................... 101.4375%
2005 and thereafter....................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the aggregate up
to 40% of the original principal amount of Notes at any time and from time to
time prior to August 15, 2000 at a redemption price equal to 108.625% of the
aggregate principal amount so redeemed plus accrued interest to the redemption
date out of the Net Proceeds of one or more Qualified Equity Offerings; provided
that at least $75.0 million of the principal amount of Notes originally issued
remain outstanding immediately after the occurrence of any such redemption and
that any such redemption occurs within 90 days following the closing of any such
Qualified Equity Offering.
In the event of redemption of fewer than all of the Notes, the Trustee
shall select by lot or in such other manner as it shall deem fair and equitable
the Notes to be redeemed. The Notes will be redeemable in whole or in part upon
not less than 30 nor more than 60 days' prior written notice, made by first
class mail to a holder's last address as it shall appear on the register
maintained by the Registrar of the Notes. On and after any redemption date,
interest will cease to accrue on the Notes or portions thereof called for
redemption unless the Company shall fail to redeem any such Note.
SUBORDINATION
The indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
indefeasible payment and satisfaction in full in cash of all existing and future
Senior Indebtedness of the Company. As of May 3, 1997, after giving pro forma
effect to the application of the net proceeds of the Offering, the principal
amount of outstanding Senior Indebtedness of the Company, on a consolidated
basis, would have been approximately $1.5 million. In addition, the Company
would have had $64.6 million of undrawn commitments available under the Credit
Facility.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, whether voluntary or involuntary, or any liquidation,
dissolution or other winding-up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or any general assignment
for the benefit of creditors or other marshaling of assets or liabilities of the
Company (except in connection with the merger or consolidation of the Company or
its liquidation or dissolution following the transfer of substantially all of
its assets, upon the terms and
conditions permitted under the circumstances described under "-- Merger,
Consolidation or Sale of Assets") (all of the foregoing referred to herein
individually as a "Bankruptcy Proceeding" and collectively as "Bankruptcy
Proceedings"), the holders of Senior Indebtedness of the Company will be
entitled to receive payment and satisfaction in full in cash of all amounts due
on or in respect of all Senior Indebtedness of the Company before the holders of
the Notes are entitled to receive or retain any payment or distribution of any
kind on account of the Notes. In the event that, notwithstanding the foregoing,
the Trustee or any holder of Notes receives any payment or distribution of
assets of the Company of any kind, whether in cash, property or securities,
including, without limitation, by way of set-off or otherwise, in respect of the
Notes before all Senior Indebtedness of the Company is paid and satisfied in
full in cash, then such payment or distribution will be held by the recipient in
trust for the benefit of holders of Senior Indebtedness and will be immediately
paid over or delivered to the holders of Senior Indebtedness or their
representative or representatives to the extent necessary to make payment in
full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of Senior Indebtedness. By reason of such subordination, in the event of
liquidation or insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than other creditors of the Company, and
creditors
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of the Company who are not holders of Senior Indebtedness or of the Notes may
recover more, ratably, than the holders of the Notes.
No payment or distribution of any assets or securities of the Company or
any Subsidiary of any kind or character (including, without limitation, cash,
property and any payment or distribution which may be payable or deliverable by
reason of the payment of any other Indebtedness of the Company being
subordinated to the payment of the Notes by the Company) may be made by or on
behalf of the Company or any Subsidiary, including, without limitation, by way
of set-off or otherwise, for or on account of the Notes, or for or on account of
the purchase, redemption or other acquisition of the Notes, and neither the
Trustee nor any holder or owner of any Notes shall take or receive from the
Company or any Subsidiary, directly or indirectly in any manner, payment in
respect of all or any portion of Notes following the occurrence of a Payment
Default, and in any such event, such prohibition shall continue until such
Payment Default is cured, waived in writing or ceases to exist or such
acceleration has been rescinded or otherwise cured. At such time as the
prohibition set forth in the preceding sentence shall no longer be in effect,
subject to the provisions of the following paragraph, the Company shall resume
making any and all required payments in respect of the Notes, including any
missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, no payment or distribution of any assets of the Company of any
kind may be made by the Company, including, without limitation, by way of
set-off or otherwise, on account of the Notes, for or on account of the
purchase, redemption, defeasance or other acquisition of Notes, and neither the
Trustee nor any holder or owner of Notes shall take or receive from the Company
or any Subsidiary, directly or indirectly in any manner, payment in respect of
all or any portion of the Notes for a period (a "Payment Blockage Period")
commencing on the date of receipt by the Trustee of written notice from an
authorized Person on behalf of the holders of Designated Senior Indebtedness
(the "Authorized Person") of such Non-Payment Event of Default unless and until
(subject to any blockage of payments that may then be in effect under the
preceding paragraph) the earliest of (x) more than 179 days shall have elapsed
since receipt of such written notice by the Trustee, (y) such Non-Payment Event
of Default shall have been cured or waived in writing or shall have ceased to
exist or such Designated Senior Indebtedness shall have been paid in full or (z)
such Payment Blockage Period shall have been terminated by written notice to the
Company or the Trustee from such Authorized Person, after which, in the case of
clause (x), (y) or (z), the Company shall resume making any and all required
payments in respect of the Notes, including any missed payments. Notwithstanding
any other provision of the Indenture, in no event shall a Payment Blockage
Period commenced in accordance with the provisions of the Indenture described in
this paragraph extend beyond 179 days from the date of the receipt by the
Trustee of the notice referred to above (the "Initial Blockage Period"). Any
number of additional Payment Blockage Periods may be commenced during the
Initial Blockage Period; provided, however, that no such additional Payment
Blockage Period shall extend beyond the Initial Blockage Period. After the
expiration of the Initial Blockage Period, no Payment Blockage Period may be
commenced until at least 180 consecutive days have elapsed from the last day of
the Initial Blockage Period. Notwithstanding any other provision of the
Indenture, no event of default with respect to Designated Senior Indebtedness
(other than a Payment Default) which existed or was continuing on the date of
the commencement of any Payment Blockage Period initiated by an Authorized
Person shall be, or be made, the basis for the commencement of a second Payment
Blockage Period initiated by an Authorized Person, whether or not within the
Initial Blockage Period, unless such event of default shall have been cured or
waived for a period of not less than 90 consecutive days.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of payment blockage
provisions, such failure would constitute an Event of Default under the
Indenture and would enable the holders of the Notes to accelerate the maturity
thereof. See "-- Events of Default."
A holder of Notes by his acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purpose.
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CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants. Except
as otherwise specified, all of the covenants described below will appear in the
Indenture.
Limitation on Additional Indebtedness
The Company will not, and will not permit any Subsidiary of the Company to,
directly or indirectly, incur (as defined) any Indebtedness (including Acquired
Indebtedness); provided, that the Company (but not any Subsidiary of the
Company) may incur Indebtedness if (i) after giving effect to the incurrence of
such Indebtedness and the receipt and application of the proceeds thereof, the
Company's Fixed Charge Coverage Ratio (determined on a pro forma basis for the
last four fiscal quarters of the Company for which financial statements are
available at the date of determination) is at least 2.00 to 1, and (ii) no
Triggering Default Event shall have occurred and be continuing at the time or as
a consequence of the incurrence of such Indebtedness. For purposes of computing
the Fixed Charge Coverage Ratio, (A) if the Indebtedness which is the subject of
a determination under this provision is Acquired Indebtedness, or Indebtedness
incurred in connection with the simultaneous acquisition (by way of merger,
consolidation or otherwise) of any Person, business, property or assets (an
"Acquisition"), then such ratio shall be determined by giving effect (on a pro
forma basis, as if the transaction had occurred at the beginning of the
four-quarter period) to both the incurrence or assumption of such Acquired
Indebtedness or such other Indebtedness by the Company and the inclusion in the
Company's EBITDA of the EBITDA of the acquired Person, business, property or
assets, (B) if any Indebtedness outstanding or to be incurred (x) bears a
floating rate of interest, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account on a pro forma basis
any Interest Rate Agreement applicable to such Indebtedness if such Interest
Rate Agreement has a remaining term as at the date of determination in excess of
12 months), (y) bears, at the option of the Company or a Subsidiary, a fixed or
floating rate of interest, the interest expense on such Indebtedness shall be
computed by applying, at the option of the Company or such Subsidiary, either a
fixed or floating rate and (z) was incurred under a revolving credit facility,
the interest expense on such Indebtedness shall be computed based upon the
average daily balance of such Indebtedness during the applicable period, (C) for
any quarter prior to the date hereof included in the calculation of such ratio,
such calculation shall be made on a pro forma basis, giving effect to the Pearle
Acquisition, the issuance of the Notes, the incurrence of Indebtedness under the
Credit Facility and the use of the net proceeds therefrom as if the same had
occurred at the beginning of the four-quarter period used to make such
calculation and (D) for any quarter included in the calculation of such ratio
prior to the date that any Asset Sale was consummated, or that any Indebtedness
was incurred, or that any Acquisition was effected, by the Company or any of its
Subsidiaries, such calculation shall be made on a pro forma basis, giving effect
to each Asset Sale, incurrence of Indebtedness or Acquisition, as the case may
be, and the use of any proceeds therefrom, as if the same had occurred at the
beginning of the four quarter period used to make such calculation.
Notwithstanding the foregoing, the Company and its Subsidiaries may incur
Permitted Indebtedness; provided, that the Company will not incur any Permitted
Indebtedness, without meeting the Indebtedness incurrence provisions of the
preceding paragraph, that ranks pari passu or junior in right of payment to the
Notes and that has a maturity or mandatory sinking fund payment prior to the
maturity of the Notes.
Limitation on Restricted Payments
The Company will not make, and will not permit any of its Subsidiaries to,
directly or indirectly, make, any Restricted Payment, unless:
(a) no Triggering Default Event shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted
Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant set forth under
"-- Limitation on Additional Indebtedness"; and
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(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) $25.0 million plus (2) (i) 50% of the
cumulative Consolidated Net Income of the Company subsequent to August 3,
1997 (or minus 100% of any cumulative deficit in Consolidated Net Income
during such period); (ii) 100% of the aggregate Net Proceeds and the fair
market value (as determined in good faith by the Board of Directors of the
Company) of securities or other property received by the Company from the
issue or sale, after the Issue Date, of Capital Stock (other than
Disqualified Capital Stock or Capital Stock of the Company issued to any
Subsidiary of the Company) of the Company or any Indebtedness or other
securities of the Company convertible into or exercisable or exchangeable
for Capital Stock (other than Disqualified Capital Stock) of the Company
which has been so converted or exercised or exchanged, as the case may be;
(iii) 100% of the capital contributions made by the Parent to the Company
after the Issue Date (other than capital contributions which constitute
Indebtedness); and (iv) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the date hereof, an
amount equal to the lesser of the return of capital with respect to such
Investment and the initial amount of such Investment, in either case, less
the cost of the disposition of such Investment. For purposes of determining
under this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its fair market value (as determined in good
faith by the Board of Directors of the Company).
The provisions of this covenant will not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture; (ii) the repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company or Indebtedness subordinated to the
Notes by conversion into, or by or in exchange for, shares of Capital Stock
(other than Disqualified Capital Stock), or out of, the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other shares of Capital Stock of the Company (other than Disqualified Capital
Stock); (iii) the repurchase, redemption or other acquisition or retirement of
Indebtedness of the Company subordinated to the Notes in exchange for, by
conversion into, or out of the Net Proceeds of, a substantially concurrent sale
or incurrence of Indebtedness (other than any Indebtedness owed to a Subsidiary)
of the Company that is contractually subordinated in right of payment to the
Notes to at least the same extent as the Indebtedness subordinated to the Notes
being redeemed or retired; (iv) the retirement of any shares of Disqualified
Capital Stock by conversion into, or by exchange for, shares of Disqualified
Capital Stock, or out of the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of Disqualified
Capital Stock; (v) the repurchase, redemption or other acquisition or retirement
for value of any Capital Stock of the Company or the Parent or any current or
former Subsidiary of the Company held by any member of the Company's (or any of
its Subsidiaries') current or former employees; provided, that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Capital Stock
shall not exceed $4 million; (vi) the payment of dividends to the Parent solely
for the purpose of enabling Parent to pay the ordinary operating and
administrative expenses of the Parent (including all reasonable professional
fees and expenses) in connection with its complying with its reporting
obligations and obligations to prepare and distribute business records in the
ordinary course of business and the Parent's costs and expenses relating to
taxes (which taxes are attributable to the operations of the Company and its
Subsidiaries or to the Parent's ownership thereof); provided, however, that the
aggregate dividend payments paid in each fiscal year pursuant to this clause
(vi) will at no time exceed 0.25% of the Company's Net Sales for such fiscal
year; (vii) payments to the Parent for income taxes pursuant to the Tax
Allocation Agreement; and (viii) the payment of dividends to the Parent solely
for the purpose of enabling the Parent to pay taxes other than income taxes, to
the extent actually owed and attributable to the operations of the Company and
its Subsidiaries or to the Parent's ownership thereof, provided, that, for
purposes of determining whether Restricted Payments can be made pursuant to the
previous paragraph, all payments made pursuant to clauses (ii), (iv), (v), (vi),
(vii) and (viii) of this paragraph will reduce the amount that would otherwise
be available for such Restricted Payments and payments made pursuant to the
other clauses of this paragraph shall not so reduce the amount available for
Restricted Payments.
Not later than the date of making any Restricted Payment which may only be
made pursuant to subclause (c) above, the Company shall deliver to the Trustee
an Officers' Certificate stating that such
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Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Limitation on Restricted Payments" were
computed, which calculations may be based upon the Company's latest available
financial statements, and that no Triggering Default Event exists and is
continuing and no Triggering Default Event will occur immediately after giving
effect to any Restricted Payments.
Limitation on Other Senior Subordinated Debt
The Company will not, directly or indirectly, incur any Indebtedness that
is both (i) subordinate in right of payment to any Senior Indebtedness of the
Company and (ii) senior in right of payment to the Notes. For purposes of this
covenant, Indebtedness is deemed to be senior in right of payment to the Notes
if it is not explicitly subordinate in right of payment to Senior Indebtedness
at least to the same extent as the Notes are subordinate to Senior Indebtedness.
Limitations on Liens
The Company will not create, incur or otherwise cause or suffer to exist
any Liens of any kind (other than Permitted Liens) upon any property or asset of
the Company to secure Indebtedness which is pari passu with or subordinate in
right of payment to the Notes, unless (i) if such Lien secures Indebtedness
which is pari passu with the Notes, the Notes are secured on an equal and
ratable basis with the obligation so secured until such time as such obligation
is no longer secured by a Lien and (ii) if such Lien secures Indebtedness which
is subordinated to the Notes, such Indebtedness secured by such Lien and such
Lien shall be subordinated to the Lien granted to the Holders of the Notes to
the same extent as such Indebtedness is subordinated to the Notes.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (a) (i) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (A) on its Capital Stock
or (B) with respect to any other interest or participation in, or measured by,
its profits, or (ii) pay any Indebtedness owed to the Company or any of its
Subsidiaries or (b) make loans or advances to the Company or any of its
Subsidiaries or (c) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reasons of (i) Indebtedness outstanding on the date of the
Indenture, (ii) the Credit Facility as in effect as of the date of the
Indenture, (iii) the Senior Note Indenture, the Senior Notes and the Indenture,
(iv) applicable law, (v) customary nonassignment provisions in leases, (vi)
permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Refinancing Indebtedness shall not be materially
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, (vii) customary restrictions imposed in
connection with Purchase Money Indebtedness or Capital Lease Obligations
permitted under the covenant entitled "Limitation on Incurrence of Indebtedness"
as long as such customary restrictions are not materially more restrictive than
those set forth in the Credit Facility on the date of the Indenture (except that
they may impose restrictions on the transfer of the asset so financed), or
(viii) restrictions in agreements with Persons acquired by the Company or any
Subsidiary which do not extend to Property or assets other than the Property or
assets of such Persons.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate (including
Parent and entities in which the Company or any of its Subsidiaries owns a
minority interest) or holder of 10% or more of the Company's Common Stock (an
"Affiliate Transaction") or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date unless (i)
such Affiliate Transaction is between or among the Company and its Wholly-Owned
Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Subsidiary, as the case may be, and the terms
of
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such Affiliate Transaction are at least as favorable as the terms which could be
obtained by the Company or such Subsidiary, as the case may be, in a comparable
transaction made on an arm's-length basis between unaffiliated parties. In any
Affiliate Transaction involving an amount or having a value in excess of $5.0
million which is not permitted under clause (i) above, the Company must obtain a
resolution of the Board of Directors certifying that such Affiliate Transaction
complies with clause (ii) above. In transactions with a value in excess of $10.0
million which are not permitted under clause (i) above (other than loans from
the Parent to the Company at a rate not in excess of the incremental borrowing
rate of the Company as determined in good faith by the Board of Directors of the
Company, or loans from the Company or any Subsidiary to Parent, in each case at
a rate not in excess of the Parent's incremental borrowing rate, as determined
in good faith by the Board of Directors of the Company), the Company must obtain
a written opinion as to the fairness of such a transaction from an independent
investment banking firm.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "-- Limitation on Restricted
Payments" contained herein, (ii) Indebtedness incurred by the Company to the
Parent, provided such Indebtedness has terms no more onerous than those
contained in the Credit Facility or (iii) any compensation-related transaction,
approved by an independent committee of the Board of Directors of the Company,
with an officer or director of the Company or of any Subsidiary in his or her
capacity as officer or director entered into in the ordinary course of business.
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Subsidiaries to,
consummate an Asset Sale unless (i) the Company or its Subsidiaries, as the case
may be, receives consideration at the time of such sale or other disposition at
least equal to the fair market value thereof (as determined in good faith by the
Board of Directors of the Company); (ii) except in the case of the sale,
transfer or other disposition of Company-owned stores to franchisees in a
business related to the optical business that result in the conversion of such
stores to franchised stores, not less than 75% of the consideration received by
the Company or its Subsidiaries, as the case may be, is in the form of cash or
Temporary Cash Investments; and (iii) the Asset Sale Proceeds received by the
Company or such Subsidiary are applied (a) first, to the extent the Company
elects, or is required, to prepay, repay or purchase debt under any then
existing Senior Indebtedness of the Company or any Subsidiary within 12 months
following the receipt of the Asset Sale Proceeds from any Asset Sale, provided
that any such repayment shall result in a permanent reduction of the commitments
thereunder in an amount equal to the principal amount so repaid; (b) second, to
the extent of the balance of Asset Sale Proceeds after application as described
above, to the extent the Company elects, to an investment in assets (including
Capital Stock or other securities purchased in connection with the acquisition
of Capital Stock or property of another person) used or useful in businesses
similar or ancillary to the business of the Company or Subsidiary as conducted
at the time of such Asset Sale, provided that such investment occurs on or prior
to the 365th day following receipt of such Asset Sale Proceeds (the
"Reinvestment Date"); (c) third, to the making of an Excess Proceeds Offer (as
defined in the Senior Notes Indenture) with respect to any outstanding Senior
Notes; (d) fourth, the making of an Excess Proceeds Offer (as defined in the
Existing Senior Subordinated Note Indenture) with respect to the Existing Senior
Subordinated Notes and (e) fifth, if on the Reinvestment Date the Available
Asset Sale Proceeds with respect to any Asset Sale exceed $10 million, the
Company shall apply an amount equal to such Available Asset Sale Proceeds to an
offer to repurchase the Notes (which offer may, at the option of the Company,
also be made on a pro rata basis to holders of all other indebtedness of the
Company ranking pari passu), at a purchase price (in the case of the Notes) in
cash equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (an "Excess Proceeds Offer"). If an
Excess Proceeds Offer is not fully subscribed, the Company may retain the
portion of the Available Asset Sale Proceeds not required to repurchase Notes.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
Holders stating, among other things: (1) that such Holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (2)
the purchase date, which shall be no earlier than 30 days and not later than
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60 days from the date such notice is mailed; (3) the instructions, determined by
the Company, that each Holder must follow in order to have such Notes
repurchased; and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the repurchase of such Notes.
Limitation on Capital Stock of Subsidiaries
The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Subsidiary (other than under the Credit
Facility or a successor facility or under the terms of any Designated Senior
Indebtedness) or (ii) permit any of its Subsidiaries to issue any Capital Stock,
other than to the Company or a Wholly Owned Subsidiary of the Company. The
foregoing restrictions shall not apply to an Asset Sale (other than the sale of
Preferred Stock of a Subsidiary) made in compliance with "-- Limitation on
Certain Asset Sales."
Limitation on Sale and Lease-Back Transactions
The Company will not, and will not permit any Subsidiary to, enter into any
Sale and Lease-Back Transaction unless (i) the consideration received in such
Sale and Lease-Back Transaction is at least equal to the fair market value of
the property sold, as determined by a board resolution of the Company and (ii)
the Company could incur Indebtedness in an amount equal to the Attributable
Indebtedness in respect of such Sale and Lease-Back Transaction in compliance
with the covenant described under "-- Limitation on Additional Indebtedness."
Payments for Consent
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
CHANGE OF CONTROL OFFER
Within 30 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Notes at a purchase
price equal to 101% of the principal amount thereof plus any accrued interest to
the Change of Control Payment Date (as hereinafter defined) (such applicable
purchase price being hereinafter referred to as the "Change of Control Purchase
Price") in accordance with the procedures set forth in this covenant.
Within 40 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and to
each holder of the Notes, at the address appearing in the register maintained by
the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 nor later than 40 days from the
date such notice is mailed (the "Change of Control Payment Date"));
(3) that any Note not tendered will continue to accrue interest;
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(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof;
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered; provided that each such new Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof.
The Indenture requires that if the Credit Facility is in effect and the
Senior Notes are outstanding, or any amounts are owing thereunder or in respect
thereof, at the time of the occurrence of a Change of Control, prior to the
mailing of the notice to holders described in the preceding paragraph, but in
any event within 30 days following any Change of Control, the Company covenants
to (i) repay in full all obligations under or in respect of the Credit Facility
and the Senior Notes or offer to repay in full all obligations under or in
respect of the Credit Facility and the Senior Notes and repay the obligations
under or in respect of the Credit Facility and the Senior Notes of each lender
and holder, as the case may be, who has accepted such offer or (ii) obtain the
requisite consent under the Credit Facility and the Senior Notes to permit the
repurchase of the Notes as described above. The Company must first comply with
the covenant described in the preceding sentence before it shall be required to
purchase Notes in the event of a Change of Control; provided that the Company's
failure to comply with the covenant described in the preceding sentence
constitutes an Event of Default described in clause (iii) under "-- Events of
Default" below if not cured within 60 days after the notice required by such
clause. As a result of the foregoing, a holder of the Notes may not be able to
compel the Company to purchase the Notes unless the Company is able at the time
to refinance all of the obligations under or in respect of the Credit Facility
and the Senior Notes or obtain requisite consents under the Credit Facility and
the Senior Notes. Failure by the Company to make a Change of Control Offer when
required by the Indenture constitutes a default under the Indenture and, if not
cured within 60 days after notice, constitutes an Event of Default.
The Indenture provides that, (A) if the Company or any Subsidiary thereof
has issued any outstanding (i) Indebtedness that is subordinated in right of
payment to the Notes or (ii) Preferred Stock, and the Company or such Subsidiary
is required to make a Change of Control Offer or to make a distribution with
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respect to such subordinated Indebtedness or Preferred Stock in the event of a
change of control, the Company shall not consummate any such offer or
distribution with respect to such subordinated Indebtedness or Preferred Stock
until such time as the Company shall have paid the Change of Control Purchase
Price in full to the holders of Notes that have accepted the Company's Change of
Control Offer and shall otherwise have consummated the Change of Control Offer
made to holders of the Notes and (B) the Company will not issue Indebtedness
that is subordinated in right of payment to the Notes or Preferred Stock with
change of control provisions requiring the payment of such Indebtedness or
Preferred Stock prior to the payment of the Notes in the event of a Change of
Control under the Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-I under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-I as
then in effect with respect to such repurchase.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not and will not permit any Subsidiary to consolidate
with, merge with or into, or transfer all or substantially all of its assets (as
an entirety or substantially as an entirety in one transaction or a series of
related transactions), to any Person unless: (i) the Company or the Subsidiary,
as the case may be, shall be the continuing Person, or the Person (if other than
the Company or the Subsidiary) formed by such consolidation or into which the
Company or the Subsidiary, as the case may be, is merged or to which the
properties and assets of the Company or the Subsidiary, as the case may be, are
transferred shall be a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of the
Company or the Subsidiary, as the case may be, under the Notes and the
Indenture, and the obligations under the Indenture shall remain in full force
and effect; (ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (iii) immediately after giving effect to such transaction on a
pro forma basis the Company or such Person could incur at least $1.00 additional
Indebtedness (other than Permitted Indebtedness) under the covenant set forth
under " -- Certain Covenants -- Limitation on Additional Indebtedness," provided
that a Person that is a Subsidiary on the Issue Date may merge into the Company
or another Person that is a Subsidiary on the Issue Date without complying with
this clause (iii).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of, or premium, if any, on the
Notes;
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by the Company or any Subsidiary in the observance or
performance of any other covenant in the Notes or the Indenture for 60 days
after written notice from the Trustee or the holders of not less than 25%
in aggregate principal amount of the Notes then outstanding;
(iv) failure to pay when due (within the grace period provided in such
Indebtedness) principal, interest or premium in an aggregate amount of
$5,000,000 or more with respect to any Indebtedness of the Company or any
Subsidiary thereof, or the acceleration of any such Indebtedness
aggregating $5,000,000 or more, which default or acceleration shall not be
cured, waived or postponed pursuant to an agreement with the holders of
such Indebtedness within 60 days after written notice, or such acceleration
shall not be rescinded or annulled within 20 days after written notice;
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(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5,000,000 shall be rendered against
the Company or any Subsidiary thereof (other than a judgment or portion
thereof as to which an insurance company of national reputation has
accepted full liability), and shall not be discharged or fully bonded for
any period of 60 consecutive days during which a stay of enforcement shall
not be in effect; and
(vi) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Significant Subsidiary thereof.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture will provide that if an Event of Default (other than an Event
of Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued interest to the date of
acceleration and (i) such amounts shall become immediately due and payable or
(ii) if there are any amounts outstanding under or in respect of the Credit
Facility, such amounts shall become due and payable upon the first to occur of
an acceleration of amounts outstanding under or in respect of the Credit
Facility or five business days after receipt by the Company and the
representative of the holders of Senior Indebtedness under or in respect of the
Credit Facility, of notice of the acceleration of the Notes; provided, however,
that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Trustee, the holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than nonpayment of
accelerated principal, premium or interest, have been cured or waived as
provided in the Indenture. In case an Event of Default resulting from certain
events of bankruptcy, insolvency or reorganization shall occur, the principal,
premium and interest amount with respect to all of the Notes shall be due and
payable immediately without any declaration or other act on the part of the
Trustee or the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as a trustee,
and unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted on such Note
on or after the respective due dates expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold monies for payment in trust)
("defeasance") or (b) to be released from their obligations with respect to the
Notes under certain covenants contained in the Indenture and described above
under "-- Certain Covenants" ("covenant defeasance"), upon the deposit with the
Trustee (or other qualifying trustee), in trust for such purpose, of money
and/or United States Government Obligations which through the payment of
principal and interest in accordance with their terms will provide money, in an
amount sufficient to pay the principal of, premium, if any, and interest on the
Notes, on the scheduled due dates
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therefor or on a selected date of redemption in accordance with the terms of the
Indenture. Such a trust may only be established if, among other things, the
Issuers have delivered to the Trustee an Opinion of Counsel (as specified in the
Indenture) (i) to the effect that neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company Act
of 1940, as amended, and (ii) in the case of defeasance describing either a
private ruling concerning the Notes or a published ruling of the Internal
Revenue Service, to the effect that, and in the case of covenant defeasance,
stating that, holders of the Notes or persons in their positions will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal income tax
on the same amount and in the same manner and at the same times, as would have
been the case if such deposit, defeasance and discharge had not occurred.
MODIFICATION OF INDENTURE
From time to time, the Company and the Trustee may, without the consent of
holders of the Notes, amend the Indenture or the Notes or supplement the
Indenture for certain specified purposes, including providing for uncertificated
Notes in addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not materially and adversely
affect the rights of any holder. The Indenture contains provisions permitting
the Company and the Trustee, with the consent of holders of at least a majority
in principal amount of the outstanding Notes, to modify or supplement the
Indenture or the Notes, except that no such modification shall, without the
consent of each holder affected thereby, (i) reduce the amount of Notes whose
holders must consent to an amendment, supplement, or waiver to the Indenture or
the Notes, (ii) reduce the rate of or change the time for payment of interest on
any Note, (iii) reduce the principal of or premium on or change the stated
maturity of any Note, (iv) make any Note payable in money other than that stated
in the Note or change the place of payment from New York, New York, (v) change
the amount or time of any payment required by the Notes or reduce the premium
payable upon any redemption of Notes, or change the time before which no such
redemption may be made, (vi) waive a default on the payment of the principal of,
interest on, or redemption payment with respect to any Note, or (vii) take any
other action otherwise prohibited by the Indenture to be taken without the
consent of each holder affected thereby.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Notes. The Indenture provides that
even if the Company is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, they will
nonetheless continue to furnish such information to the Commission and holders
of the Notes.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 120 days after the end
of the Company's fiscal year and on or before 60 days after the end of each of
the first, second and third fiscal quarters in each year an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the Default
or Event of Default and its status.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
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TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption. Also,
the Registrar is not required to transfer or exchange any Note for a period of
15 days before selection of the Notes to be redeemed.
The Notes will be issued in a transaction exempt from registration under
the Act and will be subject to the restrictions on transfer described in "Notice
to Investors."
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary or assumed in connection with the acquisition
of assets from such Person.
"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Acquired Optical Franchise Receivables" means franchise receivables
acquired in connection with the acquisition of a retailer or group of retail
locations whose business is primarily related to sales of optical products.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Subsidiaries) in any single transaction or series of
related transactions having a fair market value in excess of $10.0 million of
(a) any Capital Stock of or other equity interest in any Subsidiary of the
Company, (b) all or substantially all of the assets of the Company or of any
Subsidiary, (c) real property or (d) all or substantially all of the assets of a
division, line of business or comparable business segment or part thereof of the
Company or any Subsidiary thereof; provided that Asset Sales shall not include
sales, transfers or other dispositions to the Company or to a Subsidiary or to
any other Person if after giving effect to such sale, lease, conveyance,
transfer or other disposition such other Person becomes a Subsidiary.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Subsidiary from such Asset Sale (including cash
received as consideration for the assumption of liabilities incurred in
connection with or in anticipation of such Asset Sale), after (a) provision for
all income or other taxes measured by or resulting from such Asset Sale, (b)
payment of all brokerage commissions, underwriting and other fees and expenses
related to such Asset Sale, (c) provision for minority interest holders in any
Subsidiary as a result of such Asset Sale and (d) deduction of appropriate
amounts to be provided by the Company or a Subsidiary as a reserve, in
accordance with GAAP, against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by the Company or a Subsidiary after
such Asset Sale, including, without limitation, pension and other post
employment benefit liabilities and liabilities related to environmental matters
or against any indemnification obligations associated with the assets sold or
disposed of in such Asset Sale, and (ii) promissory notes and other noncash
consideration received by the Company or any Subsidiary from such Asset Sale or
other disposition upon the liquidation or conversion of such notes or noncash
consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement (as determined by
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the Board of Directors of the Company) and (ii) the present value (discounted at
a rate of 10%, compounded annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii)(a), (iii)(b), (iii)(c) or (iii)(d) which have not
yet been the basis for an Excess Proceeds Offer in accordance with clause
(iii)(e) of the first paragraph of " -- Certain Covenants -- Limitation on
Certain Asset Sales."
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
A "Change of Control" of the Company will be deemed to have occurred at
such time as (i) any Person (including a Person's Affiliates and associates),
other than a Permitted Holder, becomes the beneficial owner (as defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of 50% or more of the total voting or economic power of the Common Stock of
the Company or the Parent and/or warrants or options to acquire such Common
Stock on a fully diluted basis, (ii) either the Company or Parent consolidates
with, or merges with or into, another Person or conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any Person, or
any Person consolidates with, or merges with or into, either the Company or
Parent, in any such event pursuant to a transaction in which the outstanding
Common Stock of either the Company or Parent is converted into or exchanged for
cash, securities or other property, other than any such transaction where (a)
(1) the outstanding Common Stock of the Company or Parent, as the case may be,
is not converted or exchanged at all (except to the extent necessary to reflect
a change in the jurisdiction of incorporation) or is converted into or exchanged
for Common Stock (other than Disqualified Capital Stock) of the surviving or
transferee corporation (the "Surviving Entity") and (2) immediately after such
transaction, no "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) other than a Permitted Holder is the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than a majority of the total outstanding Common Stock of the Surviving Entity,
or (b) the holders of the Common Stock of the Company outstanding immediately
prior to the consolidation or merger hold, directly or indirectly, at least a
majority of the Common Stock of the surviving corporation immediately after such
consolidation or merger, or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company or the Parent (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Company or the Parent has been approved by 66 2/3% of the
directors then still in office who either were directors at the beginning of
such period or whose election or recommendation for election was previously so
approved) cease to constitute a majority of the Board of Directors of the
Company or the Parent.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Fixed Charges" means, with respect to any Person and with
respect to any determination date, the sum of a Person's (i) Consolidated
Interest Expense, plus (ii) the product of (x) the aggregate amount of all
dividends paid on Disqualified Capital Stock of the Company or on each series of
preferred stock of each Subsidiary of such Person (other than dividends paid or
payable in additional shares of preferred stock
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or to the Company or any of its Wholly Owned Subsidiaries) times (y) a fraction,
the numerator of which is one and the denominator of which is one minus the then
current effective combined federal, state and local tax rate of such Person
(expressed as a decimal), in each case, for the prior four full fiscal quarter
period for which financial results are available.
"Consolidated Interest Expense" means, with respect to any Person, for any
period and without duplication, the aggregate amount of interest which, in
conformity with GAAP, would be set forth opposite the caption "interest expense"
or any like caption on an income statement for such Person and its Subsidiaries
on a consolidated basis (including, but not limited to, (i) imputed interest
included in Capitalized Lease Obligations, (ii) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (iii) net payments made in connection with Interest Rate
Agreements, (iv) the interest portion of any deferred payment obligation, (v)
amortization of discount or premium if any, and (vi) all other non-cash interest
expense (other than interest amortized to cost of sales)) plus all net
capitalized interest for such period and all interest paid under any guarantee
of Indebtedness (including a guarantee of principal, interest or any combination
thereof) of any Person, and minus (a) net payments received in connection with
Interest Rate Agreements and (b) amortization of deferred financing costs and
expenses.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "other Person") in
which the Person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the net income of such other Person to
be consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) the Net
Income of any Subsidiary of the Person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions (other than pursuant to the Notes or the Indenture) shall be
excluded to the extent of such restriction or limitation, (c) (i) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (ii) any net gain (but not loss)
resulting from an Asset Sale by the Person in question or any of its
Subsidiaries other than in the ordinary course of business shall be excluded,
(d) extraordinary, unusual and non-recurring gains and losses shall be excluded.
"Credit Facility" means the term and revolving credit agreement, dated
November 15, 1996, by and among Canadian Imperial Bank of Commerce, as agent,
the lenders named therein, one or more lenders parties thereto, as the same may
be amended, extended, renewed, restated, supplemented or otherwise modified from
time to time.
"Designated Senior Indebtedness," as to the Company, means any Senior
Indebtedness (a) under the Credit Facility or (b) which at the time of
determination exceeds $25 million in aggregate principal amount (or accreted
value in the case of Indebtedness issued at a discount) outstanding or available
under a committed facility.
"Disqualified Capital Stock" means any Capital Stock of the Company or a
Subsidiary thereof which, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable at the option of the
holder), or upon the happening of any event, matures or is mandatorily re
deemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Notes, for cash or securities constituting Indebtedness.
Without limiting the foregoing, Disqualified Capital Stock shall be deemed to
include (i) any Preferred Stock of a Subsidiary of the Company and (ii) any
Preferred Stock of the Company, with respect to either of which, under the terms
of such Preferred Stock, by agreement or otherwise, such Subsidiary or the
Company is obligated to pay current dividends or distributions in cash during
the period prior to the maturity date of the Notes; provided, however, that
Preferred Stock of the Company or any Subsidiary thereof that is issued with the
benefit of provisions requiring a change of control offer to be made for such
Preferred Stock in the event of a change of control of the Company or
Subsidiary, which provisions have substantially the same effect as the
provisions of
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the Indenture described under " -- Certain Covenants -- Change of Control
Offer," shall not be deemed to be Disqualified Capital Stock solely by virtue of
such provisions.
"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period including the write-off of Acquired Optical Franchise
Receivables, franchise receivables acquired in the Pearle Acquisition which have
not been restructured or refinanced since the consummation of the Pearle
Acquisition but excluding the write-off of all other franchise receivables,
minus (b) all non-cash items increasing Consolidated Net Income for such period,
all for such Person and its Subsidiaries determined in accordance with GAAP,
except that with respect to the Company each of the foregoing items shall be
determined on a consolidated basis with respect to the Company and its
Subsidiaries only.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Senior Subordinated Notes" means the Company's 9 7/8% Senior
Subordinated Notes due 2006.
"Existing Senior Subordinated Note Indenture" means the indenture relating
to the Company's 9 7/8% Senior Subordinated Notes.
"Fixed Charge Coverage Ratio" of any Person means, with respect to any
determination date, the ratio of (i) EBITDA for such Person's prior four full
fiscal quarters for which financial results have been reported prior to the
determination date, to (ii) Consolidated Fixed Charges of such Person.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such person (and
"incurrence," "incurred," "incurrable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a lien to which the
property or assets owned or held by such Person is subject, whether or not the
obligation or obligations secured thereby shall have been assumed (provided,
however, that if such obligation or obligations shall not have been assumed, the
amount of such indebtedness shall be deemed to be the lesser of the principal
amount of the obligation or the fair market value of the pledged property or
assets), (iii) guarantees of items of other Persons which would be included
within this definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor), (iv) all obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (provided that in the case of any such letters of
credit, the items for which such letters of credit provide credit support are
those of other Persons which would be included within
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this definition for such other Persons), (v) Disqualified Capital Stock of the
Company or any Subsidiary thereof, and (vi) obligations of any such Person under
any Interest Rate Agreement applicable to any of the foregoing (if and to the
extent such Interest Rate Agreement obligations would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP). The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided (i) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the principal amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP and (ii) that Indebtedness shall not include
any liability for federal, state, local or other taxes. Notwithstanding any
other provision of the foregoing definition, any trade payable arising from the
purchase of goods or materials or for services obtained in the ordinary course
of business shall not be deemed to be "Indebtedness" of the Company or any
Subsidiaries for purposes of this definition. Furthermore, guarantees of (or
obligations with respect to letters of credit supporting) Indebtedness otherwise
included in the determination of such amount shall not also be included.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business or acquired as part of the assets acquired by the Company in connection
with an acquisition of assets which is otherwise permitted by the terms of the
Indenture), loan or capital contribution to (by means of transfers of property
to others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude (i) extensions of trade
credit on commercially reasonable terms in accordance with normal trade
practices and (ii) the repurchase of securities of any Person by such Person.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"Lien" means with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by the
Company, the aggregate net proceeds received by the Company, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the board of directors, at the time of
receipt) and (b) in the case of any exchange, exercise, conversion or surrender
of outstanding securities of any kind for or into shares of Capital Stock of the
Company which is not Disqualified Stock, the net book value of such outstanding
securities on the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder to the Company upon such
exchange, exercise, conversion or surrender, less any and all payments made to
the holders, e.g., on account of fractional shares and less all expenses
incurred by the Company in connection therewith).
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"Net Sales" means Net Revenue as shown on the Company's audited
consolidated statements of income for the applicable fiscal year.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, any Assistant Treasurer, Controller, Secretary or any Vice-President
of the Company or any Subsidiary, as the case may be.
"Officers' Certificate" means a certificate signed by two Officers, one of
whom must be the principal executive officer, principal financial officer,
treasurer or principal accounting officer of the Company.
"Parent" means Cole National Corporation, a Delaware corporation and the
Company's sole stockholder.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Indebtedness.
"Pearle Acquisition" means the acquisition of the capital stock of Pearle,
Inc. and Pearle Service Corporation by the Parent from The Pillsbury Company
pursuant to a stock purchase agreement dated as of September 24, 1996 and
various documents related thereto.
"Permitted Holders" means (i) Jeffrey A. Cole, (ii) any employee stock
ownership plan or any "group" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) in which employees of Parent or its Subsidiaries beneficially own
at least 25% of the Common Stock of the Company or Parent owned by such group,
(iii) Parent and (iv) any Person that is controlled by any one or more of the
Persons set forth in (i)-(iii) above.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Subsidiary arising under or in
connection with the Credit Facility in an amount not to exceed the greater
of (a) $75,000,000 less any mandatory prepayments actually made thereunder
(to the extent, in the case of payments of revolving credit indebtedness,
that the corresponding commitments have been permanently reduced) or
scheduled payments actually made thereunder or (b) the sum of (x) 80% of
consolidated accounts receivable of the Company and its Subsidiaries and
(y) 50% of consolidated inventory of the Company and its Subsidiaries;
(ii) Indebtedness under the Notes, the Existing Senior Subordinated
Notes and the Exchange Notes;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture;
(iv) Indebtedness of the Company to any Subsidiary and Indebtedness of
any Subsidiary to the Company or another Subsidiary;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred by the Company or its Subsidiaries to acquire property in the
ordinary course of business which Indebtedness and Capitalized Lease
Obligations do not in the aggregate exceed $15,000,000 at any time
outstanding;
(vi) Interest Rate Agreements;
(vii) Indebtedness of the Company or its Subsidiaries which do not in
the aggregate exceed $3,000,000 in principal amount at anytime outstanding
with respect to guarantees of obligations of franchisees in a business
related to the optical business of the Company or any Subsidiary as
conducted on the Issue Date;
(viii) Indebtedness incurred in connection with the financing of a new
warehouse facility relating to Cole Gift's business in an amount not to
exceed $7,500,000 in the aggregate;
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(ix) additional Indebtedness of the Company not to exceed $50,000,000
in principal amount outstanding at any time; and
(x) Refinancing Indebtedness.
"Permitted Investments," means, for any Person, Investments made on or
after the date of the Indenture consisting of
(i) Investments by the Company, or by a Subsidiary thereof, in the
Company or a Subsidiary; (xi) Temporary Cash Investments;
(ii) Investments by the Company, or by a Subsidiary thereof, in a
Person, if as a result of such Investment (a) such Person becomes a
Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Subsidiary thereof;
(iii) reasonable and customary loans made to employees in connection
with their relocation;
(iv) an Investment that is made by the Company or a Subsidiary thereof
in the form of any stock, bonds, notes, debentures, partnership or joint
venture interests or other securities that are issued by a third party to
the Company or Subsidiary solely as partial consideration for the
consummation of an Asset Sale that is otherwise permitted under the
covenant described under "Description of the Notes -- Certain Covenants;"
(v) Investments made by the Company or any Subsidiary in franchises in
a business related to the optical business of the Company as conducted on
the Issue Date; provided, that immediately after giving pro forma effect to
such Investment, the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the covenant set forth under
"-- Certain Covenants -- Limitation on Additional Indebtedness"; provided,
however, that if the Company may not incur $1.00 of additional
Indebtedness, but otherwise satisfies the requirements of this clause (vi),
the Company may make Investments in such franchises in an amount not to
exceed $7,500,000 in any fiscal year, which unused portion of any such
annual amount, if any, may not be applied to any Investment in a subsequent
fiscal year; and
(vi) other Investments that do not exceed $15,000,000 at any time
outstanding.
"Permitted Liens" means (i) Liens on property or assets of, or any shares
of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Subsidiary of the Company or at the time such corporation
is merged into the Company or any of its Subsidiaries; provided that such Liens
are not incurred in connection with, or in contemplation of, such corporation
becoming a Subsidiary of the Company or merging into the Company or any of its
Subsidiaries, (ii) Liens securing Refinancing Indebtedness; provided that any
such Lien on subordinated Indebtedness does not "extend to or cover any
Property, shares or debt other than the Property, shares or debt securing the
Indebtedness so refunded, refinanced or extended, (iii) Liens in favor of the
Company or any of its Subsidiaries, (iv) Liens securing industrial revenue
bonds, (v) Liens to secure Purchase Money Indebtedness that is otherwise
permitted under the Indenture, provided that (a) any such Lien is created solely
for the purpose of securing Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including sales and excise taxes, installation
and delivery charges and other direct costs of, and other direct expenses paid
or charged in connection with, such purchase or construction) of such Property
and (b) such Lien does not extend to or cover any Property other than such item
of Property and any improvements on such item, (vi) statutory liens or
landlords', carriers', warehousemen's, mechanics', suppliers', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
do not secure any Indebtedness and with respect to amounts not yet delinquent or
being contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor, (vii) other Liens securing obligations incurred
in the ordinary course of business which obligations do not exceed $3,000,000 in
the aggregate at any one time outstanding, (viii) Liens securing Interest Rate
Agreements, (ix) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other Property relating to such
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letters of credit and the products and proceeds thereof, (x) any extensions,
substitutions, replacements or renewals of the foregoing, (xi) Liens for taxes,
assessments or governmental charges that are being contested in good faith by
appropriate proceedings, and (xii) Liens securing Capital Lease Obligations
permitted to be incurred under clause (v) of the definition of "Permitted
Indebtedness," provided that such Lien does not extend to any property other
than that subject to the underlying lease.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entities the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Purchase Money Indebtedness" means any Indebtedness incurred by a Person
to finance the cost (including the cost of construction) of an item of Property,
the principal amount of which Indebtedness does not exceed the sum of (i) 100%
of such cost and (ii) reasonable fees and expenses of such Person incurred in
connection therewith.
"Qualified Equity Offering" means an offering by the Company or the Parent
of shares of its common stock (however designated and whether voting or
non-voting) and any and all rights, warrants or options to acquire such common
stock, whether registered or exempt from registration under the Securities Act;
provided, however, that in connection with a Qualified Equity Offering of the
Parent the net proceeds of such Qualified Equity Offering are contributed to the
Company as common equity.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Subsidiaries
pursuant to the terms of the Indenture, but only to the extent that (i) the
Refinancing Indebtedness is subordinated to the Notes to at least the same
extent as the Indebtedness being refunded, refinanced or extended, if at all,
(b) the Refinancing Indebtedness is scheduled to mature either (a) no earlier
than the Indebtedness being refunded, refinanced or extended, or (b) after the
maturity date of the Notes, (iii) the portion, if any, of the Refinancing
Indebtedness that is scheduled to mature on or prior to the maturity date of the
Notes has a weighted average life to maturity at the time such Refinancing
Indebtedness is incurred that is equal to or greater than the weighted average
life to maturity of the portion of the Indebtedness being refunded, refinanced
or extended that is scheduled to mature on or prior to the maturity date of the
Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of (a) the aggregate principal amount then
outstanding under the Indebtedness being refunded, refinanced or extended, (b)
the amount of accrued and unpaid interest, if any, and premiums owed, if any,
not in excess of preexisting prepayment provisions on such Indebtedness being
refunded, refinanced or extended, plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined by
the Company as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase and (c) the amount of customary fees,
expenses and costs related to the incurrence of such Refinancing Indebtedness,
and (v) such Refinancing Indebtedness is incurred by the same Person that
initially incurred the Indebtedness being refunded, refinanced or extended,
except that the Company may incur Refinancing Indebtedness to refund, refinance
or extend Indebtedness of any Wholly Owned Subsidiary of the Company.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Subsidiary of the Company or any payment made to the direct
or indirect holders (in their capacities as such) of Capital Stock of the
Company or any Subsidiary of the Company (other than (x) dividends or
distributions payable solely in Capital Stock (other than Disqualified Capital
Stock), and (y) in the case of Subsidiaries of the Company, dividends or
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distributions payable to the Company or to a Wholly Owned Subsidiary of the
Company), (ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any of its Subsidiaries (other than
Capital Stock owned by the Company or a Wholly Owned Subsidiary of the Company),
(iii) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund payment,
of any Indebtedness which is subordinated in right of payment to the Notes other
than subordinated Indebtedness acquired in anticipation of satisfying a
scheduled sinking fund obligation, principal installment or final maturity (in
each case due within one year of the date of acquisition), (iv) the making of
any Investment in any Person other than a Permitted Investment, and (v)
forgiveness of any Indebtedness of an Affiliate of the Company to the Company or
a Subsidiary. For purposes of determining the amount expended for Restricted
Payments, cash distributed or invested shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market value.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing.
"Senior Indebtedness" means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a bankruptcy, reorganization or other insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) on, and any and all other fees, expense reimbursement obligations
and other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise entered
into in connection with (a) all Indebtedness of the Company owed to lenders
under the Credit Facility, (b) the Senior Notes, (c) all obligations of the
Company with respect to any Interest Rate Agreement, (d) all obligations of the
Company to reimburse any bank or other person in respect of amounts paid under
letters of credit, acceptances or other similar instruments, (e) all other
Indebtedness of the Company which does not provide that it is to rank pari passu
with or subordinate to the Notes and (f) all deferrals, renewals, extensions and
refundings of, and amendments, modifications and supplements to, any of the
Senior Indebtedness described above. Notwithstanding anything to the contrary in
the foregoing, Senior Indebtedness will not include (i) Indebtedness of the
Company to any of its Subsidiaries, (ii) Indebtedness represented by the Notes
or the Existing Senior Subordinated Notes, (iii) any Indebtedness which by the
express terms of the agreement or instrument creating, evidencing or governing
the same is junior or subordinate in right of payment to any item of Senior
Indebtedness, (iv) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business, or (v)
Indebtedness (other than that described in clause (a) above) incurred in
violation of the Indenture.
"Senior Notes" means the Company's 11 1/4% Senior Notes due 2001.
"Senior Note Indenture" means the indenture dated as of October 1, 1993
between the Company and Norwest Bank Minnesota, National Association, as
trustee.
"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act and the Exchange Act, as in effect on the Issue Date.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with generally accepted accounting principles such entity is
consolidated with the first-named Person for financial statement purposes.
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"Tax Allocation Agreement" means the Tax Allocation Agreement, dated as of
August 23, 1985, as amended, between the Parent and its subsidiaries, including
the Company, as the same may be amended or extended from time to time provided
that no such amendment may create greater additional liability of the Company
and its Subsidiaries than existing as of the Issue Date under such agreement.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase, (ii) Investments in United States dollar denominated
time deposits and United States dollar denominated certificates of deposit
(including Eurodollar time deposits and certificates of deposit) maturing within
365 days of the date of purchase thereof issued by any United States or Canadian
national, provincial or state (including the District of Columbia) banking
institution having capital, surplus and undivided profits aggregating at least
$250,000,000, or by any British, French, German, Japanese or Swiss national
banking institution having capital, surplus and undivided profits aggregating at
least $1,000,000,000, in each case that is (a) rated at least "A" by Standard &
Poor's Corporation or at least "A-2" by Moody's Investors Service Inc., or (b)
that is a party to the Credit Facility, (iii) Investments in commercial paper
maturing within 270 days after the issuance thereof that has the highest credit
rating of either of such rating agencies, (iv) Investments in readily marketable
direct obligations issued by any state of the United States of America or any
political subdivision thereof having the highest rating obtainable from either
of such rating agencies, (v) Investments in tax exempted and tax advantaged
instruments including, without limitation, municipal bonds, commercial paper,
auction rate preferred stock and variable rate demand obligations with the
highest short-term ratings by either of such rating agencies or a long-term debt
rating of AAA from Standard & Poor's Corporation, (vi) Investments in repurchase
agreements and reverse repurchase agreements with institutions described in
clause (ii) above that are fully secured by obligations described in clause (i)
above and (vii) Investments not exceeding 365 days in duration in money market
funds that invest substantially all of such funds' assets in the Investments
described in the preceding clauses (i) through (v).
"Triggering Default Event" means a Default or Event of Default described in
clauses (i), (ii), (iv), (v) or (vi) under the captions "-- Events of Default"
or "-- Merger, Consolidation or Sale of Assets" or any breach or violation under
the covenants entitled "Limitation on Additional Indebtedness," "Limitation on
Restricted Payments," "Limitation on Other Senior Subordinated Debt,"
"Limitations on Liens," "Limitation on Sale and Lease-Back Transactions,"
"Dividend and Other Payment Restrictions Affecting Subsidiaries," "Limitation on
Transactions with Affiliates," "Limitation on Certain Asset Sales," "Limitation
on Capital Stock of Subsidiaries," "Payments for Consent" or "Change of Control
Offer."
"Wholly Owned Subsidiary" means any Subsidiary, all of the outstanding
Capital Stock (other than directors' qualifying shares) of which is owned,
directly or indirectly, by the Company.
BOOK-ENTRY, DELIVERY AND FORM
The Original Notes were issued in part in the form of a Note certificate
(the "Original Global Note") and were issued in part in a certificated note
registered in the name of Dev & Co. The Original Global Note was deposited on
the date of the closing of the sale of the Original Notes offered hereby (the
"Closing Date") with, or on behalf of, DTC and registered in the name of a
nominee of DTC. Except for Exchange Notes issued to Non-Global Purchasers (as
defined below), the Exchange Notes will initially be issued in the form of a
Global Note (the "Exchange Global Note"). The Exchange Global Note will be
deposited on the date of closing of the Exchange Offer, with, or on behalf of
DTC and registered in the name of a nominee of DTC.
Notes (i) originally purchased by or transferred to "foreign purchasers" or
Accredited Investors who are not QIBs, or (ii) held by QIBs which elect to take
physical delivery of their certificates instead of holding their interest
through the Original Global Note (and which are thus ineligible to trade through
DTC) (collectively referred to herein as the "Non-Global Purchasers") will be
issued, in registered form, without interest coupons ("Certificated
Securities"). Upon the transfer to a QIB of such Certificated Securities
initially issued to a Non-Global Purchaser, such Certificated Securities will,
unless the Global Note has previously been exchanged in whole for such
Certificated Securities, be exchanged for an interest in the
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Global Note. "Global Notes" means the Original Global Notes or the Exchange
Global Notes, as the case may be.
The Global Note. The Company expects that pursuant to procedures
established by DTC (i) upon deposit of the Global Note, DTC will credit the
accounts of persons who have accounts with DTC ("participants") or persons who
hold interests through participants designated by such person with portions of
the Global Note and (ii) ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC or its nominee (with respect to interests of participants) and the
records of participants (with respect to interests of persons other than
participants). QIBs may hold their interests in the Global Note directly through
DTC if they are participants in such system, or indirectly through organizations
that are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee will be considered the sole owner or holder of the
Notes represented by the Global Note for all purposes under the Indenture. No
beneficial owner of an interest in the Global Note will be able to transfer such
interest except in accordance with DTC's applicable procedures, in addition to
those provided for under the Indenture.
Payments of the principal of, premium (if any) and interest on the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any Paying Agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium (if any) and interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note, as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. If a holder
requires physical delivery of a Certificated Security for any reason, including
to sell Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the Global Note in accordance with the normal procedures of DTC and including
the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interest in the Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants have given such direction. However, if there is an
Event of Default under the Indenture, DTC will exchange the Global Note for
Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
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Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depository for the Global Note and a successor depository is not
appointed by the Company within 90 days, the Company will issue Certificated
Securities in exchange for the Company's Global Note.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will use reasonable
efforts to make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale; provided that such
broker-dealer indicates in the Letter of Transmittal that it is a broker-dealer.
In addition, until December , 1997, all broker-dealers effecting transactions
in the Exchange Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act, and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt of
notice from the Company of the happening of any event which makes any statement
in the Prospectus untrue in any material respect or which requires the making of
any changes in the Prospectus in order to make the statements therein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such broker-dealer. If the Company gives any such notice to suspend the use
of the Prospectus, it shall extend the 180-day period referred to above by the
number of days during the period from and including the date of the giving of
such notice up to and including when broker-dealers have received copies of the
supplement or amended Prospectus necessary to permit resales of Exchange Notes.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any broker-dealers) and certain parties related
to the holders against certain liabilities, including liabilities under the
Securities Act.
95
<PAGE> 100
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio.
EXPERTS
The audited financial statements of the Company included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report, which is included herein.
The consolidated financial statements of Pearle as of September 30, 1996
and 1995, and for each of the years in the three-year period ended September
30,1996, have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP refers
to a change in the method of accounting for income taxes in 1994.
96
<PAGE> 101
INDEX TO FINANCIAL STATEMENTS
COLE NATIONAL GROUP INC. AND SUBSIDIARIES:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of May 3, 1997 and February 1, 1997.................. F-2
Consolidated Statements of Operations for the 13 weeks ended May 3, 1997 and May 4,
1996............................................................................. F-3
Consolidated Statements of Cash Flows for the 13 weeks ended May 3, 1997 and May 4,
1996............................................................................. F-4
Notes to Consolidated Financial Statements.......................................... F-5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants............................................ F-6
Consolidated Balance Sheets at February 1, 1997 and February 3, 1996................ F-7
Consolidated Statements of Operations for the 52 weeks ended February 1, 1997, the
53 weeks ended February 3, 1996, and the 52 weeks ended January 28, 1995......... F-8
Consolidated Statements of Stockholder's Equity (Deficit) for the 52 weeks ended
February 1, 1997, the 53 weeks ended February 3, 1996 and the 52 weeks ended
January 28, 1995................................................................. F-9
Consolidated Statements of Cash Flows for the 52 weeks ended February 1, 1997, the
53 weeks ended February 3, 1996 and the 52 weeks ended January 28, 1995.......... F-10
Notes to Consolidated Financial Statements.......................................... F-11
PEARLE, INC. AND SUBSIDIARIES:
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report........................................................ F-22
Consolidated Balance Sheets at September 30, 1996 and 1995.......................... F-23
Consolidated Statements of Operations for the Years Ended September 30, 1996,
1995 and 1994.................................................................... F-24
Consolidated Statements of Stockholder's Equity for the Years
Ended September 30, 1996, 1995 and 1994.......................................... F-25
Consolidated Statements of Cash Flows for the Years Ended September 30, 1996,
1995 and 1994.................................................................... F-26
Notes to Consolidated Financial Statements.......................................... F-27
</TABLE>
F-1
<PAGE> 102
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 3, FEBRUARY 1,
1997 1997
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments................................ $ 20,202 $ 73,141
Accounts receivable, less allowance for doubtful accounts of $1,632
in 1997 and $3,068 in 1996...................................... 41,835 39,539
Current portion of notes receivable................................ 5,106 6,060
Inventories........................................................ 127,456 119,236
Prepaid expenses and other......................................... 8,636 7,362
Deferred income tax benefits....................................... 24,925 24,925
--------- -----------
Total current assets....................................... 228,160 270,263
Property and equipment, at cost...................................... 218,422 211,408
Less -- accumulated depreciation and amortization.................. (107,089) (100,598)
--------- -----------
Total property and equipment, net.......................... 111,333 110,810
Other assets:
Notes receivable, excluding current portion........................ 22,039 24,387
Deferred income taxes and other.................................... 35,130 28,057
Intangible assets, net............................................. 138,237 139,308
--------- -----------
Total assets............................................... $ 534,899 $ 572,825
========= ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.................................. $ 457 $ 477
Accounts payable................................................... 44,672 62,145
Payable to affiliates.............................................. 51,973 65,590
Accrued interest................................................... 8,706 9,630
Accrued liabilities................................................ 115,825 123,001
Accrued income taxes............................................... 6,057 6,978
--------- -----------
Total current liabilities.................................. 227,690 267,821
Long-term debt, net of discount and current portion.................. 314,363 314,359
Other long-term liabilities.......................................... 26,956 27,000
Stockholder's equity (deficit):
Common stock....................................................... -- --
Paid-in capital.................................................... 122,681 122,681
Foreign currency translation adjustment............................ (182) (26)
Accumulated deficit................................................ (156,609) (159,010)
--------- -----------
Total stockholder's equity (deficit)....................... (34,110) (36,355)
--------- -----------
Total liabilities and stockholder's equity (deficit)....... $ 534,899 $ 572,825
========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-2
<PAGE> 103
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED
--------------------
MAY 3, MAY 4,
1997 1996
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net revenue............................................................. $248,542 $142,890
Costs and expenses:
Cost of goods sold.................................................... 85,770 44,500
Operating expenses.................................................... 142,565 87,414
Depreciation and amortization......................................... 7,607 4,202
-------- --------
Total costs and expenses...................................... 235,942 136,116
-------- --------
Income from operations.................................................. 12,600 6,774
Interest expense, net................................................... 8,313 5,058
-------- --------
Income before income taxes.............................................. 4,287 1,716
Income tax provision.................................................... 1,886 756
-------- --------
Net income.............................................................. $ 2,401 $ 960
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE> 104
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS ENDED
--------------------
MAY 3, MAY 4,
1997 1996
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 2,401 $ 960
Adjustments to reconcile net income to net cash used by operating
activities:
Depreciation and amortization...................................... 7,607 4,202
Non-cash interest.................................................. 225 106
Change in assets and liabilities:
Increase in accounts and notes receivable, prepaid expenses and
other assets.................................................. (1,655) (2,083)
Increase in inventories.......................................... (8,220) (3,610)
Decrease in accounts payable, accrued liabilities and other
liabilities..................................................... (23,296) (3,897)
Decrease in accrued interest..................................... (924) (5,101)
Decrease in accrued income taxes................................. (921) (3,285)
-------- --------
Net cash used by operating activities......................... (24,783) (12,708)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt........................................... (85) (130)
Advances from (to) affiliates, net.................................... (13,617) 23
Other................................................................. (155) --
-------- --------
Net cash used by financing activities......................... (13,857) (107)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment, net.............................. (7,041) (3,324)
Systems development costs............................................. (2,543) (349)
Other................................................................. (4,715) (146)
-------- --------
Net cash used by investing activities......................... (14,299) (3,819)
-------- --------
Cash and temporary cash investments:
Net decrease during the period........................................ (52,939) (16,634)
Balance, beginning of the period...................................... 73,141 29,260
-------- --------
Balance, end of the period............................................ $ 20,202 $ 12,626
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 105
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The Consolidated financial statements include the accounts of Cole National
Group, Inc. (CNG) and its wholly owned subsidiaries (collectively, the Company).
CNG is a wholly owned subsidiary of Cole National Corporation. All significant
intercompany transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared
without audit and certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, although the Company
believes that the disclosures herein are adequate to make the information not
misleading. These statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
In the opinion of management, the accompanying financial statements contain
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the Company's financial position as of May 3, 1997 and the
results of operations and cash flows for the 13 weeks ended May 3, 1997 and May
4, 1996.
Inventories
The accompanying interim consolidated financial statements have been
prepared without physical inventories. Inventories at May 3, 1997 and May 4,
1996 were valued at the lower of first-in, first-out (FIFO) cost or market.
Cash Flows
Net cash flows from operating activities reflect cash payments for income
taxes and interest of $2,974,446 and $9,492,000, respectively, for the 13 weeks
ended May 3, 1997, and $4,087,000 and $10,308,000, respectively, for the 13
weeks ended May 4, 1996.
(2) SEASONALITY
The Company's business historically has been seasonal with approximately
30% of its net revenue and approximately 50% of its income from operations
occurring in the fourth fiscal quarter because of the importance of gift sales
during the Christmas retailing season. Although the Pearle acquisition will
moderate the seasonality of the Company due to relatively lower levels of
optical product sales during the Christmas holiday season, the Company's
business will remain seasonal. Therefore, results of operations for interim
periods are not necessarily indicative of full year results.
(3) RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
F-5
<PAGE> 106
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF COLE NATIONAL GROUP, INC.:
We have audited the accompanying consolidated balance sheets of Cole
National Group, Inc. (a Delaware corporation) and Subsidiaries (the Company) as
of February 1, 1997 and February 3, 1996, and the related consolidated
statements of operations, stockholder's equity (deficit) and cash flows for each
of the three years in the period ended February 1, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cole
National Group, Inc. and Subsidiaries as of February 1, 1997 and February 3,
1996, and the results of their operations and their cash flows for each of the
three years in the period ended February 1, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
March 19, 1997.
F-6
<PAGE> 107
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments................................. $ 73,141 $ 29,260
Accounts receivable, less allowance for doubtful accounts of $3,068
in 1996 and $-0- in 1995......................................... 39,539 18,544
Current portion of notes receivable................................. 6,060 --
Inventories......................................................... 119,236 84,794
Prepaid expenses and other.......................................... 7,362 5,869
Deferred income tax benefits........................................ 24,925 9,813
--------- ---------
Total current assets........................................ 270,263 148,280
Property and equipment, at cost....................................... 211,408 154,589
Less -- accumulated depreciation and amortization................... (100,598) (90,883)
--------- ---------
Total property and equipment, net........................... 110,810 63,706
Other assets:
Notes receivable, excluding current portion......................... 24,387 --
Deferred income taxes and other..................................... 28,057 5,038
Intangible assets, net.............................................. 139,308 81,163
--------- ---------
Total assets................................................ $ 572,825 $ 298,187
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt................................... $ 477 $ 292
Accounts payable.................................................... 62,145 29,082
Payable to affiliates............................................... 65,590 1,255
Accrued interest.................................................... 9,630 7,044
Dividend payable.................................................... -- 13,500
Accrued liabilities................................................. 123,001 51,381
Accrued income taxes................................................ 6,978 5,970
--------- ---------
Total current liabilities................................... 267,821 108,524
Long-term debt, net of discount and current portion................... 314,359 180,218
Other long-term liabilities........................................... 27,000 6,948
Stockholder's equity (deficit):
Common stock........................................................ -- --
Paid-in capital..................................................... 122,681 118,065
Foreign currency translation adjustment............................. (26) --
Accumulated deficit................................................. (159,010) (115,568)
--------- ---------
Total stockholder's equity (deficit)........................ (36,355) 2,497
--------- ---------
Total liabilities and stockholder's equity.................. $ 572,825 $ 298,187
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-7
<PAGE> 108
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net revenue............................................... $ 683,990 $ 577,091 $ 528,049
Costs and expenses:
Cost of goods sold...................................... 221,304 182,934 164,723
Operating expenses...................................... 390,863 332,540 305,470
Depreciation and amortization........................... 19,812 15,686 14,892
Business integration and other non-recurring charges.... 64,400 -- --
--------- --------- ---------
Total costs and expenses........................ 696,379 531,160 485,085
--------- --------- ---------
Income (loss) from operations............................. (12,389) 45,931 42,964
Interest expense, net..................................... 22,759 21,382 21,823
--------- --------- ---------
Income (loss) before income taxes and extraordinary
item.................................................... (35,148) 24,549 21,141
Income tax provision (benefit)............................ (7,106) 10,799 (3,703)
--------- --------- ---------
Income (loss) before extraordinary item................... (28,042) 13,750 24,844
Extraordinary loss on early extinguishment of debt........ -- -- (134)
--------- --------- ---------
Net income (loss)......................................... $ (28,042) $ 13,750 $ 24,710
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-8
<PAGE> 109
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
FOREIGN RECEIVABLE
CURRENCY STOCK TOTAL
COMMON PAID-IN TRANSLATION OPTION ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL ADJUSTMENT EXERCISE DEFICIT EQUITY
------ -------- ----------- ---------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1994........ $ -- $111,865 $ -- $ (1,130) $(140,528) $ (29,793)
---- -------- ----- -------- --------- ---------
Net income..................... -- -- -- -- 24,710 24,710
Capital contribution by
parent...................... -- 6,200 -- -- -- 6,200
Repayment of notes
receivable.................. -- -- -- 22 -- 22
---- -------- ----- -------- --------- ---------
Balance, January 28, 1995........ -- 118,065 -- (1,108) (115,818) 1,139
---- -------- ----- -------- --------- ---------
Net income..................... -- -- -- -- 13,750 13,750
Transfer of notes receivable... -- -- -- 1,108 -- 1,108
Dividend to parent............. -- -- -- -- (13,500) (13,500)
---- -------- ----- -------- --------- ---------
Balance, February 3, 1996........ -- 118,065 -- -- (115,568) 2,497
---- -------- ----- -------- --------- ---------
Net loss....................... -- -- -- -- (28,042) (28,042)
Stock options granted.......... -- 4,153 -- -- -- 4,153
Effect of foreign currency
translation................. -- -- (26) -- -- (26)
Tax benefit of stock option
exercises................... -- 463 -- -- -- 463
Dividend to parent............. -- -- -- -- (15,400) (15,400)
---- -------- ----- -------- --------- ---------
Balance, February 1, 1997........ $ -- $122,681 $ (26) $ -- $(159,010) $ (36,355)
==== ======== ===== ======== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-9
<PAGE> 110
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ (28,042) $ 13,750 $ 24,710
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of
debt.............................................. -- -- 134
Depreciation and amortization....................... 19,812 15,686 14,892
Non-recurring charges............................... 23,292 -- --
Non-cash interest expense........................... 519 454 469
Deferred income taxes............................... (16,575) 4,394 (10,153)
Change in assets and liabilities:
Increase in accounts and notes receivable, prepaid
expenses and other assets...................... (3,896) (4,894) (4,596)
Decrease (increase) in inventories................ (3,582) 2,452 (8,723)
Increase in accounts payable, accrued liabilities
and other liabilities.......................... 73,491 2,812 211
Increase (decrease) in accrued interest........... 2,586 109 (272)
Increase in accrued income taxes.................. 1,305 1,419 2,386
---------- --------- ---------
Net cash provided by operating activities...... 68,910 36,182 19,058
---------- --------- ---------
Cash flows from financing activities:
Repayment of long-term debt............................ (15,511) (5,200) (5,667)
Payment of deferred financing fees..................... (6,066) -- (100)
Advances from affiliates, net.......................... 34,888 -- --
Proceeds from long-term debt, net...................... 148,875 -- --
Other.................................................. -- -- 22
---------- --------- ---------
Net cash provided (used) by financing
activities................................... 162,186 (5,200) (5,745)
---------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment, net............... (23,269) (19,675) (18,527)
Acquisition of businesses, net of cash acquired........ (157,426) (800) (4,675)
Systems development costs.............................. (3,820) (706) (1,295)
Other, net............................................. (2,700) (271) 10
---------- --------- ---------
Net cash used by investing activities.......... (187,215) (21,452) (24,487)
---------- --------- ---------
Cash and temporary cash investments:
Net increase (decrease) during the period.............. 43,881 9,530 (11,174)
Balance, beginning of the period....................... 29,260 19,730 30,904
---------- --------- ---------
Balance, end of the period............................. $ 73,141 $ 29,260 $ 19,730
========== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-10
<PAGE> 111
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Cole National Group, Inc. (CNG) is a wholly owned subsidiary of Cole
National Corporation (the Parent). The consolidated financial statements
include the accounts of CNG and its wholly owned subsidiaries
(collectively, the Company). CNG's subsidiaries include Pearle, Inc.
(Pearle) which was acquired on November 15, 1996 (see Note 2). All
significant intercompany transactions have been eliminated in
consolidation.
The Company is a specialty service retailer operating in both host and
non-host environments. The Company's primary lines of business are eyewear
products and services and personalized gifts. Eyewear products and services
and personalized gifts represented approximately 60% and 40%, respectively,
of sales in 1996 and 50% of sales each in 1995 and 1994. With the
acquisition of Pearle, eyewear products and services are expected to
comprise over 70% of the Company's net revenue in 1997.
The Company sells its products through over 2,777 company-owned retail
locations and 338 franchised locations in all 50 states, Canada, and the
Caribbean, and differentiates itself from other specialty retailers by
providing value-added services at the point of sale at all of its retail
locations. The Company considers its operations to be in one business
segment.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years are identified according to the calendar year in which they
begin. Fiscal years 1996 and 1994 consisted of 52 weeks while fiscal year
1995 consisted of 53 weeks.
INVENTORIES
The Company's inventories are valued at the lower of first-in,
first-out (FIFO) cost or market.
PROPERTY AND DEPRECIATION
The Company's policy is to provide depreciation using the
straight-line method over a period which is sufficient to amortize the cost
of the asset during its useful life or lease term, whichever is shorter.
The estimated useful lives for depreciation purposes are:
<TABLE>
<S> <C>
Buildings and improvements....................... 5 to 40 years
Equipment........................................ 3 to 10 years
Furniture and fixtures........................... 2 to 10 years
Leasehold improvements........................... 2 to 20 years
</TABLE>
F-11
<PAGE> 112
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Property and equipment, at cost, consists of the following as of
February 1, 1997 and February 3, 1996 (000's omitted):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land and buildings....................... $ 10,604 $ 3,615
Furniture, fixtures and equipment........ 142,958 114,802
Leasehold improvements................... 57,846 36,172
-------- --------
Total property and equipment............. $211,408 $154,589
======== ========
</TABLE>
STORE OPENING EXPENSES
Store opening expenses are charged to operations in the year the store
is opened, which is generally the year the expense is incurred.
NOTES RECEIVABLE
The Company's notes receivable are from Pearle's franchisees
throughout the U.S. and are collateralized by inventory, equipment, and
leasehold improvements at each location. The notes generally bear interest
at the prime rate plus 3% and require monthly payments of principal and
interest over periods of up to ten years.
INTANGIBLE ASSETS
Intangible assets, net consist of the following at February 1, 1997
and February 3, 1996 (000's omitted):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Tradenames................................ $ 49,198 $ --
Goodwill.................................. 90,110 81,163
-------- -------
$139,308 $81,163
======== =======
</TABLE>
Tradenames acquired in connection with the Pearle acquisition are
being amortized on a straight-line basis over 40 years and are presented
net of accumulated amortization of $262,000 at February 1, 1997.
Goodwill is being amortized on a straight-line basis over 40 years and
is presented net of accumulated amortization of $30,609,000 and $29,640,000
at February 1, 1997 and February 3, 1996, respectively. Management
regularly evaluates its accounting for goodwill considering primarily such
factors as historical profitability, current operating profits and cash
flows. The Company believes that, at February 1, 1997, the asset is
realizable and the amortization period is still appropriate.
OTHER ASSETS
Financing costs incurred in connection with obtaining long-term debt
are capitalized in other assets and amortized over the life of the related
debt using the effective interest method.
OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist primarily of certain employee
benefit obligations, deferred lease credits and other lease related
obligations not expected to be paid within 12 months and deferred income
taxes. Deferred lease credits are amortized on a straight-line basis over
the life of the applicable lease.
F-12
<PAGE> 113
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
CASH FLOWS
For purposes of reporting cash flows, the Company considers all
temporary cash investments, which have original maturities of three months
or less, to be cash equivalents. The carrying amounts of cash and cash
equivalents approximate fair value due to the short maturity of those
instruments.
Net cash flows from operating activities reflect cash payments for
income taxes and interest as follows (000's omitted):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income taxes........................... $ 5,300 $ 4,264 $ 2,250
Interest............................... $21,275 $21,580 $22,069
</TABLE>
During 1994, the Parent contributed $6.2 million of its receivable
from the Company to the Company's paid in capital in exchange for 100
additional shares of the Company's common stock.
During 1995, non-cash financing activities included incurring $887,000
in capital lease obligations.
During 1995, a dividend in the amount of $13.5 million was declared
and was payable to the Parent at February 3, 1996. During 1996, a dividend
in the amount of $15.4 million was declared and paid to the Parent. Payment
of the dividends was recorded as an increase to payable to affiliates.
REVENUES
Revenues include sales of goods and services to retail customers at
company-operated stores, sales of merchandise inventory to franchisees and
other outside customers, and other revenues from franchisees such as
royalties based on sales, interest income on notes receivable and initial
franchise fees. Other revenues from franchisees totaled $4.0 million in
fiscal 1996.
Franchise revenues based on sales by franchisees are accrued as
earned. Initial franchise fees are recorded as income when all material
services or conditions relating to the sale of the franchises have been
substantially performed or satisfied by the Company and when the related
store begins operations.
ADVERTISING
The Company expenses advertising production costs and advertising
costs as incurred. Advertising expense was approximately $33,630,000;
$23,560,000 and $20,370,000 for 1996, 1995 and 1994, respectively. The
Company has certain commitments to purchase advertising in fiscal 1997
approximating $8,000,000.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries are
translated to United States dollars at the rates of exchange on the balance
sheet date. Income and expense items of these subsidiaries are translated
at average monthly rates of exchange. Translation gains or losses are
included in the foreign currency translation adjustment component of
stockholder's equity.
CAPITAL STOCK
At February 1, 1997 and February 3, 1996, there were 1,100 shares of
common stock, par value $.01 per share, authorized, issued and outstanding.
F-13
<PAGE> 114
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
EARNINGS PER SHARE
Earnings per share and weighted average number of common shares
outstanding data for 1996, 1995 and 1994 have been omitted as the
presentation of such information, considering the Company is a wholly owned
subsidiary of the Parent, is not meaningful.
ASSET IMPAIRMENT
In the first quarter of 1996 the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Adoption of this standard did not have a
material impact on the Company's results of operations, financial position
or cash flows. During the fourth quarter of 1996, the Company recorded a
provision for impairment (see Note 3).
RECLASSIFICATIONS
Certain 1995 and 1994 amounts have been reclassified to conform with
the 1996 presentation.
(2) ACQUISITIONS OF BUSINESSES
On November 15, 1996, the Company purchased from the Parent, for an
aggregate purchase price of $157.7 million including the costs of
acquisition, certain assets and all of the issued and outstanding common
stock of Pearle, Inc. (Pearle). Pearle consisted of 346 company-operated
optical stores and 340 franchised locations in the United States, Canada
and the Caribbean. For its most recent fiscal year ended September 30,
1996, Pearle had annual net revenue of $302.2 million.
The Pearle acquisition was accounted for under the purchase method of
accounting. The results of operations of Pearle have been included in the
consolidated financial statements since the date of acquisition. The
purchase price was allocated to the assets acquired and liabilities assumed
based upon their relative fair values as of the closing date. This resulted
in an excess of purchase price over net assets acquired of $20.2 million.
The relative fair values of the assets acquired and liabilities assumed
were based upon valuations and other studies and included tradenames of
$49.5 million, unfavorable leasehold interests of $7.5 million, accruals
for involuntary severance and termination benefits of $4.4 million and
other purchase price adjustments. As of February 1, 1997, approximately
$175,000 of severance and termination benefits were paid and charged
against these liabilities.
The purchase price allocation is substantially complete but is subject
to adjustment, should actual costs differ from the recorded amounts. Such
adjustments, if made within one year from the date of acquisition, will be
recorded as adjustments to goodwill. Thereafter, any cost incurred in
excess of the liability recorded will be included in the determination of
net income.
On a pro forma basis, if the Pearle acquisition had taken place at the
beginning of the respective periods, unaudited consolidated net revenues
would have been $933.8 million for fiscal 1996 and $873.7 million for
fiscal 1995. After giving effect to certain pro forma adjustments,
including adjustments to reflect the amortization of tradenames and
goodwill, the elimination of transactions between Pearle and its former
parent, the elimination of Pearle's provision for impairment of intangible
assets and related costs which resulted from the acquisition, increased
interest expense and reduced interest income associated with acquisition
funding and the estimated related income tax effects, pro forma net loss in
fiscal 1996 would have improved by $2.3 million and pro forma net income in
1995 would have decreased by $10.6 million. Anticipated efficiencies from
the consolidation of the Company and Pearle have not been reflected in
these amounts because their realization cannot be assured.
The unaudited pro forma results have been prepared for informational
purposes only and should not be considered indicative of the actual results
of operations which would have occurred had the acquisition
F-14
<PAGE> 115
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
been in effect at the beginning of the periods indicated, and do not
purport to be indicative of results of operations which may occur in the
future.
The Company also made the following acquisitions, each of which has
been accounted for under the purchase method of accounting. In November
1996, the Company acquired all of the issued and outstanding stock of AOCO
Limited, which operates 73 Sears Optical Departments and two freestanding
Vision Club stores in Canada, for a purchase price of $2.6 million. In May
1995, the Company acquired the assets of 59 optical departments located in
BJ's Wholesale Clubs for a purchase price of $1.1 million. In January 1994,
the Company acquired the assets of 107 leased optical departments within
Montgomery Ward stores for a purchase price of $4.7 million. Pro forma
financial results have not been presented for these acquisitions as they
did not have a material effect on the Company's results of operations.
(3) BUSINESS INTEGRATION AND OTHER NON-RECURRING CHARGES
In the fourth quarter of fiscal 1996, the Company recorded a $64.4
million pre-tax charge for certain unusual and non-recurring items. Such
charge was primarily related to the acquisition of Pearle and included
costs incurred related to the integration and consolidation of Pearle into
the Company's operations, as well as certain other non-recurring charges.
The charge included $17.6 million for store and other facility closings,
$21.6 million related to computer systems, $9.4 million for asset
impairment and $15.8 million of other charges. Total cash outlay related to
these charges is approximately $41.1 million, of which $2.9 million has
been paid as of February 1, 1997. The remaining amount is expected to be
incurred within the next 12 to 18 months, except for certain lease costs
which may be incurred over the remaining life of the leases. Although the
Company currently does not anticipate that there will be additional
non-recurring charges in the future, as the integration and consolidation
of Pearle is completed, additional costs may be incurred that will be
charged against operating income at that time.
Subsequent to the effective date of the Pearle acquisition, the
Company identified certain unprofitable Pearle stores which it intends to
close in fiscal 1997. At certain other on-going retail locations, a
decision was made to close the in-store labs and supply these locations
from other facilities. In addition, the Company decided to retain Pearle's
distribution and central lab facilities, but to close Pearle's home office
facility in Dallas, Texas. The charge for store and other facilities
closings consists primarily of the remaining noncancelable term of
operating leases and other obligations remaining on these facilities
subsequent to their estimated date of closing along with the loss on fixed
assets.
In fiscal 1995, the Company entered into a ten-year agreement to
outsource its systems integration needs and data processing operations. Due
to the Pearle Acquisition, the Company has reassessed its system
requirements and decided to terminate its outsourcing agreement and install
new systems utilizing the resources of internal and external systems
integrators. The Company and the outsourcing entity have agreed in
principle to the terms of the termination arrangement. The settlement cost
of terminating the outsourcing agreement, as well as other related costs,
have been accrued as of February 1, 1997. Hardware and software costs
directly related to the development and installation of new systems which
will benefit future operations have been and will be capitalized as
incurred.
Following the Pearle acquisition and in light of current year
operating results, the Company reviewed the strategic direction of certain
other operations. In accordance with SFAS No. 121, the Company determined
that the goodwill associated with portions of its gift and optical
businesses would not be recoverable as the carrying values of these
businesses exceeded fair value, as measured by projected future discounted
cash flows.
The other charges include costs related to employee matters, including
duplicate costs incurred through fiscal year-end and costs related to
hiring employees in connection with the consolidation of the Pearle home
office functions and other costs of management realignment. In addition,
the other charges
F-15
<PAGE> 116
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
include incremental travel and professional fees incurred in connection
with the integration of Pearle, along with costs of developing and
implementing a new franchise agreement. Also, in February 1996, the Board
of Directors of the Parent granted stock options to executive officers at a
share price equal to the market price of the Parent's common stock on the
date of grant, which were subject to stockholder approval. The increase in
the price of the common stock between the grant date and the date of
stockholder approval resulted in $4.2 million of compensation expense. The
options as approved contained accelerated vesting provisions if the common
stock price rose to certain levels, which were reached in the fourth
quarter of fiscal 1996. Because future periods will not benefit by this
plan, the Company recognized the full costs of the plan as expense.
(4) LONG-TERM DEBT
Long-term debt at February 1, 1997 and February 3, 1996 is summarized
as follows (000's omitted):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
7.5% Obligation in connection with Industrial
Revenue Bonds................................ $ 338 $ 506
11.25% Senior Notes:
Face value................................... 165,838 181,000
Unamortized discount......................... (1,455) (1,834)
-------- --------
Total 11.25% Senior Notes............ 164,383 179,166
9.875% Senior Subordinated Notes:
Face value................................... 150,000 --
Unamortized discount......................... (1,111) --
-------- --------
Total 9.875% Senior Subordinated
Notes.............................. 148,889 --
Capital lease obligations (see Note 9)......... 1,226 838
-------- --------
314,836 180,510
Less current portion........................... (477) (292)
-------- --------
Net long-term debt................... $314,359 $180,218
======== ========
</TABLE>
The 11.25% Senior Notes (the Senior Notes) mature October 1, 2001 with
no earlier scheduled redemption or sinking fund payments. Interest on the
Senior Notes is payable semi-annually on each April 1 and October 1.
On November 15, 1996, CNG issued $150 million of 9.875% Senior
Subordinated Notes (the Notes) due in 2006. The Notes were used by the
Company to finance a portion of the Pearle acquisition (see Note 2).
Interest on the Notes is payable semi-annually in arrears on December 31
and June 30 commencing June 30, 1997.
The Senior Notes and the Notes are general unsecured obligations of
CNG, subordinated in right of payment to senior indebtedness of CNG and
senior in right of payment to any current or future subordinated
indebtedness of CNG.
The indentures pursuant to which the Senior Notes and the Notes were
issued restrict dividend payments to the Company to 50% of CNG's net income
after October 31, 1993, plus amounts due to the Parent under a tax sharing
agreement and for administrative expenses of the Parent not to exceed 0.25%
of CNG's net revenue. The indentures also contain certain optional and
mandatory redemption features and other financial covenants. The Company
was in compliance with these covenants at February 1, 1997.
F-16
<PAGE> 117
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
During the first quarter of 1994, the Parent completed an initial
public offering (IPO) of the Parent's Common Stock. A portion of the net
proceeds from the IPO was advanced to the Company by the Parent and used to
retire $4.0 million of the Senior Notes. The Company recorded an
extraordinary loss of $134,000 representing the payment of a premium, the
write-off of unamortized discount and other costs associated with retiring
this debt. The loss is net of an income tax benefit of $72,000.
During the second quarter of fiscal 1996, the Parent used a portion of
the net proceeds from its public stock offering to purchase approximately
$15.1 million of the Senior Notes in the open market. In connection with
the acquisition of Pearle, the Company purchased and retired the $15.1
million of Senior Notes held by the Parent at a price equal to net book
value.
The agreement in connection with the Industrial Revenue Bonds provides
for repayment of the obligation in annual installments of $168,750 through
1998. The Industrial Revenue Bonds are secured by office and distribution
facilities with a net book value of $1,646,000 at February 1, 1997.
At February 1, 1997, the fair value of the Company's long-term debt
was approximately $342.7 million compared to a carrying value of $314.8
million. The fair value was estimated primarily by using quoted market
prices.
(5) CREDIT FACILITY
Concurrent with the Pearle acquisition, the principal operating
subsidiaries of CNG (the Borrowers) entered into a Credit Facility. The
Credit Facility replaced, concurrent with the issuance of the Notes, the
existing revolving credit facility.
The Credit Facility provides the Borrowers with a four-year revolving
line of credit of up to the lesser of a "borrowing base" and $75 million.
Up to $30 million of the Credit Facility is available for the issuance of
letters of credit. Borrowings under the Credit Facility initially bear
interest at a rate equal to, at the option of the Borrowers, either (a) the
Eurodollar Rate plus 1.25% or (b) 0.25% plus the highest of (i) the prime
rate, (ii) the three-week moving average of the secondary market rates for
three-month certificates of deposit plus 1% and (iii) the federal funds
rate plus 0.5%. The Company pays a commitment fee of 0.375% per annum on
the total unused portion of the facility. Additionally, the Credit Facility
requires the Borrowers to comply with various operating covenants that
restrict corporate activities, including covenants restricting the
Borrowers' ability to incur additional indebtedness, pay dividends, prepay
subordinated indebtedness, dispose of certain investments or make
acquisitions. The Credit Facility also requires the Borrowers to comply
with certain financial covenants, including covenants regarding minimum
interest coverage, maximum leverage and consolidated net worth. The
Borrowers were in compliance with these covenants at February 1, 1997.
The Credit Facility restricts dividend payments to CNG to amounts
needed to pay interest on the Senior Notes and the Notes, and certain
amounts related to taxes, along with up to $8.0 million plus 0.25% of the
Company's net revenue annually for other direct expenses of the Parent or
CNG. In addition, dividends of up to $20.0 million are permitted to
repurchase the Senior Notes and/or the Notes.
The maximum amount of short term borrowings outstanding during 1995
was $3.5 million. No amounts were outstanding as of February 1, 1997 or
February 3, 1996, or at any time during fiscal 1996.
(6) STOCK OPTIONS
The Parent has various stock option plans in which key employees of
the Company are eligible to participate.
The Company applies APB Opinion 25 and related Interpretations in
accounting for the Parent's stock-based compensation plans. Accordingly, no
compensation cost has been recognized for the Parent's
F-17
<PAGE> 118
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
stock option plans in fiscal 1994 and fiscal 1995. Compensation cost that
has been charged against income for the Parent's stock-based plans in
fiscal 1996 was $4.2 million as discussed in Note 3. Had compensation cost
for the Parent's stock-based compensation plans been determined based on
the fair value at the dates of awards under those plans consistent with the
method of SFAS No. 123, the Company's net loss in fiscal 1996 would have
been increased to $29,961,000 and its net income in fiscal 1995 would have
been reduced to $13,609,000.
The fair value of each option grant by the Parent in fiscal 1995 and
1996 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: risk-free interest
rates of 6.4 and 6.2 percent for grants in fiscal 1995 and 1996,
respectively, and expected lives of six years and volatility of 33 percent
for options granted in both fiscal years. Because the SFAS No. 123 method
of accounting has not been applied to options prior to January 29, 1995,
the resulting pro forma expense may not be representative of that to be
expected in the future.
(7) INCOME TAXES
Income tax provision (benefit) for fiscal 1996, 1995 and 1994 is
detailed below (000's omitted):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Currently payable --
Federal.................................................. $ 7,442 $ 4,615 $ 4,434
State and local.......................................... 2,027 1,790 2,016
-------- -------- --------
9,469 6,405 6,450
-------- -------- --------
Deferred --
Federal.................................................. (16,575) 3,260 (1,494)
Utilization of net operating loss carryforwards.......... -- 1,134 4,169
Change in valuation allowance............................ -- -- (12,828)
-------- -------- --------
(16,575) 4,394 (10,153)
-------- -------- --------
Income tax provision (benefit)............................. $ (7,106) $ 10,799 $ (3,703)
======== ======== ========
</TABLE>
The income tax provision (benefit) reflected in the accompanying
consolidated statements of operations differs from the federal statutory
rate as follows (000's omitted):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate...................... $(12,301) $ 8,592 $ 7,399
Tax effect of --
State income taxes, net of federal tax benefit............... 1,317 1,164 1,310
Amortization of cost in excess of net assets of purchased
businesses................................................ 936 900 901
Non-recurring charges........................................ 2,584 -- --
Change in valuation allowance................................ -- -- (12,828)
Other, net................................................... 358 143 (485)
-------- -------- --------
Tax provision (benefit)................................... $ (7,106) $ 10,799 $ (3,703)
======== ======== ========
</TABLE>
F-18
<PAGE> 119
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets and deferred tax liabilities
at February 1, 1997 and February 3, 1996 are as follows (000's omitted):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Employee benefit accruals...................................... $ 6,137 $ 3,375
Business integration accruals.................................. 13,373 --
Other non-deductible accruals.................................. 15,066 3,922
State and local taxes.......................................... 1,254 1,086
Tax credit and net operating loss carryforwards................ -- 1,990
Intangibles.................................................... 6,148 --
Other.......................................................... 8,569 1,252
-------- --------
Total deferred tax assets................................... 50,547 11,625
-------- --------
Deferred tax liabilities:
Depreciation and amortization.................................. (5,043) (5,070)
Other.......................................................... (5,535) (836)
-------- --------
Total deferred tax liabilities.............................. (10,578) (5,906)
-------- --------
Net deferred taxes............................................... $ 39,969 $ 5,719
======== ========
</TABLE>
(8) RETIREMENT PLANS
The Company maintains a noncontributory defined benefit pension plan
(the Retirement Plan) that covers employees who have met eligibility
service requirements and are not members of certain collective bargaining
units. The Retirement Plan calls for benefits to be paid to eligible
employees at retirement based primarily upon years of service with the
Company and their compensation levels near retirement.
The Company's policy is to fund amounts necessary to keep the
Retirement Plan in full force and effect, in accordance with the Internal
Revenue Code and the Employee Retirement Income Security Act of 1974.
Actuarial present values of benefit obligations are determined using the
projected unit credit method.
Pension expense for fiscal 1996, 1995 and 1994 includes the following
components (000's omitted):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the period..... $ 646 $ 528 $ 581
Interest cost on the projected benefit obligation..... 1,467 1,369 1,292
Less:
Return on plan assets --
Actual........................................... (1,669) (1,138) 178
Deferred......................................... 477 11 (1,294)
------- ------- -------
(1,192) (1,127) (1,116)
Amortization of transition asset over 17.9 years...... (179) (179) (179)
------- ------- -------
Net pension expense......................... $ 742 $ 591 $ 578
======= ======= =======
</TABLE>
F-19
<PAGE> 120
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following sets forth the funded status of the Retirement Plan at
December 31, 1996 and 1995 based upon the actuarial present values of
benefit obligations (000's omitted):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accumulated benefit obligations:
Vested.................................................... $17,605 $17,147
Nonvested................................................. 238 291
------- -------
Total.................................................. $17,843 $17,438
======= =======
Projected benefit obligation for service rendered to date... $19,046 $19,030
Fair value of plan assets, primarily money market and equity
mutual funds.............................................. 16,774 13,849
------- -------
Plan assets less than projected benefit obligation.......... (2,272) (5,181)
Unrecognized prior service cost............................. 140 168
Net unrecognized loss....................................... 1,252 2,983
Unamortized transition asset................................ (1,416) (1,595)
------- -------
Pension liability included in accrued
liabilities..................................... $(2,296) $(3,625)
======= =======
</TABLE>
The weighted average discount rate used to measure the projected
benefit obligation was 8.0% in 1996 and 7.75% in 1995. For both years, the
rate of increase in future compensation levels was 5.0% and the expected
long-term rate of return on plan assets was 9.5%.
The Company has a defined contribution plan, including features under
Section 401(k) of the Internal Revenue Code, which provides retirement
benefits to its employees. Eligible employees may contribute up to 15% of
their compensation to the plan. There is no mandatory matching of employee
contributions by the Company, but discretionary matches of $327,000,
$164,000 and $164,000 were recorded for 1996, 1995 and 1994, respectively.
The Company also has a contributory profit sharing plan for Pearle
employees meeting certain service requirements as defined in the plan. The
Company's contribution to the plan consists of a minimum matching
contribution plus an additional performance contribution. Profit sharing
expense amounted to $229,000 in 1996.
During fiscal 1994, the Company established two Supplemental Executive
Retirement Plans which will provide for the payment of retirement benefits
to participating executives supplementing amounts payable under the
Company's Retirement Plan. The first plan is an excess benefit plan
designed to replace benefits that would otherwise have been payable under
the Retirement Plan but that were limited as a result of certain tax law
changes. The second plan is a defined contribution plan under which
participants will receive an annual credit based on a percentage of base
salary, subject to vesting requirements. Expense for these plans for fiscal
1996, 1995 and 1994 was $468,000, $447,000 and $413,000, respectively.
(9) COMMITMENTS
The Company leases a substantial portion of its facilities including
laboratories, office and warehouse space, and retail store locations. These
leases generally have initial terms of up to 10 years and often contain
renewal options. Certain of the store locations have been sublet to
franchisees. In most leases covering retail store locations, additional
rents are payable based on store sales. In addition, the Company operates
departments in various host stores paying occupancy costs solely as a
percentage of sales under agreements containing short-term cancellation
clauses. Generally, the Company is required to pay taxes
F-20
<PAGE> 121
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
and normal expenses of operating the premises for laboratory, office,
warehouse and retail store leases; the host stores pay these expenses for
departments operated on a percentage-of-sales basis. The following amounts
represent rental expense for fiscal 1996, 1995 and 1994 (000's omitted):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Occupancy costs based on sales................... $53,152 $50,218 $47,198
All other rental expense......................... 45,365 32,697 30,003
Sublease rental income........................... (5,935) (1,510) (1,455)
------- ------- -------
$92,582 $81,405 $75,746
======= ======= =======
</TABLE>
During 1995, the Company entered into leases for equipment which have
been accounted for as capital leases. At February 1, 1997 and February 3,
1996, property under capital leases consisted of $887,000 in equipment with
accumulated amortization of $111,000 and $22,000, respectively.
At February 1, 1997, future minimum lease payments and sublease income
receipts under noncancellable leases, and the present value of future
minimum lease payments for capital leases are as follows (000's omitted):
<TABLE>
<CAPTION>
OPERATING LEASES
CAPITAL ---------------------
LEASES PAYMENTS RECEIPTS
------- -------- --------
<S> <C> <C> <C>
1997........................................... $ 385 $ 66,887 $ 13,528
1998........................................... 382 58,641 11,503
1999........................................... 300 50,277 9,202
2000........................................... 385 37,386 6,655
2001........................................... -- 26,797 4,112
2002 and thereafter............................ -- 65,157 6,152
------- -------- --------
Total future minimum lease payments............ 1,452 $305,145 $ 51,152
======== ========
Amount representing interest................... (226)
-------
Present value of future minimum lease
payments..................................... $ 1,226
=======
</TABLE>
F-21
<PAGE> 122
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pearle, Inc.:
We have audited the accompanying consolidated balance sheets of Pearle,
Inc. and subsidiaries as of September 30, 1996 and 1995 and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the years in the three-year period ended September 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pearle, Inc.
and subsidiaries as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 8, the Company changed its method of accounting
for income taxes in fiscal 1994 to adopt the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
KPMG Peat Marwick LLP
Dallas, Texas
November 22, 1996
F-22
<PAGE> 123
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 7,411 $ 17,800
Accounts and notes receivable:
Trade, less allowance for doubtful accounts of $2,908 in 1996 and
$2,944 in 1995................................................... 21,326 15,657
Current portion of franchise notes................................ 7,310 8,252
Other............................................................. 3,787 3,947
Inventories.......................................................... 36,751 35,432
Prepaid expenses..................................................... 1,741 1,661
Deferred income taxes................................................ 9,118 9,710
-------- --------
Total current assets............................................ 87,444 92,459
Property, plant and equipment, net..................................... 57,860 62,459
Franchise notes receivable, excluding current portion.................. 25,250 32,137
Intangible assets, net................................................. 121,669 216,767
Other assets........................................................... 809 544
-------- --------
$293,032 $404,366
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................................... $ 12,998 $ 8,268
Checks outstanding................................................... 11,196 9,711
Accrued payroll costs................................................ 12,212 14,140
Income taxes payable................................................. -- 18,710
Accrued advertising.................................................. 342 3,707
Accrued store closure costs.......................................... 2,233 6,573
Other accrued expenses and liabilities............................... 21,356 25,168
-------- --------
Total current liabilities....................................... 60,337 86,277
Payables to Parent and affiliated companies............................ -- 201,399
Deferred income taxes.................................................. 1,927 9,059
Other noncurrent liabilities........................................... 5,036 6,501
-------- --------
Total liabilities............................................... 67,300 303,236
-------- --------
Stockholder's equity:
Common stock, $1.00 par value, 1,000 shares authorized, 100 shares
issued and outstanding............................................ -- --
Additional paid-in capital........................................... 646,243 417,187
Accumulated deficit.................................................. (426,775) (324,392)
Foreign currency translation adjustment.............................. 6,264 8,335
-------- --------
Total stockholder's equity...................................... 225,732 101,130
Commitments and contingencies.......................................... -- --
-------- --------
$293,032 $404,366
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 124
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Revenues:
Trade sales.............................................. $ 341,141 $331,105 $311,233
Franchise revenues....................................... 24,883 23,147 24,785
--------- -------- --------
Total revenues...................................... 366,024 354,252 336,018
--------- -------- --------
Operating expenses:
Cost of sales, including buying and occupancy costs...... 184,486 187,185 181,340
Selling, general and administrative expenses............. 164,129 155,256 160,820
Restructuring and store closure costs.................... (2,083) 7,265 1,876
Royalty payments and other affiliate charges............. 6,406 6,039 5,916
Amortization of intangible assets........................ 15,604 14,260 14,289
Provision for impairment of intangible assets and related
costs................................................. 94,673 -- --
--------- -------- --------
Total operating expenses............................ 463,215 370,005 364,241
--------- -------- --------
Operating loss...................................... (97,191) (15,753) (28,223)
Other expense (income):
Gain on sale of subsidiary............................... -- (14,811) --
Interest expense to Parent............................... 15,461 15,769 17,309
Other interest, net...................................... (4,258) (4,829) (4,080)
--------- -------- --------
Loss before income tax benefit and cumulative effect
of accounting change............................. (108,394) (11,882) (41,452)
Income tax benefit......................................... (6,011) (12,845) (10,480)
--------- -------- --------
Income (loss) before cumulative effect of accounting
change.............................................. (102,383) 963 (30,972)
Cumulative effect of a change in accounting for income
taxes.................................................... -- -- 842
--------- -------- --------
Net income (loss)................................... $(102,383) $ 963 $(31,814)
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 125
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
--------------------------------------------------------------------
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER'S
STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
-------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1993...... $ -- $ 405,829 $(293,541) $ 976 $ 113,264
Net loss............................ -- -- (31,814) -- (31,814)
Capital contribution from
affiliate......................... -- 7,222 -- -- 7,222
Effect of foreign currency
translation....................... -- -- -- 3,283 3,283
-------- --------- --------- --------- ---------
Balances at September 30, 1994...... -- 413,051 (325,355) 4,259 91,955
Net income.......................... -- -- 963 -- 963
Capital contribution from
affiliate......................... -- 4,136 -- -- 4,136
Effect of foreign currency
translation....................... -- -- -- 4,076 4,076
-------- --------- --------- --------- ---------
Balances at September 30, 1995...... -- 417,187 (324,392) 8,335 101,130
Net loss............................ -- -- (102,383) -- (102,383)
Distribution of assets to
affiliate......................... -- (19,730) -- -- (19,730)
Capital contributions from
affiliate......................... -- 248,786 -- -- 248,786
Effect of foreign currency
translation....................... -- -- -- (2,071) (2,071)
-------- --------- --------- --------- ---------
Balances at September 30, 1996...... $ -- $ 646,243 $(426,775) $ 6,264 $ 225,732
======== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 126
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $(102,383) $ 963 $(31,814)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 31,587 33,448 39,953
Provision for bad debts............................... 1,797 (481) 2,162
Provision for inventory shrinkage and reserves........ 2,037 1,361 6,137
Restructuring and store closure costs................. (2,015) 7,164 2,487
Provision for impairment of intangible assets and
related costs....................................... 94,673 -- --
Gain on sale of subsidiary............................ -- (14,811) --
Changes in assets and liabilities:
Accounts and notes receivable....................... (6,642) 260 3,595
Inventories......................................... (3,004) 1,627 10,564
Prepaid expenses.................................... (80) 5,409 (5,409)
Checks outstanding.................................. 1,485 5,185 (10,079)
Accrued payroll costs............................... (1,928) 2,755 (2,572)
Income taxes payable................................ 3,360 6,573 751
Accrued advertising................................. (3,365) (2,353) 1,795
Accrued store closure costs......................... (2,512) (4,434) (18,878)
Accounts payable and accrued and other
liabilities...................................... (1,391) (7,695) (19,797)
Other assets........................................ (265) 662 3,939
Deferred income taxes............................... (6,540) (4,094) 19,094
Other noncurrent liabilities........................ (912) 625 1,512
--------- -------- --------
Net cash provided by operating activities........ 3,902 32,164 3,440
--------- -------- --------
Cash flows from investing activities:
Capital expenditures..................................... (13,558) (7,321) (6,083)
Proceeds from sale of property, plant and equipment...... 1,078 400 1,840
Proceeds from sale of subsidiary......................... -- 14,811 --
Other, net............................................... (710) 2,045 (257)
--------- -------- --------
Net cash provided by (used in) investing
activities..................................... (13,190) 9,935 (4,500)
--------- -------- --------
Cash flows from financing activities:
Increase (decrease) in payables to Parent and affiliated
companies............................................. 18,629 (37,396) (10,355)
Capital contribution from affiliate...................... -- 4,146 7,222
Distribution of assets to affiliate...................... (19,730) -- --
--------- -------- --------
Net cash used in financing activities............ (1,101) (33,250) (3,133)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents....... (10,389) 8,849 (4,193)
Cash and cash equivalents at beginning of year............. 17,800 8,951 13,144
--------- -------- --------
Cash and cash equivalents at end of year................... $ 7,411 $ 17,800 $ 8,951
========= ======== ========
Supplemental disclosures of cash flow information -- cash
paid (received) during the year for:
Income taxes.......................................... $ 101 $(16,988) $(29,878)
========= ======== ========
Interest.............................................. $ 11,203 $ 10,759 $ 13,229
========= ======== ========
Supplemental schedule of noncash financing activities:
Capitalization of amounts payable to Parent and
affiliated companies............................. $ 220,028 $ -- $ --
========= ======== ========
Current income taxes payable assumed by affiliate........ $ 22,070 $ -- $ --
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 127
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
Prior to November 15, 1996, Pearle, Inc. ("Pearle" or the "Company"), was a
wholly owned subsidiary of Grand Metropolitan Incorporated ("GrandMet" or the
"Parent") (see note 2). GrandMet is an indirect wholly-owned subsidiary of Grand
Metropolitan Public Limited Company. Pearle is a retailer of eyecare products
and services through company operated and franchised optical stores in the
United States, Canada, Puerto Rico, Belgium and the Netherlands. In addition,
Pearle operates an optical processing laboratory and distribution center in
connection with its retail operations.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. Intercompany balances and transactions have
been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents were
$1,207,000 and $1,174,000 at September 30, 1996 and 1995, respectively.
(d) Inventories
Inventories consist of frames, lenses and other raw materials and are
stated at the lower of weighted average cost or market.
(e) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Maintenance and repair
costs are expensed as incurred.
Depreciation and amortization are computed on a straight-line basis over
the estimated useful lives of the assets. Amortization of leasehold improvements
is based on the shorter of the lives of the respective leases or the estimated
useful lives of the improvements. The following is a summary of depreciation and
amortization periods for each classification of property, plant and equipment:
<TABLE>
<S> <C>
Buildings................ 20-33 years
Leasehold improvements... 4-20 years
Fixtures and equipment... 3-10 years
</TABLE>
(f) Intangible Assets
The excess of cost over the fair value of net tangible assets acquired upon
GrandMet's acquisition of the Company in 1985 and other businesses acquired by
Pearle since that time has been reflected as intangible assets in the
accompanying consolidated balance sheets. Such intangible assets are being
amortized on a straight-line basis over periods up to 40 years (see note 7). As
a result of the sale of the stock of the Company on November 15, 1996, it was
determined that a portion of the excess of cost over the fair value of net
tangible assets acquired was not recoverable. Accordingly, an impairment of
$87,985,000 was recorded in the consolidated financial statements at September
30, 1996 (see note 2).
Goodwill is recorded on the repurchase of franchise locations based on a
discounted cash flow model and is amortized over the expected life of the store
location.
F-27
<PAGE> 128
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(g) Income Taxes
Effective October 1, 1993, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), Accounting for Income Taxes, requiring the
asset and liability method of accounting for deferred income taxes. SFAS No. 109
changes the Company's method of accounting for income taxes from the deferred
method required under Accounting Principles Board Opinion 11 to the asset and
liability method. Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
The Company has reported the cumulative effect of adopting SFAS No. 109 as
a change in method of accounting for income taxes in the fiscal year 1994
consolidated statement of operations.
(h) Trade Sales
Trade sales represent sales of goods and services to retail customers by
Company operated stores and sales of merchandise inventory to franchisees and
other outside customers.
(i) Franchise Revenues
Franchise royalty revenues based on sales by franchisees are accrued as
earned. Gains and losses from the sale of existing Company owned stores to
franchisees are recognized at the time of the sale. A provision for doubtful
notes receivable is included as an offset to gain or loss on sale of franchises,
as appropriate. Initial franchise fees are recorded as income when all material
services or conditions relating to the sale of the franchises have been
substantially performed or satisfied by Pearle and when the related store begins
operations. Accrued franchise royalty revenues are included in trade accounts
receivable.
(j) Advertising Expenses
The Company expenses advertising production costs and advertising costs as
incurred. Gross advertising expense before contributions from franchisees was
approximately $47,678,000, $43,903,000 and $43,496,000 during the years ended
September 30, 1996, 1995 and 1994, respectively.
(k) Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiaries are
translated to United States dollars at the rates of exchange on the balance
sheet date. Income and expense items of these subsidiaries are translated at
average monthly rates of exchange. The resultant translation gains or losses are
included in the foreign currency translation adjustment component of
stockholder's equity.
(l) Postretirement Benefits Other than Pensions
The estimated cost of retiree benefit payments, principally health and life
insurance benefits, are accrued during the employees' active service periods
(see note 13).
(m) Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial
F-28
<PAGE> 129
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) SALE OF COMPANY
On September 24, 1996, The Pillsbury Company ("Pillsbury"), an intermediate
parent of the Company, entered into a Stock Purchase Agreement (the Agreement)
with Cole National Corporation, an unrelated third party, to sell Pillsbury's
interest in the Company. The final closing of the sale occurred on November 15,
1996 at which time Cole National Corporation exchanged approximately $220
million cash for Pillsbury's interest in the Company.
As the net assets of the Company, excluding intercompany and other balances
which were assumed by Pillsbury at the time of the sale, exceeded the selling
price, an impairment of the assets of the Company was determined to exist at
September 30, 1996. Accordingly, an impairment of approximately $87,985,000 has
been recorded in the September 30, 1996 consolidated financial statements to
reflect the assets of the Company at their estimated fair value. The impairment
is recorded as a write-off of excess cost over fair value of net tangible assets
acquired. The terms of the Agreement will substantially affect the Company's
current affiliate tax, debt and cash sharing arrangements. As a result of the
sale, approximately $6,688,000 was or will be paid by an affiliate company on
behalf of Pearle. This amount has been included in the consolidated statement of
operations and as a corresponding capital contribution in the consolidated
statement of stockholder's equity, as this amount will not be repaid by Pearle.
(3) RESTRUCTURING AND STORE CLOSURE COSTS
During the year ending September 30, 1996, the Company recorded a
write-down of the accrued store closure costs in the consolidated statement of
operations of approximately $2,083,000 related to a change in estimate of the
liability relating to store closure costs. During the years ended September 30,
1995 and 1994 the Company recorded a net provision of approximately $7,265,000
and $1,876,000, respectively, for estimated costs, consisting primarily of
future commitments under operating leases, of closing unprofitable U.S. and
international retail locations. During the year ended September 30, 1994, the
Company also recorded a provision of $4,800,000 (included in cost of sales) for
charges related to obsolete inventory which occurred as a result of a change in
brand strategy.
(4) DISPOSAL OF SUBSIDIARY
On October 27, 1994, the Company entered into an agreement to sell all of
the capital stock of Ophthalmic Research Group International Company ("ORGIC")
to a third party for cash consideration of $14,811,000. Prior to fiscal year
1994, the remaining book value of the intangible assets acquired of
approximately $22,146,000 was written off since, in the opinion of management,
the value of such assets was not recoverable. As a result, the gain on sale in
1995 was equal to the cash consideration.
(5) RELATED PARTY TRANSACTIONS
In connection with an acquisition in 1989, Pearle pays to an affiliated
company an annual royalty payment equal to the greater of a predetermined
minimum amount or 4% of sales from the predecessor's stores as a license fee for
use of the predecessor's trademark. The Company paid $6,081,000, $5,714,000, and
$5,494,000 for royalties in 1996, 1995 and 1994, respectively, pursuant to the
licensing agreement. These amounts are included in the accompanying consolidated
statements of operations as royalty payments and other affiliate charges. The
Company paid $17,236,000 on November 15, 1996 to settle its obligation under the
license agreement. In exchange for the settlement all rights in the trademark
were assigned to the Company.
F-29
<PAGE> 130
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company received capital contributions from an affiliate of
approximately $4,146,000, and $7,222,000 during the years ended September 30,
1995 and 1994, respectively. These amounts have been recorded as additional
paid-in capital in the accompanying consolidated balance sheets. In addition, in
connection with the sale of the Company (see note 2), amounts payable to Parent
and affiliated companies have been cancelled and current income taxes payable
has been assumed by Pillsbury as of September 30, 1996, and accordingly have
been recorded as an increase to additional paid-in capital.
On September 30, 1996, the Company distributed assets of $19,730,000
relating to a controlled entity to an affiliated company. The distribution
resulted in a reduction of additional paid-in capital, and a corresponding
reduction in payables to Parent and affiliated companies.
On May 28, 1993, an affiliate of the Company purchased approximately
$75,280,000 of newly issued preferred stock from a subsidiary of the Company.
The cash received from the sale of such stock was then loaned to the affiliate
in exchange for a note receivable. All balances related to this transaction have
been eliminated in the consolidated financial statements due to the related
party nature of the transaction. In fiscal year 1995, the preferred stock was
redeemed and the proceeds used to retire the note receivable.
The Company maintains an ongoing financing relationship with GrandMet.
Excess cash from operations is transferred to GrandMet on a regular basis.
Interest expense related to intercompany balances is recorded monthly at the
LIBOR rate plus 1%.
Royalty payments and other affiliate charges included in the consolidated
statements of operations include allocations of management, tax, accounting and
other administrative expenses performed by GrandMet.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Land........................................................ $ 6,803 $ 6,951
Buildings................................................... 26,922 26,784
Leasehold improvements...................................... 68,869 67,026
Fixtures and equipment...................................... 111,270 109,247
-------- --------
213,864 210,008
Less accumulated depreciation and amortization.............. 156,004 147,549
-------- --------
$ 57,860 $ 62,459
======== ========
</TABLE>
Depreciation and amortization expense related to property, plant and
equipment was $15,819,000, $18,619,000, and $22,567,000 for 1996, 1995 and 1994,
respectively.
F-30
<PAGE> 131
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(7) INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
AMORTIZATION -----------------------------
PERIOD 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Goodwill....................................... 7-40 years $ 213,221 $ 205,326
Patient files.................................. 4-8 years 21,297 21,600
Franchise agreements........................... 11-25 years 23,140 24,329
Franchise lease agreements..................... 1-11 years 2,234 2,235
Trademarks..................................... 40 years 55,496 55,496
Noncompetition agreements...................... 2-5 years 17,428 17,428
Other.......................................... 1-23 years 38,487 38,865
---------- ----------
371,303 365,279
Less:
Accumulated amortization..................... 161,649 148,512
Provision for impairment..................... 87,985 --
---------- ----------
$ 121,669 $ 216,767
========== ==========
</TABLE>
(8) INCOME TAXES
The Company is included in the consolidated Federal income tax return of
GrandMet. In 1989 the Company entered into a tax sharing agreement with GrandMet
whereby GrandMet agreed to allocate to the Company certain tax benefits
resulting from the utilization of the Company's tax deductions by other members
of the consolidated GrandMet group. For financial reporting purposes, the
Company's Federal income tax provision is calculated as though the Company filed
a separate Federal income tax return, except for the effect of the
aforementioned 1989 agreement with GrandMet.
As discussed in note 1, the Company adopted SFAS No. 109 as of October 1,
1993. The cumulative effect of this change in accounting for income taxes of
approximately $842,000 was determined as of October 1, 1993 and is reported
separately in the consolidated statement of operations for the year ended
September 30, 1994.
Federal income tax returns have been examined by the Internal Revenue
Service and settled through fiscal 1988.
The loss before income tax benefit and cumulative effect of accounting
change in the accompanying consolidated statements of operations consists of the
following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Domestic operations........................... $(113,304) $(17,814) $ (30,171)
Foreign operations............................ 4,910 5,932 (11,281)
--------- -------- ---------
Loss before income tax benefit and
cumulative effect of accounting
changes................................ $(108,394) $(11,882) $ (41,452)
========= ======== =========
</TABLE>
F-31
<PAGE> 132
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The income tax expense (benefit) attributable to loss before income tax
benefit and cumulative effect of accounting change consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................... $ (7,123) $ (9,380) $(27,535)
State...................................... 48 97 103
Foreign.................................... 2,250 532 (1,300)
-------- -------- ---------
Total current......................... (4,825) (8,751) (28,732)
-------- -------- ---------
Deferred:
Federal.................................... (1,097) (4,037) 17,454
Foreign.................................... (89) (57) 798
-------- -------- ---------
Total deferred........................ (1,186) (4,094) 18,252
-------- -------- ---------
Income tax benefit.................... $ (6,011) $(12,845) $(10,480)
======== ======== =========
</TABLE>
The tax effects of the primary temporary differences giving rise to the
deferred income tax assets and liabilities as determined under SFAS No. 109 are
as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Restructuring reserves............................................. $ 627 $ 2,444
Inventories, principally due to additional costs inventoried for
tax pursuant
to the Tax Reform Act of 1986.................................... 1,264 3,130
Accounts and notes receivable, principally due to allowance for
doubtful accounts................................................. 2,834 3,039
Employee related accruals, principally vacation pay and
post-retirement medical accruals.................................. 1,407 2,573
Accrued store closure costs........................................ 969 1,921
Warranty reserves.................................................. 86 392
Plant and equipment, principally due to differences in
depreciation...................................................... 3,049 --
Self insurance reserves............................................ 1,185 113
Other.............................................................. 1,271 848
-------- -------
Total gross deferred tax assets............................... 12,692 14,460
-------- -------
Deferred tax liabilities:
Intangibles, principally due to differences in amortization........ (3,698) (4,830)
Deferred income on franchise notes receivable...................... (1,339) (3,482)
Plant and equipment, principally due to differences in
depreciation...................................................... -- (110)
Prepaid advertising................................................ -- (112)
Other.............................................................. (464) (5,275)
-------- -------
Total gross deferred tax liabilities.......................... 5,501 (13,809)
-------- -------
Net deferred income tax asset................................. $ 7,191 $ 651
======== =======
</TABLE>
F-32
<PAGE> 133
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
These deferred income tax assets and liabilities are presented as follows
in the consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- -------
<S> <C> <C>
Current deferred income tax asset...................................... $ 9,118 $ 9,710
Noncurrent deferred income tax liability............................... (1,927) (9,059)
-------- -------
Net deferred income tax asset................................ $ 7,191 $ 651
======== =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences.
A reconciliation of the U.S. federal statutory rate to the effective income
tax rate applicable to loss before income tax benefit and cumulative effect of
accounting change follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
U.S. federal statutory rate.................................... (35.0)% (35.0)% (35.0)%
State income taxes, net of Federal benefit..................... 0.3 0.2 0.2
Nondeductible goodwill and trademarks.......................... 1.0 8.4 2.1
Provisions for impairment of intangible assets and related
costs........................................................ 29.1 -- --
Loss (earnings) of foreign subsidiaries........................ 0.5 (13.1) 8.3
Sale of ORGIC stock............................................ -- (70.8) --
Other.......................................................... (1.4) 2.2 (.9)
------ ------ -----
Effective income tax rate............................ (5.5)% (108.1)% (25.3)%
====== ====== =====
</TABLE>
The disposition of ORGIC resulted in an income tax deduction of
approximately $24,000,000 in 1995.
(9) FRANCHISE REVENUES
A summary of franchise revenues follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Franchise royalties........................................... $23,363 $23,978 $23,543
Gain (loss) on sale of franchises, net of reserves............ 1,240 (1,661) 482
Franchise fees................................................ 280 830 760
------- ------- -------
$24,883 $23,147 $24,785
======= ======= =======
</TABLE>
The Company financed approximately $1,239,000, $1,478,000 and $1,506,000 in
1996, 1995 and 1994, respectively, in notes receivable in connection with the
sale of franchises.
The Company is reimbursed by franchisees for certain advertising
expenditures made on their behalf. The reimbursements amounted to $25,122,000,
$25,480,000 and $24,591,000 for 1996, 1995 and 1994, respectively, and are
netted against advertising expense in the accompanying statement of operations.
F-33
<PAGE> 134
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company's franchise notes receivable are from franchisees throughout
the U.S. and are collateralized by inventory, equipment, and leasehold
improvements at each location. The notes generally bear interest at the prime
rate plus 3% and require monthly payments of principal and interest over ten
years.
(10) LEASES
The Company leases most of its retail stores under noncancellable operating
leases with terms ranging from five to twenty years and which may contain
renewal options for consecutive five-year terms. Certain of these stores have
been sublet to franchisees. In addition, the Company also leases certain of its
manufacturing and office facilities and data processing equipment.
Net rent expense included in the accompanying consolidated statements of
operations is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Base rentals........................................ $ 39,312 $42,135 $43,185
Contingent rentals (based on sales)................. 924 330 35
Sublease rental income.............................. (17,626) (19,620) (20,796)
-------- ------- -------
$ 22,610 $22,845 $22,424
======== ======= =======
</TABLE>
Future minimum lease payments and sublease income receipts under
noncancellable operating leases as of September 30, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
PAYMENTS RECEIPTS
-------- --------
<S> <C> <C>
1997.......................................................... $ 38,834 $ 15,431
1998.......................................................... 35,245 13,269
1999.......................................................... 30,675 10,841
2000.......................................................... 22,416 8,165
2001.......................................................... 13,288 5,664
Thereafter.................................................... 28,663 7,615
-------- --------
$169,121 $ 60,985
======== =======
</TABLE>
Approximately $1,911,000 and $3,000,000 of these future minimum lease
payments are included in accrued store closure costs in the consolidated balance
sheet at September 30, 1996 and 1995, respectively.
(11) EMPLOYEE BENEFIT PLANS
The Company has a contributory profit sharing plan for employees in the
U.S. meeting certain service requirements as defined in the plan. The Company's
contribution to the plan consists of a minimum matching contribution plus an
additional performance contribution. Profit sharing plan expenses, which are
included in selling, general and administrative expenses, amounted to
$1,224,000, $1,279,000 and $1,010,000 in 1996, 1995 and 1994, respectively. The
Company also has retirement plans for employees of foreign subsidiaries.
(12) SALE OF FRANCHISE NOTES RECEIVABLE
Prior to fiscal year 1994, the Company sold approximately $72,500,000 of
franchise notes receivable with limited recourse to a large banking institution
for $81,000,000 in cash. The limited recourse provisions require Pearle to
reacquire all of the notes under certain circumstances, including failure to
maintain properties in good order, failure to deliver a monthly statement, or
false or misleading representations. Additionally, under other circumstances,
such as default, Pearle is required to repurchase the individual note involved.
Such repurchases are limited to 28% of the aggregate purchase price of all notes
($6,460,000 and $8,517,000
F-34
<PAGE> 135
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
remaining repurchase exposure at September 30, 1996 and 1995, respectively). The
notes are secured by inventory, receivables and fixed assets of the franchised
stores.
(13) POSTRETIREMENT BENEFIT PLANS
Prior to February 1993, the Company and its subsidiaries provided health
care and other benefits to substantially all retired employees and covered
dependents. Generally, employees who have attained certain age and service
requirements were eligible for these benefits.
Net postretirement benefit cost, included as a component of selling,
general and administration expenses, consisted of the following components:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Interest cost on accumulated postretirement benefit
obligation................................................. $ 42,100 $77,400 $76,800
Amortization of unrecognized gain............................ (19,700) -- --
-------- ------- -------
Net postretirement benefit cost.................... $ 22,400 $77,400 $76,800
======== ======= =======
</TABLE>
The actuarial present value of the accumulated postretirement benefit
obligation as recognized in the consolidated balance sheets at September 30,
1996 and 1995, respectively, is $589,200 and $978,000, and relates solely to
existing retirees.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7.5% in 1996 and these rates are
anticipated to ratably decline to 5% by 2006. A one-percentage-point increase in
the assumed health care cost trend rate for each year would increase the
accumulated postretirement benefit obligation by approximately $46,600 and net
postretirement health care cost by approximately $3,500 as of September 30,
1996. The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%.
(14) COMMITMENTS AND CONTINGENCIES
The Company is engaged in various legal proceedings and has certain
unresolved claims pending. The ultimate liability, if any, for the aggregate
amounts claimed cannot be determined at this time. Management of the Company,
based upon consultation with legal counsel, is of the opinion that there are no
matters pending or threatened which are expected to have a material adverse
effect on the Company's consolidated financial condition, results of operations
or liability.
The Company has certain commitments to purchase advertising in fiscal year
1997 approximating $11,205,500.
(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, trade and other
receivables and payables approximate fair value due to the short maturity of
those instruments.
Franchise notes receivable and the payable to Parent and affiliated
companies bear interest at floating rates based on market rates and are adjusted
quarterly; therefore, the carrying value of these instruments approximates fair
value.
F-35
<PAGE> 136
PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(16) SELECTED FINANCIAL DATA FOR EUROPEAN OPERATIONS
The following summary sets forth selected financial information for the
Company's European operations in Netherlands and Belgium included in the
Company's consolidated financial statements:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Total revenues................................................ $63,817 $59,841 $48,704
Cost of sales, including buying and occupancy costs........... 35,849 33,372 26,805
Selling, general and administrative expenses.................. 20,177 19,583 17,974
Amortization and impairment of intangible assets.............. 238 236 209
------- ------- -------
Operating income......................................... 7,553 6,650 3,716
Interest expense (income), net................................ (488) (429) (99)
Income tax provision.......................................... 2,510 2,135 1,216
------- ------- -------
Net income............................................... $ 5,531 $ 4,944 $ 2,599
======= ======= =======
Total depreciation and amortization........................... $ 3,563 $ 3,373 $ 2,996
Capital expenditures.......................................... 3,193 3,279 2,272
Cash.......................................................... $ 1,380 $ 8,812 $ 4,751
Total current assets.......................................... 19,178 26,048 20,627
Total assets.................................................. 38,274 47,311 40,229
Total current liabilities..................................... 9,107 6,680 6,158
Payable to Company and affiliated companies................... (8,028) (3,985) (1,917)
Stockholder's equity.......................................... 34,339 41,049 33,292
</TABLE>
F-36
<PAGE> 137
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CON-
TAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................... i
Prospectus Summary...................... 1
Risk Factors............................ 11
The Exchange Offer...................... 17
The Company............................. 27
The Transactions........................ 29
Use of Proceeds......................... 30
Capitalization.......................... 31
Unaudited Pro Forma Condensed
Consolidated Financial Data........... 32
Selected Historical Financial and Other
Data.................................. 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 42
Business................................ 49
Management.............................. 56
Principal Stockholders.................. 66
Description of Other Indebtedness....... 68
Description of the Notes................ 71
Plan of Distribution.................... 95
Legal Matters........................... 96
Experts................................. 96
Index to Financial Statements........... F-1
</TABLE>
UNTIL , 1997, (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF THE DEALERS TO DELIVER A PROSPECTUS
WHEN SELLING EXCHANGE NOTES RECEIVED IN EXCHANGE FOR ORIGINAL NOTES HELD FOR
THEIR OWN ACCOUNT. SEE "PLAN OF DISTRIBUTION."
======================================================
======================================================
$125,000,000
[COLE LOGO]
COLE NATIONAL
GROUP, INC.
OFFER TO EXCHANGE ITS
8 5/8% SENIOR SUBORDINATED
NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT FOR ANY AND ALL OUTSTANDING
8 5/8% SENIOR SUBORDINATED
NOTES DUE 2007
----------------------------------
PROSPECTUS
----------------------------------
SEPTEMBER , 1997
======================================================
<PAGE> 138
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the Notes being
registered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................... $ 43,105
Printing costs.................................................................... 50,000
Accounting fees and expenses...................................................... 30,000
Legal fees and expenses (not including Blue Sky).................................. 50,000
Blue Sky fees and expenses........................................................ 10,000
Miscellaneous expenses............................................................ 16,895
--------
Total........................................................................... $200,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of the Company's Certificate provides that the Company will
indemnify its officers, directors and each person who is or was serving or who
had agreed to serve at the request of the Board of Directors or an officer of
the Company as an employee or agent of the Company or as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise to the full extent permitted by the General Corporation Law of
the State of Delaware (the "DGCL") or any other applicable laws as from time to
time may be in effect and that the Company may enter into agreements which
provide for indemnification greater or different from that provided in the
Certificate. In addition, the Company has provided in Article Sixth of its
Certificate that no director will be personally liable to the Company or its
stockholders for or with respect to any acts or omissions in the performance of
his or her duties as a director, to the full extent permitted by the DGCL or any
other applicable laws as from time to time may be in effect. The Certificate
further provides that any repeal or modification of Article Seventh or Article
Sixth will not adversely affect the right or protection existing under such
provision prior to such repeal or modification.
Subsection (a) of the Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under standards similar to those set forth in the paragraph above, except that
no indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
that despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
II-1
<PAGE> 139
Section 145 further provides that, to the extent that a director or officer
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he will be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that any indemnification under subsections (a) and
(b) of Section 145 (unless ordered by a court) will be made by a corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of Section 145; that expenses incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
unless it is ultimately determined that he is not entitled to be indemnified by
the corporation; that indemnification provided for by Section 145 will not be
deemed exclusive of any other rights to which the indemnified party may be
entitled; and that a corporation is empowered to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under Section 145.
The Parent has entered into indemnity agreements (the "Indemnity
Agreements") with the current Directors and executive officers of the Company
and expects to enter into similar agreements with any Director or those
executive officers designated by the Board of Directors of the Company elected
or appointed in the future at the time of their election or appointment.
Pursuant to the Indemnity Agreements, the Parent will indemnify a Director
or officer of the Company (the "Indemnitee") if the Indemnitee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that the Indemnitee is or was a Director or officer of the
Company, or is or was serving at the request of the Company in certain
capacities with another entity, against any and all costs, charges and expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the Indemnitee in connection with the defense or settlement of such
proceeding. Indemnity is available to the Indemnitee unless it proved by clear
and convincing evidence that the Indemnitee's action or failure to act was not
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company.
The Indemnity Agreements mandate advancement of expenses to the Indemnitee
if the Indemnitee provides the Parent with a written promise that (i) he has
reasonably incurred or will reasonably incur actual expenses in defending an
actual civil, criminal, administrative, or investigative action, suit,
proceeding or claim and (ii) he will repay such amount if it is ultimately
determined that he is not entitled to be indemnified by the Parent. In addition,
the Indemnity Agreements provide various procedures and presumptions in favor of
the Indemnitee's right to receive indemnification under the Indemnity Agreement.
Under the Parent's Director and Officer Liability Insurance Policy, each
director and certain officers of the Company are insured against certain
liabilities which might arise in connection with their respective positions with
the Company.
II-2
<PAGE> 140
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Company which were not registered under the Securities
Act have been issued or sold by the Company within the past three years, except
as follows:
On July 19, 1993, the Parent subscribed for and purchased 1,000 shares of
the Company's Common Stock, par value $.01 per share, at a price of $1.00 per
share (an aggregate of $1,000), in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act.
On March 17, 1995, the Parent purchased 100 shares of the Company's Common
Stock, par value $.01 per share, at a price of $62,000 per share (an aggregate
of $6,200,000), in reliance on the exemption from registration afforded by
Section 4(2) of the Securities Act.
On November 13, 1996, the Company sold the Existing Senior Subordinated
Notes in an aggregate principal amount of $150,000,000 to CIBC Wood Gundy
Securities Corp., CS First Boston Corporation, NationsBanc Capital Markets, Inc.
and Smith Barney Inc. The issuance of the Existing Senior Subordinated Notes was
exempt from registration under the Securities Act pursuant to Section 4(2).
On August 22, 1997, the Company sold the Original Notes in an aggregate
principal amount of $125,000,000 to CIBC Wood Gundy Securities Corp., Credit
Suisse First Boston Corporation and McDonald & Company Securities, Inc. The
issuance of the Original Notes was exempt from registration under the Securities
Act pursuant to Section 4(2).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<C> <S>
3.1(i) Certificate of Incorporation of the Company, incorporated by reference to Exhibit
3.1(i) to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
3.2(ii) By-Laws of the Company, incorporated by reference to Exhibit 3.2(ii) to the
Company's Registration Statement on Form S-1 (Registration No. 33-66342).
4.1 Indenture dated as of September 30, 1993 between the Company and Norwest Bank
Minnesota, N.A., as trustee, relating to the 11 1/4% Senior Notes due 2001 (the
form of which Senior Note is included in such Indenture), incorporated by
reference to Exhibit 4.1 to Cole National Corporation's Annual Report on Form 10-K
for the period ended February 3, 1996 (File No. 1-12814).
4.2 The Company by this filing agrees, upon request, to file with the Commission the
instruments defining the rights of holders of long-term debt of the Company and
its subsidiaries where the total amount of securities authorized thereunder does
not exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis.
4.3 Indenture dated November 15, 1996, between the Company and Norwest Bank Minnesota,
National Association, as trustee, relating to the 9 7/8% Senior Subordinated Notes
due 2006 (the form of which Senior Subordinated Note is included in such
Indenture), incorporated by reference to Exhibit 4.1 of Cole National
Corporation's Current Report on Form 8-K, filed with the Commission on December 2,
1996 (File No. 1-12814).
4.4 Indenture dated August 22, 1997, between the Company and Norwest Bank Minnesota,
National Association, as Trustee, relating to the 8 5/8% Senior Subordinated Notes
due 2007 (the form of which is included in such Indenture).
4.5 Registration Rights Agreement dated August 22, 1997, by and among the Company and
CIBC Wood Gundy Securities Corp., Credit Suisse First Boston Corporation and
McDonald & Company Securities, Inc.
4.6 First Supplemental Indenture, dated as of August 14, 1997, between the Company and
Norwest Bank, Minnesota, National Association, as Trustee, relating to the 11 1/4%
Senior Notes due 2001.
5.1 Opinion of Jones, Day, Reavis & Pogue as to the validity of the securities being
offered.
</TABLE>
II-3
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<C> <S>
10.1 Employment Agreement entered into as of April 1, 1996 by and among Cole National
Corporation, the Company, Cole Gift Centers, Inc., Cole Vision Corporation, Things
Remembered, Inc. and Jeffrey A. Cole, incorporated by reference to Exhibit 10.1 to
Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.2 Employment Agreement entered into as of April 1, 1996 by and among Cole National
Corporation, the Company, Cole Gift Centers, Inc., Cole Vision Corporation, Things
Remembered, Inc. and Brian B. Smith, incorporated by reference to Exhibit 10.2 to
Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.3 Agreement dated March 27, 1993 between Cole National Corporation and Joseph
Gaglioti regarding termination of employment, incorporated by reference to Exhibit
10.8 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.4 Agreement dated April 9, 1993 between Cole National Corporation and Wayne L.
Mosley regarding termination of employment, incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.5 1992 Management Stock Option Plan, including forms of Nonqualified Stock Option
Agreement (Time Vesting) and Nonqualified Stock Option Agreement (Performance
Option), as amended, and forms of promissory notes and pledge agreements,
incorporated by reference to Exhibit 10.11 to the Company's Registration Statement
on Form S-1 (Registration No. 33-66342).
10.6 Cole National Corporation 1993 Management Stock Option Plan, including forms of
Nonqualified Stock Option Agreement (1993 Time Vesting) and form of secured
promissory notes and stock pledge agreement, incorporated by reference to Exhibit
10.29 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.7 Form of Option Agreement for Directors of the Company, incorporated by reference
to Exhibit 10.41 to Cole National Corporation's Registration Statement on Form S-1
(Registration No. 33-74228).
10.8 Nonqualified Stock Option Plan for Nonemployee Directors, incorporated by
reference to Exhibit 10.45 to Cole National Corporation's Registration Statement
on Form S-1 (Registration No. 33-74228).
10.9 Form of Nonqualified Stock Option Agreement for Nonemployee Directors,
incorporated by reference to Exhibit 10.9 to Cole National Corporation's Annual
Report on Form 10-K for the period ended February 3, 1996 (File No. 1-12814).
10.10 Cole National Corporation 1996 Management Stock Option Plan, including forms of
Nonqualified Stock Option Agreement (1996 Time Vesting), incorporated by reference
to Exhibit 10.10 to Cole National Corporation's Annual Report on Form 10-K for the
period ended February 3, 1996 (File No. 1-12814).
10.11 Management Bonus Programs, incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (Registration No. 33-66342).
10.12 Management Bonus Plan, incorporated by reference to Exhibit 10.30 to the Company's
Registration Statement on Form S-1 (Registration No. 33-89996).
10.13 Executive Life Insurance Plan of Cole National Corporation, incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.14 Medical Expense Reimbursement Plan of Cole National Corporation effective as of
February 1, 1992, incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (Registration No. 33-66342).
10.15 Supplemental Retirement Benefit Plan of Cole National Corporation, incorporated by
reference to Exhibit 10.38 to Cole National Corporation's Registration Statement
on Form S-1 (Registration No. 33-74228).
</TABLE>
II-4
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<C> <S>
10.16 Supplemental Pension Plan of Cole National Corporation, incorporated by reference
to Exhibit 10.48 to Cole National Corporation's Registration Statement on Form S-1
(Registration No. 33-74228).
10.17 Lease Agreement (Knoxville) dated as of November 28, 1979 by and between Tommy
Hensley, as agent for the real property of Mrs. Don Siegel and Cole Vision
Corporation, as amended and supplemented, incorporated by reference to Exhibit
10.15 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.18 Lease Agreement (Memphis) dated as of October 2, 1991 by and between Shelby
Distribution Park and Cole Vision Corporation, incorporated by reference to
Exhibit 10.16 to the Company's Registration Statement on Form S-1 (Registration
No. 33-66342).
10.19 Lease Agreement (Richmond) dated as of April 23, 1982 by and between Daniel,
Daniel & Daniel and Cole Vision Corporation, as amended and supplemented,
incorporated by reference to Exhibit 10.17 to the Company's Registration Statement
on Form S-1 (Registration No. 33-66342).
10.20 Lease Agreement (Salt Lake) dated as of November 1, 1996 by and between Gibbons
Realty and Cole Vision Corporation, incorporated by reference to Exhibit 10.01 to
Cole National Corporation's Report on Form 10-Q for the period ended November 2,
1996 (File No. 1-12814).
10.21 Form of Lease Agreement Finite 19518 dated as of December 29, 1988 between Sears,
Roebuck and Co. and Cole Vision Corporation, incorporated by reference to Exhibit
10.23 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.22 Lease Agreement (Knoxville) dated as of April 11, 1995 by and between Richard T.
Fox and Cole Vision Corporation, incorporated by reference to Exhibit 10.29 to
Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.23 Form of Indemnification Agreement for Directors of Cole National Corporation,
incorporated by reference to Exhibit 10.19 to the Company's Registration Statement
on Form S-1 (Registration No. 33-66342).
10.24 Form of Indemnification Agreement for Officers of Cole National Corporation,
incorporated by reference to Exhibit 10.20 to the Company's Registration Statement
on Form S-1 (Registration No. 33-66342).
10.25 Master License Agreement dated as of October 2, 1986, between Montgomery Ward &
Co., Incorporated and Cole Vision Corporation, as amended, incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.26 Master License Agreement dated as of June 12, 1986, between Montgomery Ward & Co.,
Incorporated and Bay Cities Optical Company, as amended, incorporated by reference
to Exhibit 10.22 to the Company's Registration Statement on Form S-1 (Registration
No. 33-66342).
10.27 Form of License Agreement (Optical), incorporated by reference to Exhibit 10.24 to
the Company's Registration Statement on Form S-1 (Registration No. 33-66342).
10.28 Form of License/Lease Agreement (Optical), incorporated by reference to Exhibit
10.25 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.29 License Agreement (Gift Centers and Key Departments) dated as of March 16, 1995,
between Sears, Roebuck and Co. and Cole Gift Centers, Inc., as amended,
incorporated by reference to Exhibit 10.49 to Cole National Corporation's Annual
Report on Form 10-K for the year ended February 1, 1997 (File No. 1-12814).
10.30 Agreement for the Allocation of Federal Income Tax Liability and Benefits among
Members of the Parent Group dated August 23, 1985, as amended, incorporated by
reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
</TABLE>
II-5
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<C> <S>
10.31 Assignment and Assumption Agreement dated as of September 30, 1993 between Cole
National Corporation and the Company, incorporated by reference to Exhibit 10.24
to Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.32 Credit Agreement, dated as of November 15, 1996, among Cole Vision Corporation,
Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and Pearle Service
Corporation and Canadian Imperial Bank of Commerce, incorporated by reference to
Exhibit 99.1 of Cole National Corporation's Current Report on Form 8-K, filed with
the Commission on December 2, 1996 (File No. 1-12814).
10.33 First Amendment to Credit Agreement, dated as of January 13, 1997, among Cole
Vision Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc.
and Pearle Service Corporation and Canadian Imperial Bank of Commerce.
10.34 Second Amendment to Credit Agreement, dated as of August 8, 1997, among Cole
Vision Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc.
and Pearle Service Corporation and Canadian Imperial Bank of Commerce.
10.35 CNG Guarantee and Cash Collateral Agreement, dated as of November 15, 1996, by the
Company and Cole National Corporation, incorporated by reference to Exhibit 99.3
of Cole National Corporation's Current Report on Form 8-K, filed with the
Commission on December 2, 1996 (File No. 1-12814).
10.36 Guarantee and Collateral Agreement, dated as of November 15, 1996, by Cole Vision
Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and
Pearle Service Corporation and Canadian Imperial Bank of Commerce, incorporated by
reference to Exhibit 99.4 of Cole National Corporation's Current Report on Form
8-K, filed with the Commission on December 2, 1996 (File No. 1-12814).
10.37 Agreement, dated August 4, 1997, between Cole National Corporation and Leslie D.
Dunn regarding termination of employment.
12.1 Statements regarding computation of ratios.
21.1 List of Subsidiaries.
23.1 Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney.
25.1 Statement of Eligibility of Trustee, Norwest Bank Minnesota, National Association,
on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF DOCUMENT
- --------- --------------------------------------------------------------------------------
<C> <S>
I Condensed Financial Information of Cole National Group, Inc, incorporated by
reference to Schedule I of Cole National Group, Inc.'s Annual Report on Form
10-K for the period ended February 1, 1997 (File No. 33-66342).
</TABLE>
All other financial statement schedules are omitted because they are either
not applicable or the required information is included in the financial
statements or notes thereto appearing elsewhere in this Registration Statement.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
II-6
<PAGE> 144
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on September 4, 1997.
COLE NATIONAL GROUP, INC.
By: /s/ Wayne L. Mosley
----------------------------------
Wayne L. Mosley
Vice President and Controller
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ----------------------------------------- -------------------
<S> <C> <C>
* Chairman, Chief Executive Officer, September 4, 1997
- ------------------------------ Chief Financial Officer and Director
Jeffrey A. Cole (Principal Executive Officer
and Principal Financial Officer)
* President, Chief Operating September 4, 1997
- ------------------------------ Officer and Director
Brian B. Smith
/s/ Wayne L. Mosley Vice President, Controller, September 4, 1997
- ------------------------------ Assistant Secretary and
Wayne L. Mosley Assistant Treasurer
(Principal Accounting Officer)
* Director September 4, 1997
- ------------------------------
Timothy F. Finley
* Director September 4, 1997
- ------------------------------
Irwin N. Gold
* Director September 4, 1997
- ------------------------------
Peter V. Handal
* Director September 4, 1997
- ------------------------------
Charles A. Ratner
* Director September 4, 1997
- ------------------------------
Walter J. Salmon
</TABLE>
- ---------------
* The undersigned, pursuant to a Power of Attorney executed by each of the
Directors and officers identified above and filed with the Securities and
Exchange Commission, by signing his name hereto, does hereby sign and execute
this Registration Statement on behalf of each of the persons noted above, in
the capacities indicated.
<TABLE>
<S> <C> <C>
By: /s/ Wayne L. Mosley September 4, 1997
-------------------------------------------
Wayne L. Mosley, Attorney-in-Fact
</TABLE>
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<PAGE> 146
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<C> <S>
3.1(i) Certificate of Incorporation of the Company, incorporated by reference to Exhibit
3.1(i) to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
3.2(ii) By-Laws of the Company, incorporated by reference to Exhibit 3.2(ii) to the
Company's Registration Statement on Form S-1 (Registration No. 33-66342).
4.1 Indenture dated as of September 30, 1993 between the Company and Norwest Bank
Minnesota, N.A., as trustee, relating to the 11 1/4% Senior Notes due 2001 (the
form of which Senior Note is included in such Indenture), incorporated by
reference to Exhibit 4.1 to Cole National Corporation's Annual Report on Form
10-K for the period ended February 3, 1996 (File No. 1-12814).
4.2 The Company by this filing agrees, upon request, to file with the Commission the
instruments defining the rights of holders of long-term debt of the Company and
its subsidiaries where the total amount of securities authorized thereunder does
not exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis.
4.3 Indenture dated November 15, 1996, between the Company and Norwest Bank
Minnesota, National Association, as trustee, relating to the 9 7/8% Senior
Subordinated Notes due 2006 (the form of which Senior Subordinated Note is
included in such Indenture), incorporated by reference to Exhibit 4.1 of Cole
National Corporation's Current Report on Form 8-K, filed with the Commission on
December 2, 1996 (File No. 1-12814).
4.4 Indenture dated August 22, 1997, between the Company and Norwest Bank Minnesota,
National Association, as Trustee, relating to the 8 5/8% Senior Subordinated
Notes due 2007 (the form of which is included in such Indenture).
4.5 Registration Rights Agreement dated August 22, 1997, by and among the Company and
CIBC Wood Gundy Securities Corp., Credit Suisse First Boston Corporation and
McDonald & Company Securities, Inc.
4.6 First Supplemental Indenture, dated as of August 14, 1997, between the Company
and Norwest Bank, Minnesota, National Association, as Trustee, relating to the
11 1/4% Senior Notes due 2001.
5.1 Opinion of Jones, Day, Reavis & Pogue as to the validity of the securities being
offered.
10.1 Employment Agreement entered into as of April 1, 1996 by and among Cole National
Corporation, the Company, Cole Gift Centers, Inc., Cole Vision Corporation,
Things Remembered, Inc. and Jeffrey A. Cole, incorporated by reference to Exhibit
10.1 to Cole National Corporation's Annual Report on Form 10-K for the period
ended February 3, 1996 (File No. 1-12814).
10.2 Employment Agreement entered into as of April 1, 1996 by and among Cole National
Corporation, the Company, Cole Gift Centers, Inc., Cole Vision Corporation,
Things Remembered, Inc. and Brian B. Smith, incorporated by reference to Exhibit
10.2 to Cole National Corporation's Annual Report on Form 10-K for the period
ended February 3, 1996 (File No. 1-12814).
10.3 Agreement dated March 27, 1993 between Cole National Corporation and Joseph
Gaglioti regarding termination of employment, incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form S-1 (Registration
No. 33-66342).
10.4 Agreement dated April 9, 1993 between Cole National Corporation and Wayne L.
Mosley regarding termination of employment, incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<C> <S>
10.5 1992 Management Stock Option Plan, including forms of Nonqualified Stock Option
Agreement (Time Vesting) and Nonqualified Stock Option Agreement (Performance
Option), as amended, and forms of promissory notes and pledge agreements,
incorporated by reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (Registration No. 33-66342).
10.6 Cole National Corporation 1993 Management Stock Option Plan, including forms of
Nonqualified Stock Option Agreement (1993 Time Vesting) and form of secured
promissory notes and stock pledge agreement, incorporated by reference to Exhibit
10.29 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.7 Form of Option Agreement for Directors of the Company, incorporated by reference
to Exhibit 10.41 to Cole National Corporation's Registration Statement on Form
S-1 (Registration No. 33-74228).
10.8 Nonqualified Stock Option Plan for Nonemployee Directors, incorporated by
reference to Exhibit 10.45 to Cole National Corporation's Registration Statement
on Form S-1 (Registration No. 33-74228).
10.9 Form of Nonqualified Stock Option Agreement for Nonemployee Directors,
incorporated by reference to Exhibit 10.9 to Cole National Corporation's Annual
Report on Form 10-K for the period ended February 3, 1996 (File No. 1-12814).
10.10 Cole National Corporation 1996 Management Stock Option Plan, including forms of
Nonqualified Stock Option Agreement (1996 Time Vesting), incorporated by
reference to Exhibit 10.10 to Cole National Corporation's Annual Report on Form
10-K for the period ended February 3, 1996 (File No. 1-12814).
10.11 Management Bonus Programs, incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (Registration No. 33-66342).
10.12 Management Bonus Plan, incorporated by reference to Exhibit 10.30 to the
Company's Registration Statement on Form S-1 (Registration No. 33-89996).
10.13 Executive Life Insurance Plan of Cole National Corporation, incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.14 Medical Expense Reimbursement Plan of Cole National Corporation effective as of
February 1, 1992, incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (Registration No. 33-66342).
10.15 Supplemental Retirement Benefit Plan of Cole National Corporation, incorporated
by reference to Exhibit 10.38 to Cole National Corporation's Registration
Statement on Form S-1 (Registration No. 33-74228).
10.16 Supplemental Pension Plan of Cole National Corporation, incorporated by reference
to Exhibit 10.48 to Cole National Corporation's Registration Statement on Form
S-1 (Registration No. 33-74228).
10.17 Lease Agreement (Knoxville) dated as of November 28, 1979 by and between Tommy
Hensley, as agent for the real property of Mrs. Don Siegel and Cole Vision
Corporation, as amended and supplemented, incorporated by reference to Exhibit
10.15 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.18 Lease Agreement (Memphis) dated as of October 2, 1991 by and between Shelby
Distribution Park and Cole Vision Corporation, incorporated by reference to
Exhibit 10.16 to the Company's Registration Statement on Form S-1 (Registration
No. 33-66342).
10.19 Lease Agreement (Richmond) dated as of April 23, 1982 by and between Daniel,
Daniel & Daniel and Cole Vision Corporation, as amended and supplemented,
incorporated by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (Registration No. 33-66342).
</TABLE>
<PAGE> 148
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<C> <S>
10.20 Lease Agreement (Salt Lake) dated as of November 1, 1996 by and between Gibbons
Realty and Cole Vision Corporation, incorporated by reference to Exhibit 10.01 to
Cole National Corporation's Report on Form 10-Q for the period ended November 2,
1996 (File No. 1-12814).
10.21 Form of Lease Agreement Finite 19518 dated as of December 29, 1988 between Sears,
Roebuck and Co. and Cole Vision Corporation, incorporated by reference to Exhibit
10.23 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.22 Lease Agreement (Knoxville) dated as of April 11, 1995 by and between Richard T.
Fox and Cole Vision Corporation, incorporated by reference to Exhibit 10.29 to
Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.23 Form of Indemnification Agreement for Directors of Cole National Corporation,
incorporated by reference to Exhibit 10.19 to the Company's Registration
Statement on Form S-1 (Registration No. 33-66342).
10.24 Form of Indemnification Agreement for Officers of Cole National Corporation,
incorporated by reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-1 (Registration No. 33-66342).
10.25 Master License Agreement dated as of October 2, 1986, between Montgomery Ward &
Co., Incorporated and Cole Vision Corporation, as amended, incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.26 Master License Agreement dated as of June 12, 1986, between Montgomery Ward &
Co., Incorporated and Bay Cities Optical Company, as amended, incorporated by
reference to Exhibit 10.22 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.27 Form of License Agreement (Optical), incorporated by reference to Exhibit 10.24
to the Company's Registration Statement on Form S-1 (Registration No. 33-66342).
10.28 Form of License/Lease Agreement (Optical), incorporated by reference to Exhibit
10.25 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.29 License Agreement (Gift Centers and Key Departments) dated as of March 16, 1995,
between Sears, Roebuck and Co. and Cole Gift Centers, Inc., as amended,
incorporated by reference to Exhibit 10.49 to Cole National Corporation's Annual
Report on Form 10-K for the year ended February 1, 1997 (File No. 1-12814).
10.30 Agreement for the Allocation of Federal Income Tax Liability and Benefits among
Members of the Parent Group dated August 23, 1985, as amended, incorporated by
reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.31 Assignment and Assumption Agreement dated as of September 30, 1993 between Cole
National Corporation and the Company, incorporated by reference to Exhibit 10.24
to Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.32 Credit Agreement, dated as of November 15, 1996, among Cole Vision Corporation,
Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and Pearle Service
Corporation and Canadian Imperial Bank of Commerce, incorporated by reference to
Exhibit 99.1 of Cole National Corporation's Current Report on Form 8-K, filed
with the Commission on December 2, 1996 (File No. 1-12814).
10.33 First Amendment to Credit Agreement, dated as of January 13, 1997, among Cole
Vision Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle,
Inc. and Pearle Service Corporation and Canadian Imperial Bank of Commerce.
</TABLE>
<PAGE> 149
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<C> <S>
10.34 Second Amendment to Credit Agreement, dated as of August 8, 1997, among Cole
Vision Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle,
Inc. and Pearle Service Corporation and Canadian Imperial Bank of Commerce.
10.35 CNG Guarantee and Cash Collateral Agreement, dated as of November 15, 1996, by
the Company and Cole National Corporation, incorporated by reference to Exhibit
99.3 of Cole National Corporation's Current Report on Form 8-K, filed with the
Commission on December 2, 1996 (File No. 1-12814).
10.36 Guarantee and Collateral Agreement, dated as of November 15, 1996, by Cole Vision
Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and
Pearle Service Corporation and Canadian Imperial Bank of Commerce, incorporated
by reference to Exhibit 99.4 of Cole National Corporation's Current Report on
Form 8-K, filed with the Commission on December 2, 1996 (File No. 1-12814).
10.37 Agreement, dated August 4, 1997, between Cole National Corporation and Leslie D.
Dunn regarding termination of employment.
12.1 Statements regarding computation of ratios.
21.1 List of Subsidiaries.
23.1 Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney.
25.1 Statement of Eligibility of Trustee, Norwest Bank Minnesota, National
Association, on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
<PAGE> 1
Exhibit 4.4
================================================================================
COLE NATIONAL GROUP, INC., as Issuer,
and
NORWEST BANK MINNESOTA, National Association, as Trustee
--------------------
INDENTURE
Dated as of August 22, 1997
--------------------
$125,000,000
8 5/8% Senior Subordinated Notes due 2007
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- -------
<S> <C> <C>
310(a)(1)............................................................ 7.10
(a)(2)............................................................ 7.10
(a)(3)............................................................ N.A.
(a)(4)............................................................ N.A.
(b)............................................................... 7.08; 7.10; 11.02
(b)(1)............................................................ 7.10
(b)(9)............................................................ 7.10
(c)............................................................... N.A.
311(a)............................................................... 7.11
(b)............................................................... 7.11
(c)............................................................... N.A.
312(a)............................................................... 2.05
(b)............................................................... 11.03
(c)............................................................... 11.03
313(a)............................................................... 7.06
(b)(1)............................................................ 7.06
(b)(2)............................................................ 7.06
(c)............................................................... 7.06; 11.02
(d)............................................................... 7.06
314(a)............................................................... 4.02; 4.04; 11.02
(b)............................................................... N.A.
(c)(1)............................................................ 11.04; 11.05
(c)(2)............................................................ 11.04; 11.05
(c)(3)............................................................ N.A.
(d)............................................................... N.A.
(e)............................................................... 11.05
(f)............................................................... N.A.
315(a)............................................................... 7.01; 7.02
(b)............................................................... 7.05; 11.02
(c)............................................................... 7.01
(d)............................................................... 6.05; 7.01; 7.02
(e)............................................................... 6.11
316(a) (last sentence)............................................... 11.06
(a)(1)(A)......................................................... 6.05
(a)(1)(B)......................................................... 6.04
(a)(2)............................................................ 8.02
(b)............................................................... 6.07
(c)............................................................... 8.04
317(a)(1)............................................................ 6.08
(a)(2)............................................................ 6.09
(b)............................................................... 7.12
318(a)............................................................... 11.01
- ---------------------
<FN>
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be
deemed to be a part of the Indenture.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
Section 1.01. Definitions................................................ 1
Section 1.02. Other Definitions.......................................... 22
Section 1.03. Incorporation by Reference of Trust
Indenture Act............................................ 23
Section 1.04. Rules of Construction...................................... 23
ARTICLE 2
THE NOTES
Section 2.01. Dating; Incorporation of Form
in Indenture............................................. 24
Section 2.02. Execution and Authentication............................... 24
Section 2.03. Registrar and Paying Agent................................. 25
Section 2.04. Paying Agent To Hold Money in Trust........................ 26
Section 2.05. Noteholder Lists........................................... 26
Section 2.06. Transfer and Exchange...................................... 26
Section 2.07. Replacement Notes.......................................... 27
Section 2.08. Outstanding Notes.......................................... 28
Section 2.09. Temporary Notes............................................ 28
Section 2.10. Cancellation............................................... 28
Section 2.11. Defaulted Interest......................................... 29
Section 2.12. Deposit of Moneys.......................................... 29
Section 2.13. CUSIP Number............................................... 29
Section 2.14. Book-Entry Provisions for Global
Notes.................................................... 30
Section 2.15. Special Transfer Provisions................................ 32
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee......................................... 35
Section 3.02. Selection by Trustee of Notes To
Be Redeemed.............................................. 35
Section 3.03. Notice of Redemption....................................... 35
Section 3.04. Effect of Notice of Redemption............................. 36
Section 3.05. Deposit of Redemption Price................................ 37
Section 3.06. Notes Redeemed in Part..................................... 37
Section 3.07. Optional Redemption........................................ 37
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes........................................... 38
Section 4.02. SEC Reports................................................ 38
Section 4.03. Waiver of Stay, Extension or
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Usury Laws............................................... 39
Section 4.04. Compliance Certificate..................................... 40
Section 4.05. Taxes...................................................... 41
Section 4.06. Limitation on Additional
Indebtedness............................................. 42
Section 4.07. Limitation on Capital Stock of
Subsidiaries............................................. 42
Section 4.08. Limitation on Restricted Payments.......................... 45
Section 4.09. Limitation on Certain Asset Sales.......................... 48
Section 4.10. Limitation on Transactions with
Affiliates............................................... 49
Section 4.11. Limitations on Liens....................................... 49
Section 4.12. Limitation on Other Senior
Subordinated Debt........................................ 49
Section 4.13. Limitation on Sale and Lease-Back
Transactions............................................. 49
Section 4.14. Payments for Consent....................................... 50
Section 4.15. Corporate Existence........................................ 50
Section 4.16. Change of Control.......................................... 53
Section 4.17. Maintenance of Office or Agency............................ 53
Section 4.18. Limitation on Dividend and Other
Payment Restrictions Affecting
Subsidiaries............................................. 53
ARTICLE 5
SUCCESSOR CORPORATION
Section 5.01. Limitation on Consolidation, Merger
and Sale of Assets....................................... 54
Section 5.02. Successor Person Substituted............................... 55
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.......................................... 56
Section 6.02. Acceleration............................................... 57
Section 6.03. Other Remedies............................................. 58
Section 6.04. Waiver of Past Defaults and Events
of Default............................................... 59
Section 6.05. Control by Majority........................................ 59
Section 6.06. Limitation on Suits........................................ 59
Section 6.07. Rights of Holders To Receive Payment....................... 60
Section 6.08. Collection Suit by Trustee................................. 60
Section 6.09. Trustee May File Proofs of Claim........................... 60
Section 6.10. Priorities................................................. 61
Section 6.11. Undertaking for Costs...................................... 61
ARTICLE 7
TRUSTEE
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 7.01. Duties of Trustee.......................................... 62
Section 7.02. Rights of Trustee.......................................... 63
Section 7.03. Individual Rights of Trustee............................... 64
Section 7.04. Trustee's Disclaimer....................................... 64
Section 7.05. Notice of Defaults......................................... 64
Section 7.06. Reports by Trustee to Holders.............................. 64
Section 7.07. Compensation and Indemnity................................. 65
Section 7.08. Replacement of Trustee..................................... 66
Section 7.09. Successor Trustee by Consolidation,
Merger or Conversion..................................... 67
Section 7.10. Eligibility; Disqualification.............................. 67
Section 7.11. Preferential Collection of Claims
Against Company.......................................... 68
Section 7.12. Paying Agents.............................................. 68
ARTICLE 8
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.01. Without Consent of Holders................................. 68
Section 8.02. With Consent of Holders.................................... 69
Section 8.03. Compliance with Trust Indenture Act........................ 70
Section 8.04. Revocation and Effect of Consents.......................... 71
Section 8.05. Notation on or Exchange of Notes........................... 71
Section 8.06. Trustee To Sign Amendments, Etc............................ 72
ARTICLE 9
DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. Discharge of Indenture..................................... 72
Section 9.02. Legal Defeasance........................................... 72
Section 9.03. Covenant Defeasance........................................ 73
Section 9.04. Conditions to Legal Defeasance or
Covenant Defeasance...................................... 73
Section 9.05. Deposited Money and U.S. Government
Obligations To Be Held in Trust;
Other Miscellaneous Provisions........................... 76
Section 9.06. Reinstatement.............................................. 76
Section 9.07. Moneys Held by Paying Agent................................ 77
Section 9.08. Moneys Held by Trustee..................................... 77
ARTICLE 10
SUBORDINATION OF NOTES
Section 10.01. Notes Subordinate to Senior
Indebtedness............................................. 78
Section 10.02. Payment Over of Proceeds upon
Dissolution, Etc......................................... 78
Section 10.03. Suspension of Payment When Senior
Indebtedness in Default.................................. 80
</TABLE>
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<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 10.04. Trustee's Relation to Senior
Indebtedness............................................. 81
Section 10.05. Subrogation to Rights of Holders of
Senior Indebtedness...................................... 82
Section 10.06. Provisions Solely to Define Relative
Rights................................................... 82
Section 10.07. Trustee To Effectuate Subordination........................ 83
Section 10.08. No Waiver of Subordination
Provisions............................................... 84
Section 10.09. Notice to Trustee.......................................... 84
Section 10.10. Reliance on Judicial Order or
Certificate of Liquidating Agent......................... 85
Section 10.11. Rights of Trustee as a Holder of
Senior Indebtedness; Preservation
of Trustee's Rights...................................... 86
Section 10.12. Article Applicable to Paying Agents........................ 86
Section 10.13. No Suspension of Remedies.................................. 86
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls............................... 87
Section 11.02. Notices.................................................... 87
Section 11.03. Communications by Holders with
Other Holders............................................ 88
Section 11.04. Certificate and Opinion as to
Conditions Precedent..................................... 88
Section 11.05. Statements Required in Certificate
and Opinion.............................................. 89
Section 11.06. When Treasury Notes Disregarded............................ 89
Section 11.07. Rules by Trustee and Agents................................ 89
Section 11.08. Business Days; Legal Holidays.............................. 90
Section 11.09. Governing Law.............................................. 90
Section 11.10. No Adverse Interpretation of Other
Agreements............................................... 90
Section 11.11. No Recourse Against Others................................. 90
Section 11.12. Successors................................................. 90
Section 11.13. Multiple Counterparts...................................... 91
Section 11.14. Table of Contents, Headings, Etc........................... 91
Section 11.15. Separability............................................... 91
EXHIBITS
- --------
Exhibit A Form of Note..................................................... A-1
Exhibit B Form of Legend for Global Notes.................................. B-1
Exhibit C Form of Assignment............................................... C-1
Exhibit D Form of Certificate to Be Delivered in
Connection with Transfers to Non-QIB
Accredited Investors......................................... D-1
</TABLE>
-iv-
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Exhibit E Form of Certificate to Be Delivered in
Connection with Transfers Pursuant to
Regulation S................................................. E-1
</TABLE>
-v-
<PAGE> 8
INDENTURE, dated as of August 22, 1997, between COLE NATIONAL GROUP,
INC., a Delaware corporation, as Issuer (the "Company"), and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as Trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Company's 8 5/8% Senior
Subordinated Notes due 2007 (the "Notes").
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section .01. DEFINITIONS.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Subsidiary or assumed in connection with the
acquisition of assets from such Person.
"Acquired Optical Franchise Receivables" means franchise receivables
acquired in connection with the acquisition of a retailer or group of retail
locations whose business is primarily related to sales of optical products.
"Additional Interest" means additional interest on the Notes which the
Company agrees to pay to the Holders pursuant to Section 4 of the Registration
Rights Agreement.
"Affiliate" of any specified Person means any other Person which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by," and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Agent" means any Registrar, Paying Agent, co-registrar or agent for
service of notices and demands.
"Asset Sale" means the sale, transfer or other disposition (other than
to the Company or any of its Subsidiaries) in any single transaction or series
of related transactions having a fair market value in excess of $2,500,000 of
(a) any Capital Stock of or other equity interest in any Subsidiary of the
Company, (b) all or substantially all of the assets of the Company or of any
Subsidiary, (c) real property or (d) all or substantially all of the assets of a
division, line of business or comparable business segment or part thereof of the
Company or any Subsidiary thereof; PROVIDED that Asset Sales
<PAGE> 9
-2-
shall not include sales, transfers or other dispositions to the Company or to a
Subsidiary or to any other Person if after giving effect to such sale, lease,
conveyance, transfer or other disposition such other Person becomes a
Subsidiary.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Subsidiary from such Asset Sale (including cash
received as consideration for the assumption of liabilities incurred in
connection with or in anticipation of such Asset Sale), after (a) provision for
all income or other taxes measured by or resulting from such Asset Sale, (b)
payment of all brokerage commissions, underwriting and other fees and expenses
related to such Asset Sale, (c) provision for minority interest holders in any
Subsidiary as a result of such Asset Sale and (d) deduction of appropriate
amounts to be provided by the Company or a Subsidiary as a reserve, in
accordance with GAAP, against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by the Company or a Subsidiary after
such Asset Sale, including, without limitation, pension and other postemployment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with the assets sold or disposed of
in such Asset Sale, and (ii) promissory notes and other noncash consideration
received by the Company or any Subsidiary from such Asset Sale or other
disposition upon the liquidation or conversion of such notes or noncash
consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back
Transaction means, as at the time of determination, the greater of (i) the fair
value of the Property subject to such arrangement (as determined by the Board of
Directors of the Company) and (ii) the present value (discounted at a rate of
10%, compounded annually) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale,
the aggregate Asset Sale Proceeds from such Asset Sales that have not been
applied in accordance with clause (iii)(a), (iii)(b), (iii)(c) or (iii)(d) of
Section 4.09(a) and which have not been the basis for an Excess Proceeds Offer
in accordance with clause (iii)(e) of such Section 4.09(a).
"Board of Directors" means the board of directors of the Company or
any committee authorized to act therefor.
"Board Resolution" means a copy of a resolution certified pursuant to
an Officers' Certificate to have been duly
<PAGE> 10
-3-
adopted by the Board of Directors of the Company and to be in full force and
effect, and delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares
or other equivalents (however designated) of capital stock, partnership
interests or any other participation, right or other interest in the nature of
an equity interest in such Person or any option, warrant or other security
convertible into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Change of Control" of the Company will be deemed to have occurred at
such time as (i) any Person (including a Person's Affiliates and associates),
other than a Permitted Holder, becomes the beneficial owner (as defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of 50% or more of the total voting or economic power of the Common Stock of
the Company or the Parent and/or warrants or options to acquire such Common
Stock on a fully diluted basis, (ii) either the Company or Parent consolidates
with, or merges with or into, another Person or conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any Person, or
any Person consolidates with, or merges with or into, either the Company or
Parent, in any such event pursuant to a transaction in which the outstanding
Common Stock of either the Company or Parent is converted into or exchanged for
cash, securities or other property, other than any such transaction where (a)
(1) the outstanding Common Stock of the Company or Parent, as the case may be,
is not converted or exchanged at all (except to the extent necessary to reflect
a change in the jurisdiction of incorporation) or is converted into or exchanged
for Common Stock (other than Disqualified Capital Stock) of the surviving or
transferee corporation (the "Surviving Entity") and (2) immediately after such
transaction, no "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) other than a Permitted Holder is the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than a majority of the total outstanding Common Stock of the Surviving Entity,
or (b) the holders of the Common Stock of the Company outstanding immediately
prior to the consolidation or
<PAGE> 11
-4-
merger hold, directly or indirectly, at least a majority of the Common Stock of
the surviving corporation immediately after such consolidation or merger, or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company or
the Parent (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company or
the Parent has been approved by 66 2/3% of the directors then still in office
who either were directors at the beginning of such period or whose election or
recommendation for election was previously so approved) cease to constitute a
majority of the Board of Directors of the Company or the Parent.
"Common Stock" of any Person means all Capital Stock of such Person
that is generally entitled to (i) vote in the election of directors of such
Person or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces such party pursuant to Article 5 of this
Indenture and thereafter means the successor and any other obligor on the Notes.
"Company Request" means any written request signed in the name of the
Company by the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, any Assistant Treasurer, Controller, Secretary or any Vice-President
and attested to by the Secretary or any Assistant Secretary of the Company.
"Consolidated Fixed Charges" means, with respect to any Person and
with respect to any determination date, the sum of a Person's (i) Consolidated
Interest Expense, plus (ii) the product of (x) the aggregate amount of all
dividends paid on Disqualified Capital Stock of the Company or on each series of
Preferred Stock of each Subsidiary of such Person (other than dividends paid or
payable in additional shares of Preferred Stock or to the Company or any of its
Wholly Owned Subsidiaries) times (y) a fraction, the numerator of which is one
and the denominator of which is one minus the then current effective combined
federal, state and local tax rate of such Person (expressed as a decimal), in
each case, for the prior four full fiscal quarter period for which financial
results are available.
"Consolidated Interest Expense" means, with respect to any Person, for
any period and without duplication, the aggregate
<PAGE> 12
-5-
amount of interest which, in conformity with GAAP, would be set forth opposite
the caption "interest expense" or any like caption on an income statement for
such Person and its Subsidiaries on a consolidated basis (including, but not
limited to, (i) imputed interest included in Capitalized Lease Obligations, (ii)
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing, (iii) net payments made in
connection with Interest Rate Agreements, (iv) the interest portion of any
deferred payment obligation, (v) amortization of discount or premium, if any,
and (vi) all other non-cash interest expense (other than interest amortized to
cost of sales)) plus all net capitalized interest for such period and all
interest paid under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of any Person, and minus (a) net
payments received in connection with Interest Rate Agreements and (b)
amortization of deferred financing costs and expenses.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED, HOWEVER, that (a) the Net Income of any Person (the "other Person") in
which the Person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the net income of such other Person to
be consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) the Net
Income of any Subsidiary of the Person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions (other than pursuant to the Notes or this Indenture) shall be
excluded to the extent of such restriction or limitation, (c)(i) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (ii) any net gain (but not loss)
resulting from an Asset Sale by the Person in question or any of its
Subsidiaries other than in the ordinary course of business shall be excluded,
(d) extraordinary, unusual and non-recurring gains and losses shall be excluded.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479-0069.
"Credit Facility" means the term and revolving credit agreement, dated
November 15, 1996, by and among Canadian Imperial Bank of Commerce, as agent,
the lenders named therein
<PAGE> 13
-6-
and one or more borrowers parties thereto, as the same may be amended, extended,
increased, renewed, restated, supplemented or otherwise modified from time to
time.
"Cumulative Consolidated Net Income" means with respect to any Person,
as of any date of determination, Consolidated Net Income from October 31, 1993
to the end of the Company's most recently ended full fiscal quarter prior to
such date, taken as a single accounting period.
"Default" means any event that is, or with the passing of time or
giving of notice or both would be, an Event of Default.
"Depository" means, with respect to the Notes issued in the form of
one or more Global Notes, The Depository Trust Company or another Person
designated as Depository by the Company, which Person must be a clearing agency
registered under the Exchange Act.
"Designated Senior Indebtedness," as to the Company, means any Senior
Indebtedness (a) under the Credit Facility, or (b) which at the time of
determination exceeds $25,000,000 in aggregate principal amount (or accreted
value in the case of Indebtedness issued at a discount) outstanding or available
under a committed facility.
"Disqualified Capital Stock" means any Capital Stock of the Company or
a Subsidiary thereof which, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable at the option of the
holder), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Notes, for cash or securities constituting Indebtedness.
Without limiting the foregoing, Disqualified Capital Stock shall be deemed to
include (i) any Preferred Stock of a Subsidiary of the Company and (ii) any
Preferred Stock of the Company, with respect to either of which, under the terms
of such Preferred Stock, by agreement or otherwise, such Subsidiary or the
Company is obligated to pay current dividends or distributions in cash during
the period prior to the maturity date of the Notes; PROVIDED, HOWEVER, that
Preferred Stock of the Company or any Subsidiary thereof that is issued with the
benefit of provisions requiring a change of control offer to be made for such
Preferred Stock in the event of a Change of Control of the Company or such
Subsidiary, which provisions have substantially the same effect as the
provisions described in Section 4.16, shall not be deemed to be Disqualified
Capital Stock solely by virtue of such provisions.
<PAGE> 14
-7-
"EBITDA" means, for any Person, for any period, an amount equal to (a)
the sum of (i) Consolidated Net Income for such period, plus (ii) the provision
for taxes for such period based on income or profits to the extent such income
or profits were included in computing Consolidated Net Income and any provision
for taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period including the write-off of Acquired Optical Franchise
Receivables, franchise receivables acquired in the Pearle Acquisition which have
not been restructured or refinanced since the consummation of the Pearle
Acquisition but excluding the write-off of all other franchise receivables,
minus (b) all non-cash items increasing Consolidated Net Income for such period,
all for such Person and its Subsidiaries determined in accordance with GAAP,
except that with respect to the Company each of the foregoing items shall be
determined on a consolidated basis with respect to the Company and its
Subsidiaries only.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC thereunder.
"Existing Senior Subordinated Note Indenture" means the indenture
relating to the Company's 9 7/8% Senior Subordinated Notes.
"Existing Senior Subordinated Notes" means the Company's 9 7/8% Senior
Subordinated Notes due 2006.
"Fixed Charge Coverage Ratio" of any Person means, with respect to any
determination date, the ratio of (i) EBITDA for such Person's prior four full
fiscal quarters for which financial results have been reported prior to the
determination date, to (ii) Consolidated Fixed Charges of such Person.
"GAAP" means generally accepted accounting principles consistently
applied as in effect in the United States from time to time.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
<PAGE> 15
-8-
"incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "incurrence," "incurred," "incurrable," and "incurring" shall have meanings
correlative to the foregoing); PROVIDED that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any
Person, any indebtedness at any time outstanding, secured or unsecured,
contingent or otherwise, which is for borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or representing the balance deferred and unpaid of the purchase
price of any property (excluding, without limitation, any balances that
constitute accounts payable or trade payables, and other accrued liabilities
arising in the ordinary course of business) if and to the extent any of the
foregoing indebtedness would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, and shall also include, to the extent
not otherwise included (i) any Capitalized Lease Obligations, (ii) obligations
secured by a Lien to which the Property or assets owned or held by such Person
is subject, whether or not the obligation or obligations secured thereby shall
have been assumed (PROVIDED, HOWEVER, that if such obligation or obligations
shall not have been assumed, the amount of such Indebtedness shall be deemed to
be the lesser of the principal amount of the obligation or the fair market value
of the pledged Property or assets), (iii) guarantees of items of other Persons
which would be included within this definition for such other Persons (whether
or not such items would appear upon the balance sheet of the guarantor), (iv)
all obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (provided that in the case of
any such letters of credit, the items for which such letters of credit provide
credit support are those of other Persons which would be included within this
definition for such other Persons), (v) Disqualified Capital Stock of the
Company or any Subsidiary thereof, and (vi) obligations of any such Person under
any Interest Rate Agreement applicable to any of the foregoing (if and to the
extent such Interest Rate Agreement obligations would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP). The amount of
Indebtedness of any Person at any date shall be the outstanding
<PAGE> 16
-9-
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, PROVIDED (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP and (ii) that Indebtedness shall not
include any liability for Federal, state, local or other taxes. Notwithstanding
any other provision of the foregoing definition, any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business shall not be deemed to be "Indebtedness" of the Company or
any Subsidiaries for purposes of this definition. Furthermore, guarantees of (or
obligations with respect to letters of credit supporting) Indebtedness otherwise
included in the determination of such amount shall not also be included.
"Indenture" means this Indenture as amended, restated or supplemented
from time to time.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501 (a)(1), (2), (3) or
(7) promulgated under the Securities Act.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business or acquired as part of the assets acquired by the Company in connection
with an acquisition of assets which is otherwise permitted by the terms of this
Indenture), loan or capital contribution to (by means of transfers of Property
to others, payments for Property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude (i) extensions of trade
credit
<PAGE> 17
-10-
on commercially reasonable terms in accordance with normal trade practices and
(ii) the repurchase of securities of any Person by such Person.
"Issue Date" means the date the Notes are first issued by the Company
and authenticated by the Trustee under this Indenture.
"Lien" means, with respect to any Property or assets of any Person,
any mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Maturity Date" means August 15, 2007.
"Moody's" means Moody's Investors Service and its successors.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by
the Company, the aggregate net proceeds received by the Company, after payment
of expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in Property (valued at the fair market value
thereof, as determined in good faith by the Board of Directors, at the time of
receipt) and (b) in the case of any exchange, exercise, conversion or surrender
of outstanding securities of any kind for or into shares of Capital Stock of the
Company which is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to the
Company upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, E.G., on account of fractional shares and less all
expenses incurred by the Company in connection therewith).
"Net Sales" means Net Revenue as shown on the Company's audited
consolidated statement of income for the applicable fiscal year.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or
<PAGE> 18
-11-
more Persons to accelerate the maturity of any Designated Senior
Indebtedness.
"Non-U.S. Person" means a person who is not a U.S. person, as defined
in Regulation S.
"Notes" means the securities that are issued under this Indenture, as
amended or supplemented from time to time pursuant to this Indenture.
"Obligations" means, with respect to any Indebtedness, any principal,
premium, interest, penalties, fees, indemnifications, reimbursements, damages
and other expenses payable under the documentation governing such Indebtedness.
"Offering" means the offering of the Notes as described in the
Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum dated August 15,
1997 pursuant to which the Notes were offered.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary or any
Vice-President of the Company or any Subsidiary, as the case may be.
"Officers' Certificate" means a certificate signed by two Officers,
one of whom must be the principal executive officer, principal financial
officer, treasurer, or principal accounting officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel which
counsel is reasonably acceptable to the Trustee.
"Parent" means Cole National Corporation, a Delaware corporation and
the Company's sole stockholder.
"Payment Default" means any default, whether or not any requirement
for the giving of notice, the lapse of time or both, or any other condition to
such default becoming an Event of Default has occurred, in the payment of
principal of (or premium, if any) or interest on or any other amount payable in
connection with Designated Senior Indebtedness.
"Pearl Acquisition" means the acquisition of the capital stock of
Pearle, Inc. and Pearle Service Corporation by the Parent from The Pillsbury
Company pursuant to a stock purchase agreement dated as of September 24, 1996
and various documents related thereto.
<PAGE> 19
-12-
"Permitted Holders" means (i) Jeffrey A. Cole, (ii) any employee stock
ownership or any "group" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) in which employees of Parent or its Subsidiaries beneficially own
at least 25% of the Common Stock of the Company or Parent owned by such group,
(iii) Parent and (iv) any Person that is controlled by any one or more of the
Persons set forth in (i)-(iii) above.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Subsidiary arising under or in
connection with the Credit Facility in an amount not to exceed the greater
of (a) $75,000,000 less any mandatory prepayments actually made thereunder
(to the extent, in the case of payments of revolving credit indebtedness,
that the corresponding commitments have been permanently reduced) or
scheduled payments actually made thereunder or (b) the sum of (x) 80% of
consolidated accounts receivable of the Company and its Subsidiaries and
(y) 50% of consolidated inventory of the Company and its Subsidiaries;
(ii) Indebtedness under the Notes, the Existing Senior Subordinated
Notes and the Exchange Notes (as defined in the Registration Rights
Agreement);
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of this Indenture;
(iv) Indebtedness of the Company to any Subsidiary and Indebtedness of
any Subsidiary to the Company or another Subsidiary;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred by the Company or its Subsidiaries to acquire property in the
ordinary course of business which Indebtedness and Capitalized Lease
Obligations do not in the aggregate exceed $15,000,000 at any time
outstanding;
(vi) Interest Rate Agreements;
(vii) Indebtedness of the Company or its Subsidiaries which do not in
the aggregate exceed $3,000,000 in principal amount at any time outstanding
with respect to guarantees of obligations of franchisees in a business
related to the optical business of the Company or any Subsidiary as
conducted on the Issue Date;
<PAGE> 20
-13-
(viii) Indebtedness incurred in connection with the financing of a new
warehouse facility relating to the Cole Gifts business in an amount not to
exceed $7,500,000 in the aggregate;
(ix) additional Indebtedness of the Company not to exceed $50,000,000
in principal amount outstanding at any time; and
(x) Refinancing Indebtedness.
"Permitted Investments" means, for any Person, Investments made on or
after the date of this Indenture consisting of:
(i) Investments by the Company, or by a Subsidiary thereof, in the
Company or a Subsidiary;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Subsidiary thereof, in a
Person, if as a result of such Investment (a) such Person becomes a
Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Subsidiary thereof;
(iv) reasonable and customary loans made to employees in connection
with their relocation;
(v) an Investment that is made by the Company or a Subsidiary thereof
in the form of any stock, bonds, notes, debentures, partnership or joint
venture interests or other securities that are issued by a third party to
the Company or Subsidiary solely as partial consideration for the
consummation of an Asset Sale that is otherwise permitted by Section 4.09;
(vi) Investments made by the Company or any Subsidiary in franchises
in a business related to the optical business of the Company as conducted
on the Issue Date; PROVIDED that immediately after giving pro forma effect
to such Investment, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under Section 4.06;
PROVIDED, HOWEVER, that if the Company may not incur $1.00 of additional
Indebtedness, but otherwise satisfies the requirements of this clause (vi),
the Company may make Investments in such franchises in an amount not to
exceed $7,500,000 in any fiscal year, which unused portion
<PAGE> 21
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of any such annual amount, if any, may not be applied to any Investment in
a subsequent fiscal year; and
(vii) other Investments that do not exceed $15,000,000 at any time
outstanding.
"Permitted Liens" means (i) Liens on Property or assets of, or any
shares of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Subsidiary of the Company or at the time such corporation
is merged into the Company or any of its Subsidiaries; PROVIDED that such Liens
are not incurred in connection with, or in contemplation of, such corporation
becoming a Subsidiary of the Company or merging into the Company or any of its
Subsidiaries, (ii) Liens securing Refinancing Indebtedness; PROVIDED that any
such Lien on subordinated Indebtedness does not extend to or cover any Property,
shares or debt other than the Property, shares or debt securing the Indebtedness
so refunded, refinanced or extended, (iii) Liens in favor of the Company or any
of its Subsidiaries, (iv) Liens securing industrial revenue bonds, (v) Liens to
secure Purchase Money Indebtedness that is otherwise permitted under this
Indenture; PROVIDED that (a) any such Lien is created solely for the purpose of
securing Indebtedness representing, or incurred to finance, refinance or refund,
the cost (including sales and excise taxes, installation and delivery charges
and other direct costs of, and other direct expenses paid or charged in
connection with, such purchase or construction) of such Property and (b) such
Lien does not extend to or cover any Property other than such item of Property
and any improvements on such item, (vi) statutory liens or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business which do not secure
any Indebtedness and with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor, (vii) other Liens securing obligations incurred
in the ordinary course of business which obligations do not exceed $3,000,000 in
the aggregate at any one time outstanding, (viii) Liens securing Interest Rate
Agreements, (ix) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other Property relating to such
letters of credit and the products and proceeds thereof, (x) any extensions,
substitutions, replacements or renewals of the foregoing, (xi) Liens for taxes,
assessments or governmental charges that are being contested in good faith by
appropriate proceedings and (xii) Liens securing Capitalized Lease Obligations
permitted to be incurred under clause (v) of the definition of "Permitted
Indebtedness," PROVIDED that such
<PAGE> 22
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Lien does not extend to any property other than that subject to the underlying
lease.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth on Exhibit A.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Purchase Money Indebtedness" means any Indebtedness incurred by a
Person to finance the cost (including the cost of construction) of an item of
Property, the principal amount of which Indebtedness does not exceed the sum of
(i) 100% of such cost and (ii) reasonable fees and expenses of such Person
incurred in connection therewith.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A promulgated under the Securities Act.
"Qualified Equity Offering" means an offering by the Company or the
Parent of shares of its Common Stock (however designated and whether voting or
non-voting) and any and all rights, warrants or options to acquire such Common
Stock whether registered or exempt from registration under the Securities Act;
PROVIDED, HOWEVER, that in connection with a Qualified Equity Offering of the
Parent the net proceeds of such Qualified Equity Offering are contributed to the
Company as common equity.
"Redeemable Dividend" means, for any dividend or distribution with
regard to Disqualified Capital Stock, the quotient of the dividend or
distribution divided by the difference between one and the maximum statutory
federal income tax rate (expressed as a decimal number between 1 and 0) then
applicable to the issuer of such Disqualified Capital Stock.
<PAGE> 23
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"Redemption Date" when used with respect to any Note to be redeemed
means the date fixed for such redemption pursuant to this Indenture.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances
or extends any Indebtedness of the Company outstanding on the Issue Date or
other Indebtedness permitted to be incurred by the Company or its Subsidiaries
pursuant to the terms of this Indenture, but only to the extent that (i) the
Refinancing Indebtedness is subordinated to the Notes to at least the same
extent as the Indebtedness being refunded, refinanced or extended, if at all,
(ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier
than the Indebtedness being refunded, refinanced or extended, or (b) after the
maturity date of the Notes, (iii) the portion, if any, of the Refinancing
Indebtedness that is scheduled to mature on or prior to the maturity date of the
Notes has a weighted average life to maturity at the time such Refinancing
Indebtedness is incurred that is equal to or greater than the weighted average
life to maturity of the portion of the Indebtedness being refunded, refinanced
or extended that is scheduled to mature on or prior to the maturity date of the
Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of (a) the aggregate principal amount then
outstanding under the Indebtedness being refunded, refinanced or extended, (b)
the amount of accrued and unpaid interest, if any, and premiums owed, if any,
not in excess of preexisting prepayment provisions on such Indebtedness being
refunded, refinanced or extended, plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined by
the Company as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase and (c) the amount of customary fees,
expenses and costs related to the incurrence of such Refinancing Indebtedness,
and (v) such Refinancing Indebtedness is incurred by the same Person that
initially incurred the Indebtedness being refunded, refinanced or extended,
except that the Company may incur Refinancing Indebtedness to refund, refinance
or extend Indebtedness of any Wholly Owned Subsidiary of the Company.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of August 22, 1997 among the Company and CIBC Wood Gundy
Securities Corp., Credit Suisse First Boston Corporation and McDonald & Company
Securities, Inc., as Initial Purchasers.
"Regulation S" means Regulation S promulgated under the Securities
Act.
<PAGE> 24
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"Responsible Officer" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Payment" means any of the following: (i) the declaration
or payment of any dividend or any other distribution or payment on Capital Stock
of the Company or any Subsidiary of the Company or any payment made to the
direct or indirect holders (in their capacities as such) of Capital Stock of the
Company or any Subsidiary of the Company (other than (x) dividends or
distributions payable solely in Capital Stock (other than Disqualified Capital
Stock) and (y) in the case of Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Wholly Owned Subsidiary of the
Company), (ii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any of its Subsidiaries (other than
Capital Stock owned by the Company or a Wholly Owned Subsidiary of the Company),
(iii) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund payment,
of any Indebtedness which is subordinated in right of payment to the Notes other
than subordinated Indebtedness acquired in anticipation of satisfying a
scheduled sinking fund obligation, principal installment or final maturity (in
each case due within one year of the date of acquisition), (iv) the making of
any Investment in any Person other than a Permitted Investment, and (v)
forgiveness of any Indebtedness of an Affiliate of the Company to the Company or
a Subsidiary. For purposes of determining the amount expended for Restricted
Payments, cash distributed or invested shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market value.
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
promulgated under the Securities Act; PROVIDED that the Trustee shall be
entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether any Note is a Restricted Security.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
<PAGE> 25
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"Sale and Lease-Back Transaction" means any arrangement with any
Person providing for the leasing by the Company or any Subsidiary of the Company
of any real or tangible personal Property, which Property has been or is to be
sold or transferred by the Company or such Subsidiary to such Person in
contemplation of such leasing.
"S&P" means Standard & Poor's Ratings Service, a division of McGraw
Hill, Inc., and its successors.
"SEC" means the United States Securities and Exchange Commission as
constituted from time to time or any successor performing substantially the same
functions.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder.
"Senior Indebtedness" means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a bankruptcy, reorganization or other insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) on, and any and all other fees, expense reimbursement obligations
and other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise entered
into in connection with (a) all Indebtedness of the Company owed to lenders
under the Credit Facility, (b) the Senior Notes, (c) all obligations of the
Company with respect to any Interest Rate Agreement, (d) all obligations of the
Company to reimburse any bank or other person in respect of amounts paid under
letters of credit, acceptances or other similar instruments, (e) all other
Indebtedness of the Company which does not provide that it is to rank PARI PASSU
with or subordinate to the Notes and (f) all deferrals, renewals, extensions and
refundings of, and amendments, modifications and supplements to, any of the
Senior Indebtedness described above. Notwithstanding anything to the contrary in
the foregoing, Senior Indebtedness will not include (i) Indebtedness of the
Company to any of its Subsidiaries, (ii) Indebtedness represented by the Notes
or the Existing Senior Subordinated Notes, (iii) any Indebtedness which by the
express terms of the agreement or instrument creating, evidencing or governing
the same is junior or subordinate in right of payment to any item of Senior
Indebtedness, (iv) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business or (v)
Indebtedness (other than that described in clause (a) above) incurred in
violation of this Indenture.
<PAGE> 26
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"Senior Note Indenture" means the Indenture dated as of October 1,
1993 between the Company and Norwest Bank Minnesota, N.A., as trustee.
"Senior Notes" means the Company's 11 1/4% Senior Notes due 2001.
"Significant Subsidiary" means any Subsidiary which would be a
"significant subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act and the Exchange Act, as in effect on the Issue
Date.
"Subsidiary" of any specified Person means any corporation,
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which more than 50% of the total voting power of the Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by such first-named Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the direction
of the management and policies of such entity by contract or otherwise or if in
accordance with GAAP such entity is consolidated with the first-named Person for
financial statement purposes.
"Subsidiary Preferred Stock" means Preferred Stock issued by a
Subsidiary of the Company.
"Tax Allocation Agreement" means the Tax Allocation Agreement, dated
as of August 23, 1985, as amended, between the Parent and its Subsidiaries,
including the Company, as the same may be amended or extended from time to time
provided that no such amendment may create greater additional liability of the
Company and its Subsidiaries than existing as of the Issue Date under such
agreement.
"Temporary Cash Investments" means (i) Investments in marketable,
direct obligations issued or guaranteed by the United States of America, or of
any governmental agency or political subdivision thereof, maturing within 365
days of the date of purchase, (ii) Investments in United States dollar
denominated time deposits and United States dollar denominated certificates of
deposit (including Eurodollar time deposits and certificates of deposit)
maturing within 365 days of the date of purchase thereof issued by any United
States or Canadian national, provincial or state (including the District of
Columbia) banking institution having capital, surplus and undivided profits
<PAGE> 27
-20-
aggregating at least $250,000,000, or by any British, French, German, Japanese
or Swiss national banking institution having capital, surplus and undivided
profits aggregating at least $1,000,000,000, in each case that is (a) rated at
least "A" by S&P or at least "A-2" by Moody's, or (b) that is a party to the
Credit Facility, (iii) Investments in commercial paper maturing within 270 days
after the issuance thereof that has the highest credit rating of either of such
rating agencies, (iv) Investments in readily marketable direct obligations
issued by any state of the United States of America or any political subdivision
thereof having the highest rating obtainable from either of such rating
agencies, (v) Investments in tax exempted and tax advantaged instruments
including, without limitation, municipal bonds, commercial paper, auction rate
preferred stock and variable rate demand obligations with the highest short-term
ratings by either of such rating agencies and a long-term debt rating of AAA
from S&P (vi) Investments in repurchase agreements and reverse repurchase
agreements with institutions described in clause (ii) above that are fully
secured by obligations described in clause (i) above and (vii) Investments not
exceeding 365 days in duration in money market funds that invest substantially
all of such funds' assets in the Investments described in the preceding clauses
(i) through (v).
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S. Code
Sections 77aaa-77bbbb), as in effect on the date of this Indenture (except as
provided in Section 8.03 hereof).
"Triggering Default Event" means a Default or Event of Default
described in clauses (1), (2), (4), (5) or (6) under Section 6.01 or any breach
or violation under Sections 4.06 through 4.15 inclusive, Section 4.16 or Section
5.01.
"Trust Officer" means any officer or assistant officer of the Trustee
assigned by the Trustee to administer trust accounts.
"Trustee" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means the
successor.
"U.S. Government Obligations" means (a) securities that are direct
obligations of the United States of America for the payment of which its full
faith and credit are pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt
<PAGE> 28
-21-
issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as
custodian with respect to any such U.S. Government Obligation or a specific
payment of principal of or interest on any such U.S. Government Obligation held
by such custodian for the account of the holder of such depository receipt;
PROVIDED that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or a specific payment of principal or interest on any such
U.S. Government Obligation held by such custodian for the account of the holder
of such depository receipt.
"Wholly Owned Subsidiary" means any Subsidiary all of the outstanding
Capital Stock (other than directors' qualifying shares) of which is owned,
directly or indirectly, by the Company.
Section 1.02. OTHER DEFINITIONS.
The definitions of the following terms may be found in the sections
indicated as follows:
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
---- ------------------
<S> <C>
"Acquisition"................................................. 4.06
"Affiliate Transaction"....................................... 4.10
"Agent Members"............................................... 2.14
"Authorized Person"........................................... 10.03
"Bankruptcy Law".............................................. 6.01
"Business Day"................................................ 11.08
"Change of Control Offer"..................................... 4.16
"Change of Control Payment Date".............................. 4.16
"Covenant Defeasance"......................................... 9.03
"Custodian"................................................... 6.01
"Event of Default"............................................ 6.01
"Excess Proceeds Offer"....................................... 4.09
"Global Notes"................................................ 2.01
"Initial Blockage Period"..................................... 10.03
"Legal Defeasance"............................................ 9.02
"Legal Holiday"............................................... 11.08
"Offer Period"................................................ 4.09
"Other Notes.................................................. 2.01
"Paying Agent"................................................ 2.03
"Payment Blockage Period"..................................... 10.03
"Physical Notes".............................................. 2.01
"Purchase Date"............................................... 4.09
"Registrar"................................................... 2.03
"Regulation S Notes".......................................... 2.01
"Reinvestment Date"........................................... 4.09
</TABLE>
<PAGE> 29
-22-
<TABLE>
<CAPTION>
<S> <C>
"Required Filing Dates"....................................... 4.02
"Rule 144A Notes"............................................. 2.01
</TABLE>
Section 1.03. INCORPORATION BY REFERENCE OF TRUST
INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the portion
of such provision required to be incorporated herein in order for this Indenture
to be qualified under the TIA is incorporated by reference in and made a part of
this Indenture. The following TIA terms used in this Indenture have the
following meanings:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture securityholder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor on the indenture securities" means the Company or any other
obligor on the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined in the TIA by reference to another statute or defined by SEC rule have
the meanings therein assigned to them.
Section 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein, whether defined
expressly or by reference;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) words used herein implying any gender shall apply to every gender.
<PAGE> 30
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ARTICLE 2.
THE NOTES
Section 2.01. DATING; INCORPORATION OF FORM IN
INDENTURE.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A which is incorporated in and made part of
this Indenture. The Notes may have notations, legends or endorsements required
by law, stock exchange rule or usage. The Company may use "CUSIP" numbers in
issuing the Notes. The Company shall approve the form of the Notes.
Without limiting the generality of the foregoing, Notes offered and
sold to Qualified Institutional Buyers in reliance on Rule 144A ("Rule 144A
Notes") shall bear the Private Placement Legend and include the form of
assignment set forth in EXHIBIT C- 1, Notes offered and sold in offshore
transactions in reliance on Regulation S ("Regulation S Notes") shall bear the
Private Placement Legend and include the form of assignment set forth in EXHIBIT
C-2, and Notes offered and sold to Institutional Accredited Investors in
transactions exempt from registration under the Securities Act not made in
reliance on Rule 144A or Regulation S ("Other Notes") may be represented by the
Restricted Global Note or, if such an investor may not hold an interest in the
Restricted Global Note, a Physical Note in each case bearing the Private
Placement Legend. Each Note shall be dated the date of its authentication.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and, to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Section 2.02. EXECUTION AND AUTHENTICATION.
The Notes shall be executed on behalf of the Company by two Officers
of the Company or an Officer and an Assistant Secretary of the Company. Such
signature may be either manual or facsimile. The Company's seal shall be
impressed, affixed, imprinted or reproduced on the Notes and may be in facsimile
form.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee authenticates the Note, the Note shall be valid
nevertheless.
<PAGE> 31
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A Note shall not be valid until the Trustee manually signs the
certificate of authentication on the Note. Such signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee or an authenticating agent shall authenticate Notes for
original issue in the aggregate principal amount of $125,000,000 upon a Company
Request. The aggregate principal amount of Notes outstanding at any time may not
exceed such amount except as provided in Section 2.07 hereof. Upon receipt of
the Company Request, the Trustee shall authenticate an additional series of
Notes in an aggregate principal amount not to exceed $125,000,000 for issuance
in exchange for all Notes previously issued pursuant to an exchange offer
registered under the Securities Act or pursuant to a Private Exchange (as
defined in the Registration Rights Agreement). Exchange Notes may have such
distinctive series designation as and such changes in the form thereof as are
specified in the Company Request referred to in the preceding sentence. The
Notes shall be issuable only in registered form without coupons and only in
denominations of $1,000 and integral multiples thereof.
The Trustee may appoint an authenticating agent to authenticate Notes.
An authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same right as an
Agent to deal with the Company or an Affiliate.
Section 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar"), an office
or agency located in the Borough of Manhattan, City of New York, State of New
York where Notes may be presented for payment ("Paying Agent") and an office or
agency where notices and demands to or upon the Company in respect of the Notes
and this Indenture may be served. The Registrar shall keep a register of the
Notes and of their transfer and exchange. The Company may have one or more co-
registrars and one or more additional paying agents. Neither the Company nor any
Affiliate may act as Paying Agent. The Company may change any Paying Agent,
Registrar or co-registrar without notice to any Noteholder.
The Company shall enter into an appropriate agency agreement with any
Registrar or Paying Agent not a party to this Indenture. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee of the name and address of any such Agent. If
the
<PAGE> 32
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Company fails to maintain a Registrar or Paying Agent, or agent for service of
notices and demands, or fails to give the foregoing notice, the Trustee shall
act as such. The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of notices and demands in connection with the Notes.
Section 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
On or before each due date of the principal of and interest on any
Notes, the Company shall deposit with the Paying Agent a sum sufficient to pay
such principal and interest so becoming due. The Company at any time may require
a Paying Agent to pay all money held by it to the Trustee and the Trustee, may
at any time during the continuance of any Payment Default, upon written request
to a Paying Agent, require such Paying Agent to forthwith pay to the Trustee all
sums so held in trust by such Paying Agent together with a complete accounting
of such sums. Upon doing so, the Paying Agent shall have no further liability
for the money.
Section 2.05. NOTEHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Noteholders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee on or before each
February 1 and August 1 in each year, and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Noteholders.
Section 2.06. TRANSFER AND EXCHANGE.
Subject to Sections 2.14 and 2.15, when a Note is presented to the
Registrar with a request to register the transfer thereof, the Registrar shall
register the transfer as requested if the requirements of applicable law are met
and, when Notes are presented to the Registrar with a request to exchange them
for an equal principal amount of Notes of other authorized denominations, the
Registrar shall make the exchange as requested provided that every Note
presented or surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by the Holder
thereof or his attorney duly authorized in writing. To permit transfers and
exchanges, upon surrender of any Note for registration of transfer at the office
or agency maintained pursuant to Section 2.03 hereof, the Company shall execute
and
<PAGE> 33
-26-
the Trustee shall authenticate Notes at the Registrar's request. Any exchange or
transfer shall be without charge, except that the Company may require payment by
the Holder of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation to a transfer or exchange, but this provision
shall not apply to any exchange pursuant to Sections 2.09, 3.06 or 8.05 hereof.
The Trustee shall not be required to register transfers of Notes or to exchange
Notes for a period of 15 days before selection of any Notes to be redeemed. The
Trustee shall not be required to exchange or register transfers of any Notes
called or being called for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part.
Any Holder of the Global Note shall, by acceptance of such Global
Note, agree that transfers of the beneficial interests in such Global Note may
be effected only through a book entry system maintained by the Holder of such
Global Note (or its agent), and that ownership of a beneficial interest in the
Global Note shall be required to be reflected in a book entry.
Section 2.07. REPLACEMENT NOTES.
If a mutilated Note is surrendered to the Trustee or if the Holder of
a Note presents evidence to the satisfaction of the Company and the Trustee that
the Note has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Note if the Trustee's
requirements are met. An indemnity bond may be required by the Company or the
Trustee that is sufficient in the judgment of the Company and the Trustee to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Note is replaced. In every case of destruction, loss or theft,
the applicant shall also furnish to the Company and to the Trustee evidence to
their satisfaction of the destruction, loss or the theft of such Note and the
ownership thereof. The Company and the Trustee may charge for its expenses in
replacing a Note. Every replacement Note is an additional obligation of the
Company.
Section 2.08. OUTSTANDING NOTES.
Notes outstanding at any time are all Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, and those described in this Section 2.08 as not outstanding.
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding until the Company and the Trustee receive proof satisfactory to each
of them that the replaced Note is held by a bona fide purchaser.
<PAGE> 34
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If a Paying Agent holds on a Redemption Date or Maturity Date money
sufficient to pay the principal of, premium, if any, and accrued interest on
Notes payable on that date, then on and after that date such Notes cease to be
outstanding and interest on them ceases to accrue.
Subject to Section 11.06, a Note does not cease to be outstanding
solely because the Company or an Affiliate holds the Note.
Section 2.09. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form, and shall carry all rights, of definitive Notes but
may have variations that the Company considers appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Notes in exchange for temporary Notes presented to it.
Section 2.10. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee
shall cancel and destroy or return to the Company in accordance with its normal
practice, all Notes surrendered for transfer, exchange, payment or cancellation
unless the Company instructs the Trustee in writing to deliver the Notes to the
Company. Subject to Section 2.07 hereof, the Company may not issue new Notes to
replace Notes in respect of which it has previously paid all principal, premium
and interest accrued thereon, or delivered to the Trustee for cancellation.
Section 2.11. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted amounts, plus any interest payable on defaulted amounts
pursuant to Section 4.01 hereof, to the persons who are Noteholders on a
subsequent special record date. The Company shall fix the special record date
and payment date in a manner satisfactory to the Trustee and provide the Trustee
at least 20 days notice of the proposed amount of default interest to be paid
and the special payment date. At least 15 days before the special record date,
the Company shall mail or cause to be mailed to each Noteholder at his address
as it appears on the Notes register maintained by the Registrar a notice that
states the special record date, the payment date
<PAGE> 35
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(which shall be not less than five nor more than ten days after the special
record date), and the amount to be paid. In lieu of the foregoing procedures,
the Company may pay defaulted interest in any other lawful manner satisfactory
to the Trustee.
Section 2.12. DEPOSIT OF MONEYS.
Prior to 11:00 a.m., New York City time, on each Interest Payment Date
and Maturity Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date or Maturity Date, as the case may be, in a timely
manner which permits the Trustee to remit payment to the Holders on such
Interest Payment Date or Maturity Date, as the case may be. The principal and
interest on Global Notes shall be payable to the Depository or its nominee, as
the case may be, as the sole registered owner and the sole holder of the Global
Notes represented thereby. The principal and interest on Notes in certificated
form shall be payable at the office of the Paying Agent.
Section 2.13. CUSIP NUMBER.
The Company in issuing the Notes may use one or more "CUSIP" numbers,
and if so, the Trustee shall use the appropriate CUSIP number(s) in notices of
redemption or exchange as a convenience to Holders; PROVIDED that any such
notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number(s) printed in the notice or on the Notes, and that
reliance may be placed only on the other identification numbers printed on the
Notes.
Section 2.14. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES.
(a) Rule 144A Notes and Other Notes which may be held in global form,
other than Regulation S Notes, initially shall be represented by one or more
notes in registered, global form without interest coupons (collectively, the
"Restricted Global Note"). Regulation S Notes initially shall be represented by
one or more notes in registered, global form without interest coupons
(collectively, the "Regulation S Global Note," and, together with the Restricted
Global Note, the "Global Notes"). The Global Notes initially shall (i) be
registered in the name of The Depository Trust Company (the "Depository") or the
nominee of the Depository, in each case for credit to an account of an Agent
Member (as defined below) (or, in the case of the Regulation S Global Notes, of
Morgan Guaranty Trust Company, as operator of the Euroclear System ("Euroclear")
and Cedel Bank, Societe Anonyme ("CEDEL")), (ii) be delivered to the Trustee as
custodian
<PAGE> 36
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for the Depository and (iii) bear legends as set forth in EXHIBIT B.
Members of, or direct or indirect participants in, the Depository
("Agent Members") shall have no rights under this Indenture with respect to any
Global Note held on their behalf by the Depository, or the Trustee as its
custodian, or under the Global Notes, and the Depository may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the absolute
owner of the Global Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
(b) Transfers of Global Notes shall be limited to transfer in whole,
but not in part, to the Depository, its successors or their respective nominees.
Interests of beneficial owners in the Global Notes may be transferred or
exchanged for Physical Notes upon receipt by the Trustee of written instructions
from the Depository or its nominee on behalf of any beneficial owner and in
accordance with the rules and procedures of the Depository and the provisions of
Section 2.15. In addition, a Global Note shall be exchangeable for Physical
Notes if (i) the Depository (x) notifies the Company that it is unwilling or
unable to continue as depository for such Global Note and the Company thereupon
fails to appoint a successor depository or (y) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of such
Physical Notes or (iii) there shall have occurred and be continuing a Default or
an Event of Default with respect to the Notes. In all cases, Physical Notes
delivered in exchange for any Global Note or beneficial interests therein shall
be registered in the names, and issued in any approved denominations, requested
by or on behalf of the Depository (in accordance with its customary procedures).
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, and the Trustee shall upon receipt of a written order from the
Company authenticate and make available
<PAGE> 37
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for delivery, one or more Physical Notes of like tenor and amount.
(d) In connection with the transfer of Global Notes as an entirety to
beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by the Depository in writing in exchange for its beneficial interest
in the Global Notes, an equal aggregate principal amount of Physical Notes of
authorized denominations.
(e) Any Physical Note constituting a Restricted Security delivered in
exchange for an interest in a Global Note pursuant to paragraph (b), (c) or (d)
shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section
2.15, bear the legend regarding transfer restrictions applicable to the Physical
Notes set forth in Exhibit A.
(f) On or prior to the 40th-day after the later of the commencement of
the offering of the Notes represented by the Regulation S Global Note and the
issue date of such Notes (such period through and including such 40th day, the
"Restricted Period"), a beneficial interest in a Regulation S Global Note may be
transferred to a Person who takes delivery in the form of an interest in the
corresponding Restricted Global Note only upon receipt by the Trustee of a
written certification from the transferor to the effect that such transfer is
being made (i)(a) to a Person whom the transferor reasonably believes is a
Qualified Institutional Buyer in a transaction meeting the requirements of Rule
144A or (b) pursuant to another exemption from the registration requirements
under the Securities Act which is accompanied by an opinion of counsel regarding
the availability of such exemption and (ii) in accordance with all applicable
securities laws of any state of the United States or any other jurisdiction.
(g) Beneficial interests in the Restricted Global Note may be
transferred to a Person who takes delivery in the form of an interest in the
Regulation S Global Note, whether before or after the expiration of the
Restricted Period, only if the transferor first delivers to the Trustee a
written certificate to the effect that such transfer is being made in accordance
with Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if
such transfer occurs prior to the expiration of the Restricted Period, the
interest transferred will be held immediately thereafter through Euroclear or
CEDEL.
(h) Any beneficial interest in one of the Global Notes that is
transferred to a Person who takes delivery in the form of
<PAGE> 38
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an interest in another Global Note shall, upon transfer, cease to be an interest
in such Global Note and become an interest in such other Global Note and,
accordingly, shall thereafter be subject to all transfer restrictions and other
procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.
(i) The Holder of any Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
Section 2.15. SPECIAL TRANSFER PROVISIONS.
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS AND
NON-U.S. PERSONS. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note constituting
a Restricted Security, whether or not such Note bears the Private Placement
Legend, if (x) the requested transfer is after August 22, 1999 or (y) (1)
in the case of a transfer to an Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons), the proposed transferee has
delivered to the Registrar a certificate substantially in the form of
Exhibit D hereto or (2) in the case of a transfer to a Non-U.S. Person
(including a QIB), the proposed transferor has delivered to the Registrar a
certificate substantially in the form of Exhibit E hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in a Global Note, upon receipt by the Registrar of (x)
the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depository's and the Registrar's
procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of a Global Note in an amount equal to the
principal amount of the beneficial interest in a Global Note to be transferred,
and (b) the Company shall execute and the Trustee shall authenticate and make
available for delivery one or more Physical Notes of like tenor and amount.
<PAGE> 39
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(b) TRANSFERS TO QIBS. The following provisions shall apply with
respect to the registration of any proposed transfer of a Note constituting a
Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for on
the form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Note for
its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the Securities
to be transferred consist of Physical Notes which after transfer are to be
evidenced by an interest in the Global Note, upon receipt by the Registrar
of instructions given in accordance with the Depository's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of the Global Note
in an amount equal to the principal amount of the Physical Notes to be
transferred, and the Trustee shall cancel the Physical Notes so
transferred.
(c) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Securities bearing the Private Placement
Legend, the Registrar shall deliver only Notes that bear the Private Placement
Legend unless (i) the circumstances contemplated by paragraph (a)(i)(x) of this
Section 2.15 exist, (ii) there is delivered to the Registrar an Opinion of
Counsel reasonably satisfactory to the Company and the Trustee to the effect
that neither such legend nor the related restrictions on transfer are required
in order to maintain compliance with the provisions of the Securities Act or
(iii) such Note has been sold
<PAGE> 40
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pursuant to an effective registration statement under the Securities Act.
(d) GENERAL. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.14 or this Section 2.15.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable notice to the Registrar.
ARTICLE 3.
REDEMPTION
Section 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to Section 3.07 hereof,
(i) at least 60 days prior to the Redemption Date in the case of a partial
redemption, (ii) at least 45 days prior to the Redemption Date in the case of a
total redemption or (iii) during such other period as the Trustee may agree to,
the Company shall notify the Trustee in writing of the Redemption Date, the
principal amount of Notes to be redeemed and the redemption price, and deliver
to the Trustee an Officers' Certificate stating that such redemption will comply
with the conditions contained in Section 3.07 hereof, as appropriate.
Section 3.02. SELECTION BY TRUSTEE OF NOTES
TO BE REDEEMED.
In the event that fewer than all of the Notes are to be redeemed, the
Trustee shall select the Notes to be redeemed, if the Notes are listed on a
national securities exchange, in accordance with the rules of such exchange or,
if the Notes are not so listed, on either a pro rata basis or by lot, or such
other method as it shall deem fair and equitable; PROVIDED, HOWEVER, that if a
partial redemption is made with the proceeds of a Qualified Equity Offering,
selection of the Notes or portion thereof for redemption shall be made by the
Trustee on a PRO RATA basis, unless such a method is prohibited. The Trustee
shall promptly notify the Company of the Notes selected for redemption and, in
the case of any Notes selected for partial redemption,
<PAGE> 41
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the principal amount thereof to be redeemed. The Trustee may select for
redemption portions of the principal of the Notes that have denominations larger
than $1,000. Notes and portions thereof the Trustee selects shall be redeemed in
amounts of $1,000 or whole multiples of $1,000. For all purposes of this
Indenture unless the context otherwise requires, provisions of this Indenture
that apply to Notes called for redemption also apply to portions of Notes called
for redemption.
Section 3.03. NOTICE OF REDEMPTION.
At least 30 days, and no more than 60 days, before a Redemption Date,
the Company shall mail, or cause to be mailed, a notice of redemption by
first-class mail to each Holder of Notes to be redeemed at his or her last
address as the same appears on the registry books maintained by the Registrar
pursuant to Section 2.03 hereof.
The notice shall identify the Notes to be redeemed (including the
CUSIP number(s) thereof) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the Redemption
Date and upon surrender of such Note, a new Note or Notes in principal
amount equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(6) that unless the Company defaults in making the redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
Redemption Date;
(7) the paragraph of Section 3.07 hereof pursuant to which the Notes
called for redemption are being redeemed; and
(8) the aggregate principal amount of Notes that are being redeemed.
<PAGE> 42
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At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's sole expense.
Section 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once the notice of redemption described in Section 3.03 is mailed,
Notes called for redemption become due and payable on the Redemption Date and at
the redemption price, including any premium, plus interest accrued to the
Redemption Date. Upon surrender to the Paying Agent, such Notes shall be paid at
the redemption price, including any premium, plus interest accrued to the
Redemption Date, PROVIDED that if the Redemption Date is after a regular
interest payment record date and on or prior to the Interest Payment Date, the
accrued interest shall be payable to the Holder of the redeemed Notes registered
on the relevant record date, and PROVIDED, FURTHER, that if a Redemption Date is
a Legal Holiday, payment shall be made on the next succeeding Business Day and
no interest shall accrue for the period from such Redemption Date to such
succeeding Business Day.
Section 3.05. DEPOSIT OF REDEMPTION PRICE.
On or prior to 10:00 A.M., New York City time, on each Redemption
Date, the Company shall deposit with the Paying Agent in immediately available
funds money sufficient to pay the redemption price of and accrued interest on
all Notes to be redeemed on that date other than Notes or portions thereof
called for redemption on that date which have been delivered by the Company to
the Trustee for cancellation.
On and after any Redemption Date, if money sufficient to pay the
redemption price of and accrued interest on Notes called for redemption shall
have been made available in accordance with the preceding paragraph, the Notes
called for redemption will cease to accrue interest and the only right of the
Holders of such Notes will be to receive payment of the redemption price of and,
subject to the first proviso in Section 3.04, accrued and unpaid interest on
such Notes to the Redemption Date. If any Note called for redemption shall not
be so paid, interest will be paid, from the Redemption Date until such
redemption payment is made, on the unpaid principal of the Note and any interest
not paid on such unpaid principal, in each case, at the rate and in the manner
provided in the Notes.
Section 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Trustee shall
authenticate for a Holder a new Note equal in
<PAGE> 43
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principal amount to the unredeemed portion of the Note surrendered.
Section 3.07. OPTIONAL REDEMPTION.
(a) The Company may redeem the Notes, in whole or in part, at any time
on or after August 15, 2002 at the following redemption prices (expressed as a
percentage of principal amount), together, in each case, with accrued and unpaid
interest to the Redemption Date, if redeemed during the twelve-month period
beginning on August 15 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002............................................. 104.3125%
2003............................................. 102.8750%
2004............................................. 101.4375%
2005 and thereafter.............................. 100.0000%
</TABLE>
(b) Notwithstanding the foregoing, the Company may redeem in the
aggregate up to 40% of the original principal amount of Notes at any time and
from time to time prior to August 15, 2000 at a redemption price equal to
108.625% of the aggregate principal amount so redeemed plus accrued interest to
the Redemption Date out of the Net Proceeds of one or more Qualified Equity
Offerings; PROVIDED that at least $75,000,000 of the principal amount of Notes
originally issued remain outstanding immediately after the occurrence of any
such redemption and that any such redemption occurs within 90 days following the
closing of any such Qualified Equity Offering.
ARTICLE 4.
COVENANTS
Section 4.01. PAYMENT OF NOTES.
The Company shall pay the principal of and interest (including all
Additional Interest as provided in the Registration Rights Agreement) on the
Notes on the dates and in the manner provided in the Notes and this Indenture.
An installment of principal or interest shall be considered paid on the date it
is due if the Trustee or Paying Agent holds on that date money designated for
and sufficient to pay such installment.
The Company shall pay interest on overdue principal (including
post-petition interest in a proceeding under any Bankruptcy Law), and overdue
interest, to the extent lawful, at the rate specified in the Notes.
<PAGE> 44
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Section 4.02. SEC REPORTS.
(a) The Company will file with the SEC all information, documents and
reports to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act, whether or not the Company is subject to such filing requirements so long
as the SEC will accept such filings. The Company (at its own expense) will file
with the Trustee within 15 days after it files them with the SEC, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company files with the SEC pursuant to Section 13 or 15(d)
of the Exchange Act. Upon qualification of this Indenture under the TIA, the
Company shall also comply with the provisions of TIA Section 314(a). Delivery of
such reports, information and documents to the Trustee is for informational
purposes only and the Trustee's receipt of such shall not constitute
constructive notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with any of
its covenants hereunder (as to which the Trustee is entitled to rely exclusively
on Officers' Certificates).
(b) At the Company's expense, regardless of whether the Company is
required to furnish such reports and other information referred to in paragraph
(a) above to its stockholders pursuant to the Exchange Act, the Company shall
cause such reports and other information to be mailed to the Holders at their
addresses appearing in the register of Notes maintained by the Registrar within
15 days after it files them with the SEC.
(c) The Company will, upon request, provide to any Holder of Notes or
any prospective transferee of any such Holder any information concerning the
Company (including financial statements) necessary in order to permit such
Holder to sell or transfer Notes in compliance with Rule 144A under the
Securities Act.
Section 4.03. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead (as a defense or otherwise) or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of, premium, if any,
and/or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this
<PAGE> 45
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Indenture; and (to the extent that it may lawfully do so) the Company hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
Section 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year and on or before 60 days after the end of the first,
second and third quarters of each fiscal year, an Officers' Certificate (one of
the signers of which shall be the principal executive officer, principal
financial officer or principal accounting officer of the Company) stating that a
review of the activities of the Company and its Subsidiaries during such fiscal
year or fiscal quarter, as the case may be, has been made under the supervision
of the signing Officers with a view to determining whether each has kept,
observed, performed and fulfilled its obligations under this Indenture, and
further stating, as to each such Officer signing such certificate, that to the
best of his or her knowledge each has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions hereof
(or, if a Default or Event of Default shall have occurred, describing all or
such Defaults or Events of Default of which he or she may have knowledge and
what action each is taking or proposes to take with respect thereto) and that to
the best of his or her knowledge no event has occurred and remains in existence
by reason of which payments on account of the principal of or interest, if any,
on the Notes is prohibited or if such event has occurred, a description of the
event and what action each is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.02 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements nothing has come to
their attention which would lead them to believe that the Company has violated
any provisions of this Article 4 or Article 5 hereof of this Indenture or, if
any such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly for any failure to obtain knowledge of any such violation.
<PAGE> 46
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(c) The Company will, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
Section 4.05. TAXES.
The Company shall, and shall cause each of its Subsidiaries to, pay
prior to delinquency all material taxes, assessments, and governmental levies
except as contested in good faith and by appropriate proceedings.
Section 4.06. LIMITATION ON ADDITIONAL INDEBTEDNESS.
The Company will not, and will not permit any Subsidiary of the
Company to, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness); PROVIDED that the Company (but not any Subsidiary of the Company)
may incur Indebtedness if (a) after giving effect to the incurrence of such
Indebtedness and the receipt and application of the proceeds thereof, the
Company's Fixed Charge Coverage Ratio (determined on a pro forma basis for the
last four fiscal quarters of the Company for which financial statements are
available at the date of determination) is at least 2.00 to 1 and (b) no
Triggering Default Event shall have occurred and be continuing at the time or as
a consequence of the incurrence of such Indebtedness. For purposes of computing
the Fixed Charge Coverage Ratio, (A) if the Indebtedness which is the subject of
a determination under this provision is Acquired Indebtedness, or Indebtedness
incurred in connection with the simultaneous acquisition (by way of merger,
consolidation or otherwise) of any Person, business, property or assets (an
"Acquisition"), then such ratio shall be determined by giving effect (on a pro
forma basis, as if the transaction had occurred at the beginning of a
four-quarter period) to both the incurrence or assumption of such Acquired
Indebtedness or such other Indebtedness by the Company and the inclusion in the
Company's EBITDA of the EBITDA of the acquired Person, business, property or
assets, (B) if any Indebtedness outstanding or to be incurred (x) bears a
floating rate of interest, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account on a pro forma basis
any Interest Rate Agreement applicable to such Indebtedness if such Interest
Rate Agreement has a remaining term as at the date of determination in excess of
12 months), (y) bears, at the option of the Company or a Subsidiary, a fixed or
floating rate of interest, the interest expense on such Indebtedness shall be
computed by applying, at the option of the Company or such
<PAGE> 47
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Subsidiary, either a fixed or floating rate and (z) was incurred under a
revolving credit facility, the interest expense on such Indebtedness shall be
computed based upon the average daily balance of such Indebtedness during the
applicable period, (C) for any quarter prior to the date hereof included in the
calculation of such ratio, such calculation shall be made on a pro forma basis,
giving effect to the Pearle Acquisition, the issuance of the Notes, the
incurrence of Indebtedness under the Credit Facility and the use of the net
proceeds therefrom as if the same had occurred at the beginning of the
four-quarter period used to make such calculation and (D) for any quarter
included in the calculation of such ratio prior to the date that any Asset Sale
was consummated, or that any Indebtedness was incurred, or that any Acquisition
was effected, by the Company or any of its Subsidiaries, such calculation shall
be made on a pro forma basis, giving effect to each Asset Sale, incurrence of
Indebtedness or Acquisition, as the case may be, and the use of any proceeds
therefrom, as if the same had occurred at the beginning of the four quarter
period used to make such calculation.
Notwithstanding the foregoing, the Company and its Subsidiaries may
incur Permitted Indebtedness; PROVIDED that the Company will not incur any
Permitted Indebtedness, without meeting the Indebtedness incurrence provisions
of the preceding paragraph, that ranks PARI PASSU or junior in right of payment
to the Notes and that has a maturity or mandatory sinking fund payment prior to
the maturity of the Notes.
Section 4.07. LIMITATION ON CAPITAL STOCK OF
SUBSIDIARIES.
The Company will not (i) sell, pledge, hypothecate or otherwise convey
or dispose of any Capital Stock of a Subsidiary (other than under the Credit
Facility or a successor facility or under the terms of any Designated Senior
Indebtedness) or (ii) permit any of its Subsidiaries to issue any Capital Stock,
other than to the Company or a Wholly Owned Subsidiary of the Company. The
foregoing restrictions shall not apply to an Asset Sale (other than the sale of
Preferred Stock of a Subsidiary) made in compliance with Section 4.09 hereof.
Section 4.08. LIMITATION ON RESTRICTED PAYMENTS.
The Company will not make, and will not permit any of its Subsidiaries
to, directly or indirectly, make, any Restricted Payment, unless:
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(a) no Triggering Default Event shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted
Payment;
(b) immediately after giving PRO FORMA effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under Section 4.06 hereof; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) $25.0 million plus (2)(i) 50% of the
Cumulative Consolidated Net Income of the Company subsequent to August 3,
1997 (or minus 100% of any cumulative deficit in Consolidated Net Income
during such period); (ii) 100% of the aggregate Net Proceeds and the fair
market value (as determined in good faith by the Board of Directors of the
Company) of securities or other property received by the Company from the
issue or sale, after the Issue Date, of Capital Stock (other than
Disqualified Capital Stock or Capital Stock of the Company issued to any
Subsidiary of the Company) of the Company or any Indebtedness or other
securities of the Company convertible into or exercisable or exchangeable
for Capital Stock (other than Disqualified Capital Stock) of the Company
which has been so converted or exercised or exchanged, as the case may be;
(iii) 100% of the capital contributions made by the Parent to the Company
after the Issue Date (other than capital contributions which constitute
Indebtedness); and (iv) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the Issue Date, an
amount equal to the lesser of the return of capital with respect to such
Investment and the initial amount of such Investment, in either case, less
the cost of disposition of such Investment. For purposes of determining
under this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its fair market value (as determined in good
faith by the Board of Directors of the Company).
The provisions of this Section 4.08 shall not prohibit: (i) the
payment of any distribution within 60 days after the date of declaration
thereof, if at such date of declaration such payment would comply with the
provisions of this Indenture; (ii) the repurchase, redemption or other
acquisition or retirement of any shares of Capital Stock of the Company or
Indebtedness subordinated to the Notes by conversion into, or by or in exchange
for, shares of Capital Stock (other than Disqualified
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Capital Stock), or out of, the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of Capital Stock of
the Company (other than Disqualified Capital Stock); (iii) the repurchase,
redemption or other acquisition or retirement of Indebtedness of the Company
subordinated to the Notes in exchange for, by conversion into, or out of the Net
Proceeds of, a substantially concurrent sale or incurrence of Indebtedness
(other than any Indebtedness owed to a Subsidiary) of the Company that is
contractually subordinated in right of payment to the Notes to at least the same
extent as the Indebtedness subordinated to the Notes being redeemed or retired;
(iv) the retirement of any shares of Disqualified Capital Stock by conversion
into, or by exchange for, shares of Disqualified Capital Stock, or out of the
Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of
the Company) of other shares of Disqualified Capital Stock; (v) the repurchase,
redemption or other acquisition or retirement for value of any Capital Stock of
the Company or the Parent or any current or former Subsidiary of the Company
held by any member of the Company's (or any of its Subsidiaries') current or
former employees; PROVIDED that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Capital Stock shall not exceed
$4,000,000; (vi) the payment of dividends to the Parent solely for the purpose
of enabling Parent to pay the ordinary operating and administrative expenses of
the Parent (including all reasonable professional fees and expenses) in
connection with its complying with its reporting obligations and obligations to
prepare and distribute business records in the ordinary course of business and
the Parent's costs and expenses relating to taxes (which taxes are attributable
to the operations of the Company and its Subsidiaries or to the Parent's
ownership thereof); PROVIDED, HOWEVER, that the aggregate dividend payments paid
in each fiscal year pursuant to this clause (vi) will at no time exceed .25% of
the Company's Net Sales for such fiscal year; (vii) payments to the Parent for
income taxes pursuant to the Tax Allocation Agreement; and (viii) the payment of
dividends to the Parent solely for the purpose of enabling the Parent to pay
taxes other than income taxes, to the extent actually owed and attributable to
the operations of the Company and its Subsidiaries or to the Parent's ownership
thereof; PROVIDED that, for purposes of determining whether Restricted Payments
can be made pursuant to the previous paragraph, all payments made pursuant to
clauses (ii), (iv), (v), (vi), (vii) and (viii) of this paragraph will reduce
the amount that would otherwise be available for such Restricted Payments and
payments made pursuant to the other clauses of this paragraph shall not so
reduce the amount available for Restricted Payments.
Not later than the date of making any Restricted Payment which may only
be made pursuant to subclause (c) above,
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the Company shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.08 were computed, which calculations may
be based upon the Company's latest available financial statements, and that no
Triggering Default Event exists and is continuing and no Triggering Default
Event will occur immediately after giving effect to any Restricted Payments.
Section 4.09. LIMITATION ON CERTAIN ASSET SALES.
(a) The Company will not, and will not permit any of its Subsidiaries
to, consummate an Asset Sale unless (i) the Company or its Subsidiaries, as the
case may be, receives consideration at the time of such sale or other
disposition at least equal to the fair market value thereof (as determined in
good faith by the Company's Board of Directors); (ii) except in the case of the
sale, transfer or other disposition of Company- owned stores to franchisees in a
business related to the optical business that result in the conversion of such
stores to franchised stores, not less than 75% of the consideration received by
the Company or its Subsidiaries, as the case may be, is in the form of cash or
Temporary Cash Investments; and (iii) the Asset Sale Proceeds received by the
Company or such Subsidiary are applied (a) first, to the extent the Company
elects, or is required, to prepay, repay or purchase debt under any then
existing Senior Indebtedness of the Company or any Subsidiary within 12 months
following the receipt of the Asset Sale Proceeds from any Asset Sale, provided
that any such repayment shall result in a permanent reduction of the commitments
thereunder in an amount equal to the principal amount so repaid; (b) second, to
the extent of the balance of Asset Sale Proceeds after application as described
above, to the extent the Company elects, to an Investment in assets (including
Capital Stock or other securities purchased in connection with the acquisition
of Capital Stock or property of another person) used or useful in businesses
similar or ancillary to the business of the Company or a Subsidiary as conducted
at the time of such Asset Sale, PROVIDED that such Investment occurs on or prior
to the 365th day following receipt of such Asset Sale Proceeds (the
"Reinvestment Date"); (c) third, to the making of an Excess Proceeds Offer (as
defined in the Senior Note Indenture) with respect to any outstanding Senior
Notes; (d) fourth, to the making of an Excess Proceeds Offer (as defined in the
Existing Senior Subordinated Note Indenture) with respect to the Existing Senior
Subordinated Notes; and (e) fifth, if on the Reinvestment Date with respect to
any Asset Sale, the Available Asset Sale Proceeds exceed $10,000,000, the
Company shall apply an amount equal to such Available Asset Sale Proceeds to an
offer to repurchase the Notes (which offer may, at the option of the
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Company, also be made on a pro rata basis to holders of all other indebtedness
of the Company ranking PARI PASSU, at a purchase price (in the case of the
Notes) in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase (an "Excess Proceeds Offer").
(b) If the Company is required to make an Excess Proceeds Offer, the
Company shall mail, within 30 days following the Reinvestment Date, a notice to
the Holders stating, among other things: (1) that such Holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (2)
the purchase date (the "Purchase Date"), which shall be no earlier than 30 days
and not later than 60 days from the date such notice is mailed; (3) the
instructions, determined by the Company, that each Holder must follow in order
to have such Notes repurchased; and (4) the calculations used in determining the
amount of Available Asset Sale Proceeds to be applied to the repurchase of such
Notes. The Excess Proceeds Offer shall remain open for a period of 20 Business
Days following its commencement (the "Offer Period"). The notice, which shall
govern the terms of the Excess Proceeds Offer, shall state:
(1) that the Excess Proceeds Offer is being made pursuant to this
Section 4.09 and the length of time the Excess Proceeds Offer will remain
open;
(2) the purchase price and the Purchase Date;
(3) that any Note not tendered or accepted for payment will continue to
accrue interest;
(4) that any Note accepted for payment pursuant to the Excess Proceeds
Offer shall cease to accrue interest on and after the Purchase Date;
(5) that Holders electing to have a Note purchased pursuant to any
Excess Proceeds Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Company, a depositary, if appointed by the Company, or a
Paying Agent at the address specified in the notice at least three Business
Days before the Purchase Date;
(6) that Holders will be entitled to withdraw their election if the
Company, depositary or Paying Agent, as the case may be, receives, not later
than the expiration of the Offer Period, a facsimile transmission or letter
setting
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forth the name of the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is withdrawing his
election to have the Note purchased;
(7) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Available Asset Sale Proceeds, the Company shall select
the Notes to be purchased on a pro rata basis (with such adjustments as may
be deemed appropriate by the Company so that only Notes in denominations of
$1,000, or integral multiples thereof, shall be purchased); and
(8) that Holders whose Notes were purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered.
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, Notes
or portions thereof tendered pursuant to the Excess Proceeds Offer, deposit with
the Paying Agent U.S. legal tender sufficient to pay the purchase price plus
accrued interest, if any, on the Notes to be purchased and deliver to the
Trustee an Officers' Certificate stating that such Notes or portions thereof
were accepted for payment by the Company in accordance with the terms of this
Section 4.09. The Paying Agent shall promptly (but in any case not later than 5
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Note tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee shall authenticate and mail or make available for delivery such new
Note to such Holder equal in principal amount to any unpurchased portion of the
Note surrendered. Any Note not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company will publicly announce the
results of the Excess Proceeds Offer on the Purchase Date. If an Excess Proceeds
Offer is not fully subscribed, the Company may retain that portion of the
Available Asset Sale Proceeds not required to repurchase Notes.
Section 4.10. LIMITATION ON TRANSACTIONS WITH
AFFILIATES.
(a) The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with any Affiliate
(including Parent and entities in which the Company or any of its Subsidiaries
own a minority interest) or holder of 10% or more of
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the Company's Common Stock (an "Affiliate Transaction") or extend, renew, waive
or otherwise modify the terms of any Affiliate Transaction entered into prior to
the Issue Date unless (i) such Affiliate Transaction is between or among the
Company and its Wholly Owned Subsidiaries; or (ii) the terms of such Affiliate
Transaction are fair and reasonable to the Company or such Subsidiary, as the
case may be, and the terms of such Affiliate Transaction are at least as
favorable as the terms which could be obtained by the Company or such
Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis between unaffiliated parties. In any Affiliate Transaction
involving an amount or having a value in excess of $5,000,000 which is not
permitted under clause (i) above, the Company must obtain a Board Resolution
certifying that such Affiliate Transaction complies with clause (ii) above. In
transactions with a value in excess of $10,000,000 which are not permitted under
clause (i) above (other than loans from the Parent to the Company at a rate not
in excess of the incremental borrowing rate of the Company as determined in good
faith by the Board of Directors of the Company, or loans from the Company or any
Subsidiary to the Parent, in each case at a rate not in excess of the Parent's
incremental borrowing rate, as determined in good faith by the Board of
Directors of the Company), the Company must obtain a written opinion as to the
fairness of such a transaction from an independent investment banking firm.
(b) The limitations set forth in Section 4.10(a) will not apply to (i)
any Restricted Payment that is not prohibited by Section 4.08 hereof, (ii)
Indebtedness incurred by the Company to the Parent, provided such Indebtedness
has terms no more onerous than those contained in the Credit Facility, or (iii)
any compensation-related transaction, approved by an independent committee of
the Board of Directors of the Company, with an officer or director of the
Company or of any Subsidiary in his or her capacity as officer or director
entered into in the ordinary course of business.
Section 4.11. LIMITATIONS ON LIENS.
The Company will not create, incur or otherwise cause or suffer to
exist or become effective any Liens of any kind (other than Permitted Liens)
upon any property or asset of the Company to secure Indebtedness which is PARI
PASSU with or subordinate in right of payment to the Notes, unless (i) if such
Lien secures Indebtedness which is PARI PASSU with the Notes, then the Notes are
secured on an equal and ratable basis with the obligations so secured until such
time as such obligation is no longer secured by a Lien or (ii) if such Lien
secures Indebtedness which is subordinated to the Notes, such Indebtedness
secured by such Lien and such Lien shall be
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subordinated to the Lien granted to the Holders of the Notes to the same extent
as such Indebtedness is subordinated to the Notes.
Section 4.12. LIMITATION ON OTHER SENIOR
SUBORDINATED DEBT.
The Company will not, directly or indirectly, incur any Indebtedness
that is both (i) subordinate in right of payment to any Senior Indebtedness of
the Company and (ii) senior in right of payment to the Notes. For purposes of
this Section 4.12, Indebtedness is deemed to be senior in right of payment to
the Notes if it is not explicitly subordinate in right of payment to Senior
Indebtedness at least to the same extent as the Notes are subordinate to Senior
Indebtedness.
Section 4.13. LIMITATION ON SALE AND LEASE-BACK
TRANSACTIONS.
The Company will not, and will not permit any Subsidiary to, enter into
any Sale and Lease-Back Transaction unless (i) the consideration received in
such Sale and Lease-Back Transaction is at least equal to the fair market value
of the property sold, as determined by a Board Resolution of the Company and
(ii) the Company could incur Indebtedness in an amount equal to the Attributable
Indebtedness in respect of such Sale and Lease-Back Transaction in compliance
with Section 4.06.
Section 4.14. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of this
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all Holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
Section 4.15. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
Subsidiary, in accordance with the respective organizational documents (as the
same may be amended from time to time) of each Subsidiary and the rights
(charter and statutory), licenses and franchises of the
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Company and its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be
required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of its Subsidiaries, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material respect to the
Holders.
Section 4.16. CHANGE OF CONTROL.
(a) Within 30 days of the occurrence of a Change of Control, the
Company shall notify the Trustee in writing of such occurrence and shall make an
offer to purchase (the "Change of Control Offer") the outstanding Notes at a
purchase price equal to 101% of the principal amount thereof plus any accrued
and unpaid interest thereon to the Change of Control Payment Date (such purchase
price being hereinafter referred to as the "Change of Control Purchase Price")
in accordance with the procedures set forth in this Section 4.16.
If the Credit Facility is in effect and the Senior Notes are
outstanding, or any amounts are owing thereunder or in respect thereof, at the
time of the occurrence of a Change of Control, prior to the mailing of the
notice to Holders described in paragraph (b) below, but in any event within 30
days following any Change of Control, the Company covenants to (i) repay in full
all obligations under or in respect of the Credit Facility and the Senior Notes
or offer to repay in full all obligations under or in respect of the Credit
Facility and the Senior Notes and repay the obligations under or in respect of
the Credit Facility and the Senior Notes of each lender or holder, as the case
may be, who has accepted such offer or (ii) obtain the requisite consent under
the Credit Facility and the Senior Notes to permit the repurchase of the Notes
pursuant to this Section 4.16. The Company must first comply with the covenant
described in the preceding sentence before it shall be required to purchase
Notes in the event of a Change of Control; PROVIDED that the Company's failure
to comply with the covenant described in the preceding sentence constitutes an
Event of Default described in clause (3) under Section 6.01 hereof if not cured
within 60 days after the notice required by such clause.
(b) Within 40 days of the occurrence of a Change of Control, the
Company also shall (i) cause a notice of the Change of Control Offer to be sent
at least once to the Dow Jones News Service or similar business news service in
the United States and (ii) send by first-class mail, postage prepaid, to the
Trustee and to each Holder of the Notes, at the address appearing in the
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register maintained by the Registrar of the Notes, a notice stating:
(i) that the Change of Control Offer is being made pursuant to this
Section 4.16 and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(ii) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 nor later than 40 days from the
date such notice is mailed (the "Change of Control Payment Date"));
(iii) that any Note not tendered will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(v) that Holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day preceding
the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, a facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Notes
purchased;
(vii) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered, PROVIDED that each Note purchased and each such new Note
issued shall be in an original principal amount in denominations of $1,000
and integral multiples thereof;
(viii) any other procedures that a Holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
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(ix) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly mail to each Holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such Holder, a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered; PROVIDED that each such new Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof.
(c) (i) If the Company or any Subsidiary thereof has issued any
outstanding (A) Indebtedness that is subordinated in right of payment to the
Notes or (B) Preferred Stock, and the Company or such Subsidiary is required to
repurchase, or make an offer to repurchase, such Indebtedness, or redeem, or
make an offer to redeem, such Preferred Stock, in the event of a Change of
Control or to make a distribution with respect to such subordinated Indebtedness
or Preferred Stock in the event of a Change of Control, the Company shall not
consummate any such offer or distribution with respect to such subordinated
Indebtedness or Preferred Stock until such time as the Company shall have paid
the Change of Control Purchase Price in full to the Holders of Notes that have
accepted the Company's Change of Control Offer and shall otherwise have
consummated the Change of Control Offer made to Holders of the Notes and (ii)
the Company will not issue Indebtedness that is subordinated in right of payment
to the Notes or Preferred Stock with change of control provisions requiring the
payment of such Indebtedness or Preferred Stock prior to the payment of the
Notes in the event of a Change in Control under this Indenture.
In the event that a Change of Control occurs and the Holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.
Section 4.17. MAINTENANCE OF OFFICE OR AGENCY.
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The Company shall maintain an office or agency where Notes may be
surrendered for registration of transfer or exchange or for presentation for
payment and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee as set forth in Section 11.02.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations. The
Company shall give prompt written notice to the Trustee of such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee set forth in Section 11.02 as such office of the Company.
Section 4.18. LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary to
(a)(i) pay dividends or make any other distributions to the Company or any of
its Subsidiaries (A) on its Capital Stock or (B) with respect to any other
interest or participation in, or measured by, its profits, or (ii) pay any
Indebtedness owed to the Company or any of its Subsidiaries or (b) make loans or
advances to the Company or any of its Subsidiaries or (c) transfer any of its
properties or assets to the Company or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reasons of (i) Indebtedness
outstanding on the date hereof, (ii) the Credit Facility as in effect as of the
date hereof, (iii) the Senior Note Indenture, the Senior Notes, the Existing
Senior Subordinated Note Indenture, the Existing Senior Subordinated Notes and
this Indenture, (iv) applicable law, (v) customary nonassignment provisions in
leases, (vi) permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Refinancing Indebtedness shall not be
materially more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, (vii) customary restrictions imposed in
connection with Purchase Money
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Indebtedness or Capital Lease Obligations permitted under Section 4.06 as long
as such customary restrictions are not materially more restrictive than those
set forth in the Credit Facility on the date hereof (except that they may impose
restrictions on the transfer of the asset so financed), or (viii) restrictions
in agreements with Persons acquired by the Company or any Subsidiary which do
not extend to Property or assets other than the Property or assets of such
Persons.
ARTICLE 5.
SUCCESSOR CORPORATION
Section 5.01. LIMITATION ON CONSOLIDATION, MERGER AND
SALE OF ASSETS.
(a) The Company will not and will not permit any Subsidiary to
consolidate with, merge with or into, or transfer all or substantially all of
its assets (as an entirety or substantially as an entirety in one transaction or
a series of related transactions), to any Person unless: (i) the Company or the
Subsidiary, as the case may be, shall be the continuing Person, or the Person
(if other than the Company or the Subsidiary) formed by such consolidation or
into which the Company or the Subsidiary, as the case may be, is merged or to
which the properties and assets of the Company or the Subsidiary, as the case
may be, are transferred shall be a corporation organized and existing under the
laws of the United States or any State thereof or the District of Columbia and
shall expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all of the obligations of the
Company or the Subsidiary, as the case may be, under the Notes and this
Indenture, and the obligations under this Indenture shall remain in full force
and effect; (ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (iii) immediately after giving effect to such transaction on a
pro forma basis the Company or such Person could incur at least $1.00 additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.06
hereof, PROVIDED that a Person that is a Subsidiary on the Issue Date may merge
into the Company or another Person that is a Subsidiary on the Issue Date
without complying with this clause (iii).
(b) In connection with any consolidation, merger or transfer of assets
contemplated by this Section 5.01, the Company shall deliver or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each stating
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that such consolidation, merger or transfer and the supplemental indenture in
respect thereto comply with this Section 5.01 and that all conditions precedent
herein provided for relating to such transaction or transactions have been
complied with.
Section 5.02. SUCCESSOR PERSON SUBSTITUTED.
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company or any Subsidiary in accordance
with Section 5.01 above, the successor corporation formed by such consolidation
or into which the Company is merged or to which such transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company or such Subsidiary under this Indenture with the same effect as if
such successor corporation had been named as the Company or such Subsidiary
herein, and thereafter the predecessor corporation shall be relieved of all
obligations and covenants under this Indenture and the Notes.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if
(1) there is a default in the payment of any principal of, or premium,
if any, on the Notes when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise, whether or not such payment is
prohibited by the provisions of Article 11 hereof;
(2) there is a default in the payment of any interest on any Note when
the same becomes due and payable and the Default continues for a period of
30 days, whether or not such payment is prohibited by the provisions of
Article 10 hereof;
(3) the Company or any Subsidiary defaults in the observance or
performance of any other covenant in the Notes or this Indenture for 60 days
after written notice from the Trustee or the Holders of not less than 25% in
the aggregate principal amount of the Notes then outstanding;
(4) there is a default in the payment at final maturity (within the
grace period provided by such Indebtedness) of principal, interest or
premium in an aggregate amount of $5,000,000 or more with respect to any
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Indebtedness of the Company or any Subsidiary thereof, or the acceleration
of any such Indebtedness aggregating $5,000,000 or more, which default or
acceleration shall not be cured, waived or postponed pursuant to an
agreement with the holders of such Indebtedness within 60 days after written
notice, or such acceleration shall not be rescinded or annulled within 20
days after written notice to the Company of such Default by the Trustee or
any Holder;
(5) a court of competent jurisdiction enters a final judgment or
judgments which can no longer be appealed for the payment of money in excess
of $5,000,000 against the Company or any Subsidiary thereof (other than a
judgment or portion thereof as to which an insurance company of national
reputation has accepted full liability) and such judgment remains
undischarged and not fully bonded, for a period of 60 consecutive days
during which a stay of enforcement of such judgment shall not be in effect;
(6) the Company or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(D) makes a general assignment for the benefit of its creditors,
or
(E) generally is not paying its debts as they become due; or
(7) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case,
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of the property of the
Company or any Significant Subsidiary, or
(C) orders the liquidation of the Company or any Significant
Subsidiary,
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and the order or decree remains unstayed and in effect for
60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
The Trustee may withhold notice to the Holders of the Notes of any
Default (except in payment of principal or premium, if any, or interest on the
Notes) if the Trustee considers it to be in the best interest of the Holders of
the Notes to do so.
Section 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default arising under
Section 6.01(6) or (7) with respect to the Company) occurs and is continuing,
the Trustee by notice to the Company, or the Holders of not less than 25% in
aggregate principal amount of the Notes then outstanding may by written notice
to the Company and the Trustee declare to be immediately due and payable the
entire principal amount of all the Notes then outstanding plus accrued but
unpaid interest to the date of acceleration and (i) such amounts shall become
immediately due and payable or (ii) if there are any amounts outstanding under
or in respect of the Credit Facility, such amounts shall become due and payable
upon the first to occur of an acceleration of amounts under or in respect of the
Credit Facility or five Business Days after receipt by the Company and the
Representative of notice of the acceleration of the Notes; PROVIDED, HOWEVER,
that after such acceleration but before a judgment or decree based on such
acceleration is obtained by the Trustee, the Holders of a majority in aggregate
principal amount of the outstanding Notes may, under certain circumstances,
rescind and annul such acceleration and its consequences if all existing Events
of Default, other than the nonpayment of accelerated principal, premium or
interest that has become due solely because of the acceleration, have been cured
or waived and if the rescission would not conflict with any judgment or decree.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default specified in Section 6.01(6) or
(7) with respect to the Company occurs, such principal, premium, if any, and
interest amount with respect to all of the Notes shall be due and payable
immediately without any declaration or other act on the part of the Trustee or
the Holders of the Notes.
Section 6.03. OTHER REMEDIES.
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If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect the payment of
principal of, or premium, if any, and interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture and may take any
necessary action requested of it as Trustee to settle, compromise, adjust or
otherwise conclude any proceedings to which it is a party.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
Section 6.04. WAIVER OF PAST DEFAULTS AND
EVENTS OF DEFAULT.
Subject to Sections 6.02, 6.07 and 8.02 hereof, the Holders of a
majority in principal amount of the Notes then outstanding have the right to
waive any existing Default or Event of Default or compliance with any provision
of this Indenture or the Notes. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any right
consequent thereto.
Section 6.05. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the Notes then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee by this Indenture. The Trustee, however, may refuse to
follow any direction that conflicts with law or this Indenture or that the
Trustee determines may be unduly prejudicial to the rights of another Noteholder
not taking part in such direction, and the Trustee shall have the right to
decline to follow any such direction if the Trustee, being advised by counsel,
determines that the action so directed may not lawfully be taken or if the
Trustee in good faith shall, by a Trust Officer, determine that the proceedings
so directed may involve it in personal liability; PROVIDED that the Trustee may
take any other action deemed proper by the Trustee which is not inconsistent
with such direction.
Section 6.06. LIMITATION ON SUITS.
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Subject to Section 6.07 below, a Noteholder may not institute any
proceeding or pursue any remedy with respect to this Indenture or the Notes
unless:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity reasonably
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60 day period by the Holders of a majority in
aggregate principal amount of the Notes then outstanding.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
Section 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal of, or premium, if any, and
interest of the Note on or after the respective due dates expressed in the Note,
or to bring suit for the enforcement of any such payment on or after such
respective dates, is absolute and unconditional and shall not be impaired or
affected without the consent of the Holder.
Section 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of principal, premium or interest
specified in Section 6.01(1) or (2) hereof occurs and is continuing, the Trustee
may recover judgment in its own name and as trustee of an express trust against
the Company (or any other obligor on the Notes) for the whole amount of unpaid
principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate then
borne by the Notes, and such further amounts as shall be sufficient to cover the
costs
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and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Noteholders allowed
in any judicial proceedings relative to the Company (or any other obligor upon
the Notes), its creditors or its property and shall be entitled and empowered to
collect and receive any monies or other property payable or deliverable on any
such claims and to distribute the same after deduction of its charges and
expenses to the extent that any such charges and expenses are not paid out of
the estate in any such proceedings and any custodian in any such judicial
proceeding is hereby authorized by each Noteholder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Noteholders, to pay to the Trustee any amount due to it
for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Noteholder in any such proceedings.
Section 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 7.07 hereof;
SECOND: to Noteholders for amounts due and unpaid on the Notes for
principal, premium, if any, and interest as to each, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes; and
THIRD: to the Company.
The Trustee may fix a record date and payment date for any payment to
Noteholders pursuant to this Section 6.10.
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Section 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 hereof or a suit by Holders of more than 10% in
principal amount of the Notes then outstanding.
ARTICLE 7.
TRUSTEE
Section 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent man would
exercise or use under the same circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are specifically
set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture but, in the
case of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
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(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received by it
pursuant to Sections 6.02 and 6.05 hereof.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its rights or powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity satisfactory to
it against such risk or liability is not reasonably assured to it.
(e) Whether or not therein expressly so provided, paragraphs (a), (b),
(c) and (d) of this Section 7.01 shall govern every provision of this Indenture
that in any way relates to the Trustee.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by the law.
Section 7.02. RIGHTS OF TRUSTEE.
Subject to Section 7.01 hereof:
(1) The Trustee may rely on any document reasonably believed by it to
be genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, or both, which shall conform
to the provisions of Sections 11.04 and 11.05 hereof. The Trustee shall be
protected and shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate or opinion.
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(3) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed by it with due care.
(4) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it reasonably believes to be authorized or within
its rights or powers.
(5) The Trustee may consult with counsel of its selection, and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
Section 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may make loans to, accept deposits from, perform
services for or otherwise deal with the Company, or any Affiliates thereof, with
the same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. The Trustee, however, shall be subject to Sections 7.10 and
7.11 hereof.
Section 7.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Company's use
of the proceeds from the sale of Notes or any money paid to the Company pursuant
to the terms of this Indenture and it shall not be responsible for any statement
in the Notes other than its certificate of authentication.
Section 7.05. NOTICE OF DEFAULTS.
If a Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each Noteholder notice of the Default within
90 days after it occurs. Except in the case of a Default in payment of the
principal of, or premium, if any, or interest on any Note the Trustee may
withhold the notice if and so long as the board of directors of the Trustee, the
executive committee or any trust committee of such board and/or its Trust
Officers in good faith determine(s) that withholding the notice is in the
interest of the Noteholders.
Section 7.06. REPORTS BY TRUSTEE TO HOLDERS.
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If required by TIA Section 313(a), within 60 days after May 15 of any
year, commencing the May 15 following the date of this Indenture, the Trustee
shall mail to each Noteholder a brief report dated as of such May 15 that
complies with TIA Section 313(a). The Trustee shall also comply with TIA
Section 313(b)(2). The Trustee shall also transmit by mail all reports as
required by TIA Section 313(c) and TIA Section 313(d).
Reports pursuant to this Section 7.06 shall be transmitted by mail:
(1) to all registered Holders of Notes, as the names and addresses of
such Holders appear on the Registrar's books; and
(2) to such Holder of Notes as have, within the two years preceding
such transmission, filed their names and addresses with the Trustee for that
purpose.
A copy of each report at the time of its mailing to Noteholders shall
be filed with the SEC and each stock exchange, if any, on which the Notes are
listed. The Company shall promptly notify the Trustee when the Notes are listed
on any stock exchange.
Section 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services rendered hereunder (which compensation shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust). The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred or made by it in connection with its
duties under this Indenture, including the reasonable fees and expenses of the
Trustee's agents and counsel.
The Company shall indemnify each of the Trustee and any predecessor
Trustee for, and hold it harmless against, any and all loss, damage, claim,
liability or reasonable expense, incurred by it in connection with the
acceptance or performance of its duties under this Indenture including the
reasonable costs and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder (including, without limitation, settlement costs). The Trustee shall
notify the Company in writing promptly of any claim asserted against the Trustee
for which it may seek indemnity. However, the failure by the Trustee to so
notify the Company shall not relieve the Company of its obligations hereunder
except to the extent the Company is prejudiced thereby.
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Notwithstanding the foregoing, the Company need not reimburse the
Trustee for any expense or indemnify it against any loss or liability incurred
by the Trustee through its negligence, bad faith or willful misconduct. To
secure the payment obligations of the Company in this Section 7.07, the Trustee
shall have a lien prior to the Notes on all money or property held or collected
by the Trustee except such money or property held in trust to pay principal of
and interest on particular Notes. The obligations of the Company under this
Section 7.07 to compensate and indemnify the Trustee and each predecessor
Trustee and to pay or reimburse the Trustee and each predecessor Trustee for
expenses, disbursements and advances shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(6) or (7) hereof occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
For purposes of this Section 7.07, the term "Trustee" shall include any
trustee appointed pursuant to Article 9.
Section 7.08. REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company in writing. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by notifying the removed Trustee in writing and may appoint a
successor Trustee with the Company's written consent which consent shall not be
unreasonably withheld. The Company may remove the Trustee at its election if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in
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principal amount of the outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any Noteholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately following
such delivery, the retiring Trustee shall, subject to its rights under Section
7.07 hereof, transfer all property held by it as Trustee to the successor
Trustee, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Noteholder. Notwithstanding replacement of the
Trustee pursuant to this Section 7.08, the Company's obligations under Section
7.07 hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. SUCCESSOR TRUSTEE BY CONSOLIDATION,
MERGER OR CONVERSION.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust assets to, another corporation,
subject to Section 7.10 hereof, the successor corporation without any further
act shall be the successor Trustee.
Section 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1) and (2) in every respect. The Trustee
shall have a combined capital and surplus of at least $100,000,000 as set forth
in its most recent published annual report of condition. The Trustee shall
comply with TIA Section 310(b), including the provision in Section 310(b)(1).
Section 7.11. PREFERENTIAL COLLECTION OF CLAIMS
AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311 (b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
Section 7.12. PAYING AGENTS.
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The Company shall cause each Paying Agent other than the Trustee to
execute and deliver to it and the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the provisions of this Section 7.12:
(A) that it will hold all sums held by it as agent for the payment of
principal of, or premium, if any, or interest on, the Notes (whether such
sums have been paid to it by the Company or by any obligor on the Notes) in
trust for the benefit of Holders of the Notes or the Trustee;
(B) that it will at any time during the continuance of any Event of
Default, upon written request from the Trustee, deliver to the Trustee all
sums so held in trust by it together with a full accounting thereof; and
(C) that it will give the Trustee written notice within three (3)
Business Days of any failure of the Company (or by any obligor on the Notes)
in the payment of any installment of the principal of, premium, if any, or
interest on, the Notes when the same shall be due and payable.
ARTICLE 8.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.01. WITHOUT CONSENT OF HOLDERS.
The Company, when authorized by a Board Resolution, and the Trustee may
amend or supplement this Indenture or the Notes without notice to or consent of
any Noteholder:
(1) to comply with Section 5.01 hereof;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to comply with any requirements of the SEC under the TIA;
(4) to cure any ambiguity, defect or inconsistency, or to make any
other change that does not materially and adversely affect the rights of any
Noteholder; or
(5) to make any other change that does not, in the opinion of the
Trustee, adversely affect in any material respect the rights of any
Noteholders hereunder.
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The Trustee is hereby authorized to join with the Company in the
execution of any supplemental indenture authorized or permitted by the terms of
this Indenture and to make any further appropriate agreements and stipulations
which may be therein contained, but the Trustee shall not be obligated to enter
into any such supplemental indenture which adversely affects its own rights,
duties or immunities under this Indenture.
Section 8.02. WITH CONSENT OF HOLDERS.
The Company and the Trustee may modify or supplement this Indenture or
the Notes with the written consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes without notice to any
Noteholder. The Holders of not less than a majority in aggregate principal
amount of the outstanding Notes may waive compliance in a particular instance by
the Company with any provision of this Indenture or the Notes without notice to
any Noteholder. Subject to Section 8.04, without the consent of each Noteholder
affected, however, an amendment, supplement or waiver, including a waiver
pursuant to Section 6.04, may not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver to this Indenture or the Notes;
(2) reduce the rate of or change the time for payment of interest on
any Note;
(3) reduce the principal of or premium on or change the stated maturity
of any Note;
(4) make any Note payable in money other than that stated in the Note
or change the place the note may be presented for payment from New York, New
York;
(5) change the amount or time of any payment required by the Notes or
reduce the premium payable upon any redemption of the Notes in accordance
with Section 3.07 hereof, or change the time before which no such redemption
may be made;
(6) waive a default in the payment of the principal of, or interest on,
or redemption payment with respect to, any Note (including any obligation to
make a Change of Control Offer or, after the Company's obligation to
purchase Notes arises thereunder, an Excess Proceeds Offer or modify any of
the provisions or definitions with respect to such offers);
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(7) make any changes in Sections 6.04 or 6.07 hereof or this sentence
of Section 8.02; or
(8) affect the ranking of the Notes in a manner adverse to the Holders.
After an amendment, supplement or waiver under this Section 8.02
becomes effective, the Company shall mail to the Holders a notice briefly
describing the amendment, supplement or waiver.
Upon the request of the Company, accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon the
receipt by the Trustee of evidence reasonably satisfactory to the Trustee of the
consent of the Noteholders as aforesaid and upon receipt by the Trustee of the
documents described in Section 8.06 hereof, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such supplemental
indenture affects the Trustee's own rights, duties or immunities under this
Indenture, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
Section 8.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect.
Section 8.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement, waiver or other action becomes
effective, a consent to it by a Holder of a Note is a continuing consent
conclusive and binding upon such Holder and every subsequent Holder of the same
Note or portion thereof, and of any Note issued upon the transfer thereof or in
exchange therefor or in place thereof, even if notation of the consent is not
made on any such Note. Any such Holder or subsequent Holder, however, may revoke
the consent as to his Note or portion of a Note, if the Trustee receives the
notice of revocation before the date the amendment, supplement, waiver or other
action becomes effective.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement, or waiver. If a record
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date is fixed, then, notwithstanding the preceding paragraph, those Persons who
were Holders at such record date (or their duly designated proxies), and only
such Persons, shall be entitled to consent to such amendment, supplement, or
waiver or to revoke any consent previously given, whether or not such Persons
continue to be Holders after such record date. No such consent shall be valid or
effective for more than 90 days after such record date unless the consent of the
requisite number of Holders has been obtained.
After an amendment, supplement, waiver or other action becomes
effective, it shall bind every Noteholder, unless it makes a change described in
any of clauses (1) through (8) of Section 8.02 hereof. In that case the
amendment, supplement, waiver or other action shall bind each Holder of a Note
who has consented to it and every subsequent Holder of a Note or portion of a
Note that evidences the same debt as the consenting Holder's Note.
Section 8.05. NOTATION ON OR EXCHANGE OF NOTES.
If an amendment, supplement, or waiver changes the terms of a Note, the
Trustee may request the Holder of the Note to deliver it to the Trustee. In such
case, the Trustee shall place an appropriate notation on the Note about the
changed terms and return it to the Holder. Alternatively, if the Company or the
Trustee so determines, the Company in exchange for the Note shall issue and the
Trustee shall authenticate a new security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Note shall not affect
the validity and effect of such amendment supplement or waiver.
Section 8.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article 8 if the amendment, supplement or waiver does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may, but need not, sign it. In signing or refusing to
sign such amendment, supplement or waiver the Trustee shall be entitled to
receive and, subject to Section 7.01 hereof, shall be fully protected in relying
upon an Officers' Certificate and an Opinion of Counsel stating that such
amendment, supplement or waiver is authorized or permitted by this Indenture.
The Company may not sign an amendment or supplement until the Board of Directors
of the Company approves it.
ARTICLE 9.
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DISCHARGE OF INDENTURE; DEFEASANCE
Section 9.01. DISCHARGE OF INDENTURE.
The Company may terminate its obligations under the Notes and this
Indenture, except the obligations referred to in the last paragraph of this
Section 9.01, if there shall have been cancelled by the Trustee or delivered to
the Trustee for cancellation all Notes theretofore authenticated and delivered
(other than any Notes that are asserted to have been destroyed, lost or stolen
and that shall have been replaced as provided in Section 2.07 hereof) and the
Company has paid all sums payable by it hereunder or deposited all required sums
with the Trustee.
After such delivery the Trustee upon request shall acknowledge in
writing the discharge of the Company's obligations under the Notes and this
Indenture except for those surviving obligations specified below.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company in Sections 7.07, 9.05 and 9.06 hereof shall survive.
Section 9.02. LEGAL DEFEASANCE.
The Company may at its option, by Board Resolution, be discharged from
its obligations with respect to the Notes on the date the conditions set forth
in Section 9.04 below are satisfied (hereinafter, "Legal Defeasance"). For this
purpose, such Legal Defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the Notes and to have
satisfied all its other obligations under such Notes and this Indenture insofar
as such Notes are concerned (and the Trustee, at the expense of the Company,
shall, subject to Section 9.06 hereof, execute proper instruments acknowledging
the same), except for the following which shall survive until otherwise
terminated or discharged hereunder: (A) the rights of Holders of outstanding
Notes to receive solely from the trust funds described in Section 9.04 hereof
and as more fully set forth in such Section, payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments are
due, (B) the Company's obligations with respect to such Notes under Sections
2.03, 2.04, 2.05, 2.06, 2.07, 2.08 and 4.17 hereof, (C) the rights, powers,
trusts, duties, and immunities of the Trustee hereunder (including claims of, or
payments to, the Trustee under or pursuant to Section 7.07 hereof) and (D) this
Article 9. Subject to compliance with this Article 9, the Company may exercise
its option under this Section 9.02 with respect to the Notes notwithstanding the
prior exercise of its option under Section 9.03 below with respect to the Notes.
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Section 9.03. COVENANT DEFEASANCE.
At the option of the Company, pursuant to a Board Resolution, the
Company shall be released from its obligations under Sections 4.02 through 4.16
hereof, inclusive, Section 4.18, and clause (a)(iii) of Section 5.01 hereof with
respect to the outstanding Notes on and after the date the conditions set forth
in Section 9.04 hereof are satisfied (hereinafter, "Covenant Defeasance"). For
this purpose, such Covenant Defeasance means that the Company may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such specified Section or portion thereof, whether directly or
indirectly by reason of any reference elsewhere herein to any such specified
Section or portion thereof or by reason of any reference in any such specified
Section or portion thereof to any other provision herein or in any other
document, but the remainder of this Indenture and the Notes shall be unaffected
thereby.
Section 9.04. CONDITIONS TO LEGAL DEFEASANCE OR
COVENANT DEFEASANCE.
The following shall be the conditions to application of Section 9.02 or
Section 9.03 hereof to the outstanding Notes:
(1) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 hereof who shall agree to comply with the provisions of this
Article 9 applicable to it) as funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of the Notes, (A) money in an amount,
or (B) U.S. Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms
will provide, not later than the due date of any payment, money in an
amount, or (C) a combination thereof, sufficient, in the opinion of a
nationally-recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, the principal of, premium, if any, and
accrued interest on the outstanding Notes at the maturity date of such
principal, premium, if any, or interest, or on dates for payment and
redemption of such principal, premium, if any, and interest selected in
accordance with the terms of this Indenture and of the Notes;
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(2) no Event of Default or Default with respect to the Notes shall have
occurred and be continuing on the date of such deposit, or shall have
occurred and be continuing at any time during the period ending on the 91st
day after the date of such deposit or, if longer, ending on the day
following the expiration of the longest preference period under any
Bankruptcy Law applicable to the Company in respect of such deposit (it
being understood that this condition shall not be deemed satisfied until the
expiration of such period);
(3) such Legal Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest for purposes of the TIA with respect
to any securities of the Company;
(4) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute default under any other agreement or
instrument to which the Company is a party or by which it is bound;
(5) the Company shall have delivered to the Trustee an Opinion of
Counsel stating that, as a result of such Legal Defeasance or Covenant
Defeasance, neither the trust nor the Trustee will be required to register
as an investment company under the Investment Company Act of 1940, as
amended;
(6) in the case of an election under Section 9.02 above, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (i)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling to the effect that or (ii) there has been a change
in any applicable Federal income tax law with the effect that, and such
opinion shall confirm that, the Holders of the outstanding Notes or persons
in their positions will not recognize income, gain or loss for Federal
income tax purposes solely as a result of such Legal Defeasance and will be
subject to Federal income tax on the same amounts, in the same manner,
including as a result of prepayment, and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(7) in the case of an election under Section 9.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that
the Holders of the outstanding Notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such Covenant Defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as
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would have been the case if such Covenant Defeasance had not occurred;
(8) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance under Section
9.02 above or the Covenant Defeasance under Section 9.03 hereof (as the case
may be) have been complied with;
(9) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit under clause (1) was not made by the
Company with the intent of defeating, hindering, delaying or defrauding any
creditors of the Company or others; and
(10) the Company shall have paid or duly provided for payment under
terms mutually satisfactory to the Company and the Trustee all amounts then
due to the Trustee pursuant to Section 7.07 hereof.
Section 9.05. DEPOSITED MONEY AND U.S. GOVERNMENT
OBLIGATIONS TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
All money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 9.04 hereof in respect
of the outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent as the Trustee may determine, to the
Holders of such Notes, of all sums due and to become due thereon in respect of
principal, premium, if any, and accrued interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 9.04 hereof or the principal, premium, if any, and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 9 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 9.04
hereof which, in the opinion of a nationally-recognized firm of independent
public accountants expressed in a written
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certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.
Section 9.06. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 9.01, 9.02 or 9.03 hereof by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article 9 until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with Section
9.01 hereof; PROVIDED, HOWEVER, that if the Company has made any payment of
principal of, premium, if any, or accrued interest on any Notes because of the
reinstatement of their obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money or
U.S. Government Obligations held by the Trustee or Paying Agent.
Section 9.07. MONEYS HELD BY PAYING AGENT.
In connection with the satisfaction and discharge of this Indenture,
all moneys then held by any Paying Agent under the provisions of this Indenture
shall, upon demand of the Company, be paid to the Trustee, or if sufficient
moneys have been deposited pursuant to Section 9.01 hereof, to the Company, and
thereupon such Paying Agent shall be released from all further liability with
respect to such moneys.
Section 9.08. MONEYS HELD BY TRUSTEE.
Any moneys deposited with the Trustee or any Paying Agent or then held
by the Company in trust for the payment of the principal of, or premium, if any,
or interest on any Note that are not applied but remain unclaimed by the Holder
of such Note for two years after the date upon which the principal of, or
premium, if any, or interest on such Note shall have respectively become due and
payable shall be repaid to the Company upon Company Request, or if such moneys
are then held by the Company in trust, such moneys shall be released from such
trust; and the Holder of such Note entitled to receive such payment shall
thereafter, as an unsecured general creditor, look only to the Company for the
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money shall thereupon cease; PROVIDED, HOWEVER, that the
Trustee or any such Paying Agent, before being required to make any such
repayment,
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may, at the expense of the Company, either mail to each Noteholder affected, at
the address shown in the register of the Notes maintained by the Registrar
pursuant to Section 2.03 hereof, or cause to be published once a week for two
successive weeks, in a newspaper published in the English language, customarily
published each Business Day and of general circulation in the City of New York,
New York, a notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
mailing or publication, any unclaimed balance of such moneys then remaining will
be repaid to the Company. After payment to the Company or the release of any
money held in trust by the Company, Noteholders entitled to the money must look
only to the Company for payment as general creditors unless applicable abandoned
property law designates another person.
ARTICLE 10.
SUBORDINATION OF NOTES
Section 10.01. NOTES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each Holder of Notes, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article 10, the Indebtedness
represented by the Notes and the payment of the principal of, premium, if any,
and interest on the Notes are hereby expressly made subordinate and subject in
right of payment as provided in this Article 10 to the prior payment in full in
cash of all Senior Indebtedness.
This Article 10 shall constitute a continuing offer to all Persons who,
in reliance upon such provisions, become holders of or continue to hold Senior
Indebtedness; and such provisions are made for the benefit of the holders of
Senior Indebtedness; and such holders are made obligees hereunder and they or
each of them may enforce such provisions.
Section 10.02. PAYMENT OVER OF PROCEEDS UPON
DISSOLUTION, ETC.
In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, whether voluntary or involuntary or (b) any
liquidation, dissolution or other winding-up of the Company, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or (c) any
general assignment for the benefit of
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creditors or any other marshalling of assets or liabilities of
the Company, then and in any such event:
(1) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash of all amounts due on or in respect of all Senior
Indebtedness, or provision shall be made for such payment, before the
Holders of the Notes are entitled to receive or retain any payment or
distribution of any kind or character on account of principal of, premium,
if any, or interest on the Notes; and
(2) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, by set-off or otherwise,
to which the Holders or the Trustee would be entitled but for the provisions
of this Article 10 shall be paid by the liquidating trustee or agent or
other Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
holders of Senior Indebtedness or their representative or representatives or
to the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full in cash of all Senior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or distribution, or provision
therefor, to the holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of this
Section 10.02, the Trustee or the Holder of any Note shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, including, without limitation, by
way of set-off or otherwise, in respect of principal of, premium, if any,
and interest on the Notes before all Senior Indebtedness is paid in full in
cash or payment thereof provided for, then and in such event such payment or
distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other Person making payment or distribution of assets of the Company for
application to the payment of all Senior Indebtedness remaining unpaid, to
the extent necessary to pay all Senior Indebtedness in full in cash after
giving effect to any concurrent payment or distribution, or provision
therefor, to or for the holders of Senior Indebtedness.
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The consolidation of the Company with, or the merger of the Company
with or into, another Person or the liquidation or dissolution of the Company
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another Person upon the terms and conditions set
forth in Article 5 hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of the Company for the purposes of this
Article 10 if the Person formed by such consolidation or the surviving entity of
such merger or the Person which acquires by conveyance, transfer or lease such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance, transfer or lease, comply
with the conditions set forth in such Article 5 hereof.
Section 10.03. SUSPENSION OF PAYMENT WHEN SENIOR
INDEBTEDNESS IN DEFAULT.
(a) Unless Section 10.02 hereof shall be applicable, after the
occurrence of a Payment Default no payment or distribution of any assets or
securities of the Company or any Subsidiary of any kind or character (including,
without limitation, cash, property and any payment or distribution which may be
payable or deliverable by reason of the payment of any other Indebtedness of the
Company being subordinated to the payment of the Notes by the Company) may be
made by or on behalf of the Company or any Subsidiary, including, without
limitation, by way of set-off or otherwise, for or on account of principal of,
premium, if any, or interest on the Notes, or for or on account of the purchase,
redemption or other acquisition of the Notes, and neither the Trustee nor any
holder or owner of any Notes shall take or receive from the Company or any
Subsidiary, directly or indirectly in any manner, payment in respect of all or
any portion of Notes following the occurrence of a Payment Default, and in any
such event, such prohibition shall continue until such Payment Default is cured,
waived in writing or ceases to exist. At such time as the prohibition set forth
in the preceding sentence shall no longer be in effect, subject to the
provisions of the following paragraph (b), the Company shall resume making any
and all required payments in respect of the Notes, including any missed
payments.
(b) Unless Section 10.02 hereof shall be applicable, upon the
occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness,
no payment or distribution of any assets of the Company of any kind or character
shall be made by the Company, including, without limitation, by way of set-off
or otherwise, on account of any principal of, premium, if any, or interest on
the Notes or on account of the purchase, redemption,
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defeasance or other acquisition of Notes and neither the Trustee nor any holder
or owner of Notes shall take or receive from the Company or any Subsidiary,
directly or indirectly, in any manner, payment in respect of all or any portion
of the Notes for a period ("Payment Blockage Period") commencing on the date of
receipt by the Trustee of written notice from an authorized Person on behalf of
the holders of Designated Senior Indebtedness (the "Authorized Person") of such
Non-Payment Event of Default unless and until (subject to any blockage of
payments that may then be in effect under the preceding paragraph (a)) the
earliest to occur of the following events: (w) more than 179 days shall have
elapsed since the date of receipt of such written notice by the Trustee, (x)
such Non-Payment Event of Default shall have been cured or waived in writing or
shall have ceased to exist, (y) such Designated Senior Indebtedness shall have
been discharged or paid in full in cash or (z) such Payment Blockage Period
shall have been terminated by written notice to the Company or the Trustee from
such Authorized Person initiating such Payment Blockage Period, after which, in
the case of clause (w), (x), (y) or (z), the Company shall resume making any and
all required payments in respect of the Notes, including any missed payments.
Notwithstanding any other provisions of this Indenture, no Non-Payment Event of
Default with respect to Designated Senior Indebtedness which existed or was
continuing on the date of the commencement of any Payment Blockage Period
initiated by such Authorized Person shall be, or be made, the basis for the
commencement of a second Payment Blockage Period initiated by such Authorized
Person unless such event of default shall have been cured or waived for a period
of not less than 90 consecutive days. In no event shall a Payment Blockage
Period extend beyond 179 days from the date of the receipt by the Trustee of the
notice referred to in this Section 10.03(b) (the "Initial Blockage Period"). Any
number of additional Payment Blockage Periods may be commenced during the
Initial Blockage Period; PROVIDED, HOWEVER, that no such additional Payment
Blockage Period shall extend beyond the Initial Blockage Period. After the
expiration of the Initial Blockage Period, no Payment Blockage Period may be
commenced under this Section 10.03(b) until at least 180 consecutive days have
elapsed from the last day of the Initial Blockage Period.
(c) In the event that, notwithstanding the foregoing, the Trustee or
the Holder of any Note shall have received any payment prohibited by the
foregoing provisions of this Section 10.03, then and in such event such payment
shall be paid over and delivered forthwith to the Authorized Person initiating
the Payment Blockage Period, in trust for distribution to the holders of Senior
Indebtedness or, if no amounts are then due in respect of Senior Indebtedness,
promptly returned to the Company, or otherwise as a court of competent
jurisdiction shall direct.
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Section 10.04. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall
not be liable to any holder of Senior Indebtedness if it shall mistakenly pay
over or deliver to Holders, the Company or any other Person moneys or assets to
which any holder of Senior Indebtedness shall be entitled by virtue of this
Article 10 or otherwise.
Section 10.05. SUBROGATION TO RIGHTS OF HOLDERS
OF SENIOR INDEBTEDNESS.
Upon the payment in full of all Senior Indebtedness, the Holders of the
Notes shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any and interest on the Notes shall be paid in full. For purposes of
such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Holders of the
Notes or the Trustee would be entitled except for the provisions of this Article
10, and no payments over pursuant to the provisions of this Article 10 to the
holders of Senior Indebtedness by Holders of the Notes or the Trustee, shall, as
among the Company, its creditors other than holders of Senior Indebtedness and
the Holders of the Notes, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article 10 shall have been
applied, pursuant to the provisions of this Article 10, to the payment of all
amounts payable under the Senior Indebtedness of the Company, then and in such
case the Holders shall be entitled to receive from the holders of such Senior
Indebtedness at the time outstanding any payments or distributions received by
such holders of such Senior Indebtedness in excess of the amount sufficient to
pay all amounts payable under or in respect of such Senior Indebtedness in full
in cash.
Section 10.06. PROVISIONS SOLELY TO DEFINE
RELATIVE RIGHTS.
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The provisions of this Article 10 are and are intended solely for the
purpose of defining the relative rights of the Holders of the Notes on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing contained
in this Article or elsewhere in this Indenture or in the Notes is intended to or
shall (a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Notes, the obligation of the Company,
which is absolute and unconditional, to pay to the Holders of the Notes the
principal of, premium, if any, and interest on the Notes as and when the same
shall become due and payable in accordance with their terms; or (b) affect the
relative rights against the Company of the Holders of the Notes and creditors of
the Company other than the holders of Senior Indebtedness; or (c) prevent the
Trustee or the Holder of any Note from exercising all remedies otherwise
permitted by applicable law upon a Default or an Event of Default under this
Indenture, subject to the rights, if any, under this Article 10 of the holders
of Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or
other winding-up, assignment for the benefit of creditors or other marshaling of
assets and liabilities of the Company referred to in Section 10.02 hereof, to
receive, pursuant to and in accordance with such Section, cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder, or
(2) under the conditions specified in Section 10.03, to prevent any payment
prohibited by such Section or enforce their rights pursuant to Section 10.03(c)
hereof.
The failure to make a payment on account of principal of, premium, if
any, or interest on the Notes by reason of any provision of this Article 10
shall not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
Section 10.07. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Note by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes, including, in the
event of any dissolution, winding-up, liquidation or reorganization of the
Company whether in bankruptcy, insolvency, receivership proceedings, or
otherwise, the timely filing of a claim for the unpaid balance of the
indebtedness of the Company owing to such Holder in the form required in such
proceedings and the causing of such claim to be approved. If the Trustee does
not file such a claim prior to 30 days before the expiration of the time to file
such a claim, the holders of Senior Indebtedness, or any Authorized Person, may
file such a claim on behalf of Holders of the Notes.
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Section 10.08. NO WAIVER OF SUBORDINATION PROVISIONS.
(a) No right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
(b) Without limiting the generality of subsection (a) of this Section
10.08, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Notes, without incurring responsibility to the Holders of the Notes and without
impairing or releasing the subordination provided in this Article 10 or the
obligations hereunder of the Holders of the Notes to the holders of Senior
Indebtedness, do any one or more of the following: (1) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (3) release any Person liable in any manner for the collection or
payment of Senior Indebtedness; and (4) exercise or refrain from exercising any
rights against the Company and any other Person; PROVIDED, HOWEVER, that in no
event shall any such actions limit the right of the Holders of the Notes to take
any action to accelerate the maturity of the Notes pursuant to Article 6 hereof
or to pursue any rights or remedies hereunder or under applicable laws if the
taking of such action does not otherwise violate the terms of this Indenture.
Section 10.09. NOTICE TO TRUSTEE.
(a) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee at its Corporate Trust Office in respect of the Notes.
Notwithstanding the provisions of this Article 10 or any other provision of this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any facts which would prohibit the making of any payment to or by the Trustee in
respect of the Notes, unless and until the Trustee shall have received written
notice thereof from the Company or a holder of Senior Indebtedness or from any
trustee, fiduciary or agent therefor; and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of this Section 10.09,
shall be entitled in all
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respects to assume that no such facts exist; PROVIDED, HOWEVER, that if the
Trustee shall not have received the notice provided for in this Section 10.09 at
least five Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose under this Indenture (including,
without limitation, the payment of the principal of, premium, if any, or
interest on any Note), then, anything herein contained to the contrary
notwithstanding but without limiting the rights and remedies of the holders of
Senior Indebtedness or any trustee, fiduciary or agent therefor, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purpose for which such money was received and shall not be affected by
any notice to the contrary which may be received by it within five Business Days
prior to such date; nor shall the Trustee be charged with knowledge of the
curing of any such default or the elimination of the act or condition preventing
any such payment unless and until the Trustee shall have received an Officers'
Certificate to such effect.
(b) Subject to the provisions of Section 7.01 hereof, the Trustee shall
be entitled to rely on the delivery to it of a written notice to the Trustee and
the Company by a Person representing itself to be a holder of Senior
Indebtedness (or a trustee, fiduciary or agent therefor) to establish that such
notice has been given by a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor); PROVIDED, HOWEVER, that failure to give such
notice to the Company shall not affect in any way the ability of the Trustee to
rely on such notice. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Article 10, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article 10, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
Section 10.10. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE
OF LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee, subject to the provisions of
Section 7.01 hereof, and the Holders shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-
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up or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 10; PROVIDED that the foregoing shall
apply only if such court has been fully apprised of the provisions of this
Article 10.
Section 10.11. RIGHTS OF TRUSTEE AS A HOLDER OF
SENIOR INDEBTEDNESS; PRESERVATION
OF TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article 10 with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
any of its rights as such holder. Nothing in this Article 10 shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
Section 10.12. ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 10 shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article 10 in addition to or in place of the Trustee.
Section 10.13. NO SUSPENSION OF REMEDIES.
Nothing contained in this Article 10 shall limit the right of the
Trustee or the Holders of Notes to take any action to accelerate the maturity of
the Notes pursuant to Article 6 or to pursue any rights or remedies hereunder or
under applicable law, subject to the rights, if any, under this Article 10 of
the holders, from time to time, of Senior Indebtedness.
ARTICLE 11.
MISCELLANEOUS
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Section 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 11.02. NOTICES.
Any notice or communication shall be given in writing and delivered in
person, sent by facsimile, delivered by commercial courier service or mailed by
first-class mail, postage prepaid, addressed as follows:
If to the Company:
Cole National Group, Inc.
5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
Attention: Secretary
Copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: David P. Porter, Esq.
If to the Trustee:
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Fax Number: (612) 667-9825
Such notices or communications shall be effective when received and
shall be sufficiently given if so given within the time prescribed in this
Indenture.
The Company or the Trustee by written notice to the others may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Noteholder shall be mailed to
him by first-class mail, postage prepaid, at his address shown on the register
kept by the Registrar.
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Failure to mail a notice or communication to a Noteholder or any defect
in it shall not affect its sufficiency with respect to other Noteholders. If a
notice or communication to a Noteholder is mailed in the manner provided above,
it shall be deemed duly given, whether or not the addressee receives it.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice as required
by this Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient mailing of such notice.
Section 11.03. COMMUNICATIONS BY HOLDERS WITH
OTHER HOLDERS.
Noteholders may communicate pursuant to TIA Section 312(b)
with other Noteholders with respect to their rights under this Indenture or the
Notes. The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
Section 11.04. CERTIFICATE AND OPINION AS TO
CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate (which shall include the statements set
forth in Section 11.05 below) stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating to
the proposed action have been complied with; and
(2) an Opinion of Counsel (which shall include the statements set forth
in Section 11.05 below) stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
Section 11.05. STATEMENTS REQUIRED IN CERTIFICATE
AND OPINION.
Each certificate and opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements
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or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, it or he has made
such examination or investigation as is necessary to enable it or him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such Person,
such covenant or condition has been complied with.
Section 11.06. WHEN TREASURY NOTES DISREGARDED.
In determining whether the Holders of the required aggregate principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company or any other obligor on the Notes or by any Affiliate of any of
them shall be disregarded, except that for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, waiver or
consent, only Notes which the Trustee actually knows are so owned shall be so
disregarded. Notes so owned which have been pledged in good faith shall not be
disregarded if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to the Notes and that the pledgee is not
the Company or any other obligor upon the Notes or any Affiliate of any of them.
Section 11.07. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or meetings of
Noteholders. The Registrar and Paying Agent may make reasonable rules for their
functions.
Section 11.08. BUSINESS DAYS; LEGAL HOLIDAYS.
A "Business Day" is a day that is not a Legal Holiday. A "Legal
Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day on
which banking institutions are not required to be open in the State of New York.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
Section 11.09. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF
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NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR
THE NOTES.
Section 11.10. NO ADVERSE INTERPRETATION OF
OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan,
security or debt agreement of the Company or any Subsidiary thereof. No such
indenture, loan, security or debt agreement may be used to interpret this
Indenture.
Section 11.11. NO RECOURSE AGAINST OTHERS.
A director, officer, employee, stockholder or incorporator, as such, of
the Company shall not have any liability for any obligations of the Company
under the Notes or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creations. Each Noteholder by accepting a
Note waives and releases all such liability. Such waiver and release are part of
the consideration for the issuance of the Notes.
Section 11.12. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee, any additional trustee
and any Paying Agents in this Indenture shall bind its successor.
Section 11.13. MULTIPLE COUNTERPARTS.
The parties may sign multiple counterparts of this Indenture. Each
signed counterpart shall be deemed an original, but all of them together
represent one and the same agreement.
Section 11.14. TABLE OF CONTENTS, HEADINGS, ETC.
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 11.15. SEPARABILITY.
Each provision of this Indenture shall be considered separable and if
for any reason any provision which is not essential to the effectuation of the
basic purpose of this
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Indenture or the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
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IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed, and the Company's corporate seal to be hereunto affixed and
attested, all as of the date and year first written above.
COLE NATIONAL GROUP, INC.
By: /s/ Jeffrey A. Cole
---------------------------------
Name: Jeffrey A. Cole
Title: Chairman of the Board,
Chief Executive Officer
and Chief Financial
Officer
ATTEST:
/s/ Wayne Mosley
- -----------------------------
Name: Wayne Mosley
Title: Vice President
and Controller
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By: /s/ Jane Y. Schweiger
---------------------------------
Name: Jane Y. Schweiger
Title: Corporate Trust Officer
<PAGE> 96
EXHIBIT A
---------
(FACE OF NOTE)
[FORM OF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS
SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A)
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT)
OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND
IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT
WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A
U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE
THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER
THE ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM
THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN TWO YEARS AFTER ORIGINAL
ISSUANCE OF THIS NOTE, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS
OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES"
AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT.
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CUSIP Number
COLE NATIONAL GROUP, INC.
8 5/8% SENIOR SUBORDINATED NOTE DUE 2007
Cole National Group, Inc., a Delaware corporation (the
"Company", which term includes any successor corporation), for value received
promises to pay to or registered assigns the principal sum
of $ Dollars, on August 15, 2007.
Interest Payment Dates: February 15 and August 15,
commencing February 15, 1998
Record Dates: February 1 and August 1
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
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IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
COLE NATIONAL GROUP, INC.
By:
--------------------------------------
By:
--------------------------------------
[SEAL]
Certificate of Authentication:
This is one of the 8 5/8% Senior
Subordinated Notes due 2007 referred
to in the within-mentioned Indenture
Dated:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By:
-----------------------------
Authorized Signatory
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(REVERSE SIDE)
COLE NATIONAL GROUP, INC.
8 5/8% SENIOR SUBORDINATED NOTE DUE 2007
1. INTEREST.
Cole National Group, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note
semiannually on February 15 and August 15 of each year (each an "Interest
Payment Date"), commencing on February 15, 1998, at the rate of 8 5/8% per
annum. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of the
original issuance of the Notes.
The Company shall pay interest on overdue principal, and on
overdue premium, if any, and overdue interest, to the extent lawful, at the rate
equal to 1% per annum in excess of the rate borne by the Notes.
2. METHOD OF PAYMENT.
The Company will pay interest on this Note provided for in
Paragraph 1 above (except defaulted interest) to the person who is the
registered Holder of this Note at the close of business on the February 1 or
August 1 preceding the Interest Payment Date (whether or not such day is a
Business Day). The Holder must surrender this Note to a Paying Agent to collect
principal payments. The Company will pay principal, premium, if any, and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts; PROVIDED, HOWEVER, that the
Company may pay principal, premium, if any, and interest by check payable in
such money. It may mail an interest check to the Holder's registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, Norwest Bank Minnesota, National Association, a
national banking association (the "Trustee"), will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to the Holders of the Notes. Neither the Company nor any of its Subsidiaries or
Affiliates may act as Paying Agent but may act as registrar or co-registrar.
4. INDENTURE; RESTRICTIVE COVENANTS.
The Company issued this Note under an Indenture dated as of
August 22, 1997 (the "Indenture") between the Company and the
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Trustee. The terms of this Note include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of the
Indenture. This Note is subject to all such terms, and the Holder of this Note
is referred to the Indenture and said Trust Indenture Act for a statement of
them. All capitalized terms in this Note, unless otherwise defined, have the
meanings assigned to them by the Indenture.
The Notes are general unsecured obligations of the Company
limited to $125,000,000 aggregate principal amount. The Indenture imposes
certain restrictions on, among other things, the incurrence of indebtedness, the
incurrence of liens and the issuance of preferred stock by the Company and its
subsidiaries, mergers and sale of assets, the payments of dividends on, or the
repurchase of, capital stock of the Company and its subsidiaries, certain other
restricted payments by the Company and its subsidiaries, certain transactions
with, and investments in, its affiliates, certain sale and lease-back
transactions and a provision regarding change-of-control transactions.
5. SUBORDINATION.
The Indebtedness evidenced by the Notes is, to the extent and
in the manner provided in the Indenture, subordinated and subject in right of
payment to the prior payment in full of all Senior Indebtedness as defined in
the Indenture, and this Note is issued subject to such provisions. Each Holder
of this Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to
take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (c) appoints the Trustee
attorney-in-fact of such Holder for such purpose; PROVIDED, HOWEVER, that the
Indebtedness evidenced by this Note shall cease to be so subordinate and subject
in right of payment upon any defeasance of this Note referred to in Paragraph 18
below.
6. OPTIONAL REDEMPTION.
The Company may redeem the Notes, in whole or in part, at any
time on or after August 15, 2002 at the redemption prices set forth in Section
3.07 of the Indenture, together, in each case, with accrued and unpaid interest
to the redemption date.
In addition, the Company may redeem Notes out of the Net
Proceeds of one or more Qualified Equity Offerings at the redemption price, in
the amount and under the terms set forth in the Indenture.
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7. NOTICE OF REDEMPTION.
Notice of redemption will be mailed via first class mail at
least 30 days but not more than 60 days prior to the redemption date to each
Holder of Notes to be redeemed at its registered address as it shall appear on
the register of the Notes maintained by the Registrar. On and after any
Redemption Date, interest will cease to accrue on the Notes or portions thereof
called for redemption unless the Company shall fail to redeem any such Note.
8. OFFERS TO PURCHASE.
The Indenture requires that certain proceeds from Asset Sales
be used, subject to further limitations contained therein, to make an offer to
purchase certain amounts of Notes in accordance with the procedures set forth in
the Indenture. The Company is also required to make an offer to purchase Notes
upon occurrence of a Change of Control in accordance with procedures set forth
in the Indenture.
9. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement among the
Company and CIBC Wood Gundy Securities Corp., Credit Suisse First Boston
Corporation and McDonald & Company Securities, Inc., as initial purchasers of
the Notes, the Company will be obligated to consummate an exchange offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for Notes of a separate series issued under the Indenture (or a trust
indenture substantially identical to the Indenture in accordance with the terms
of the Registration Rights Agreement) which have been registered under the
Securities Act, in like principal amount and having substantially identical
terms as the Notes. The Holders shall be entitled to receive certain additional
interest payments in the event such exchange offer is not consummated and upon
certain other conditions, all pursuant to and in accordance with the terms of
the Registration Rights Agreement.
10. DENOMINATIONS, TRANSFER, EXCHANGE.
The Notes are in registered form without coupons in
denominations of $1,000 and integral multiples thereof. A Holder may register
the transfer or exchange of Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Note selected for redemption or register the transfer of or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed or any Note after it is called for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.
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11. PERSONS DEEMED OWNERS.
The registered Holder of this Note may be treated as the owner
of it for all purposes.
12. UNCLAIMED MONEY.
If money for the payment of principal, premium or interest on
any Note remains unclaimed for two years, the Trustee or Paying Agent will pay
the money back to the Company at its request. After that, Holders entitled to
money must look to the Company for payment as general creditors unless an
"abandoned property" law designates another person.
13. AMENDMENT, SUPPLEMENT AND WAIVER.
Subject to certain exceptions, the Indenture or the Notes may
be modified, amended or supplemented by the Company and the Trustee with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding and any existing default or compliance with any provision may
be waived in a particular instance with the consent of the Holders of a majority
in principal amount of the Notes then outstanding. Without the consent of
Holders, the Company and the Trustee may amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes including providing for
uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
materially and adversely affect the rights of any Holder.
14. SUCCESSOR ENTITY.
When a successor corporation assumes all the obligations of
its predecessor under the Notes and the Indenture and immediately before and
thereafter no Default exists and certain other conditions are satisfied, the
predecessor corporation will be released from those obligations.
15. DEFAULTS AND REMEDIES.
Events of Default are set forth in the Indenture. If an Event
of Default (other than an Event of Default pursuant to Section 6.01(6) or (7) of
the Indenture with respect to the Company) occurs and is continuing, the Trustee
by notice to the Company, or the Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding, may declare to be immediately
due and payable the entire principal amount of all the Notes then outstanding
plus accrued but unpaid interest to the date of acceleration; PROVIDED, HOWEVER,
that after such acceleration but before judgment or decree based on such
acceleration is obtained by the Trustee, the Holders of a majority in aggregate
principal amount of the outstanding Notes may, under certain circumstances,
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rescind and annul such acceleration and its consequences if all existing Events
of Default, other than the nonpayment of principal, premium or interest that has
become due solely because of the acceleration, have been cured or waived and if
the rescission would not conflict with any judgment or decree. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto. In case an Event of Default specified in Section 6.01(6) or (7) of the
Indenture with respect to the Company occurs, such principal amount, together
with premium, if any, and interest with respect to all of the Notes, shall be
due and payable immediately without any declaration or other act on the part of
the Trustee or the Holders of the Notes.
16. TRUSTEE DEALINGS WITH THE COMPANY.
The Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company and may otherwise deal with the Company as if it were not
Trustee.
17. NO RECOURSE AGAINST OTHERS.
As more fully described in the Indenture, a director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Notes or the Indenture or for any
claim based on, in respect or by reason of, such obligations or their creation.
The Holder of this Note by accepting this Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of this Note.
18. DEFEASANCE AND COVENANT DEFEASANCE.
The Indenture contains provisions for defeasance of the entire
indebtedness on this Note and for defeasance of certain covenants in the
Indenture upon compliance by the Company with certain conditions set forth in
the Indenture.
19. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder of
a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (joint tenants with right of survivorship and
not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to
Minors Act).
20. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP Numbers
to be printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a
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<PAGE> 104
convenience to Holders of the Notes. No representation is made as to the
accuracy of such numbers either as printed on the Notes or as contained in any
notice of redemption and reliance may be placed only on the other identification
numbers placed thereon.
21. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES.
THE COMPANY WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN
REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO:
Cole National Group, Inc., 5915 Landerbrook Drive, Mayfield Heights, Ohio 44124,
Attention: Secretary.
A-9
<PAGE> 105
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by the
Company pursuant to Section 4.09 or Section 4.16 of the Indenture, check the
appropriate box:
[ ] Section 4.09 [ ] Section 4.16
If you want to have only part of the Note purchased by the Company pursuant to
Section 4.09 or Section 4.16 of the Indenture, state the amount you elect to
have purchased:
$_______________
Date: __________
Your Signature:
-----------------------------------
(Sign exactly as your name appears on the face of
this Note)
- ---------------------
Signature Guaranteed
<PAGE> 106
EXHIBIT B
---------
FORM OF LEGEND FOR GLOBAL NOTES
Any Global Note authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in the
case of a Restricted Security) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY
OR A NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE,
AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE
OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION)
("THE "DEPOSITORY"") TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE "DEPOSITORY" (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF THE "DEPOSITORY"), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
B-1
<PAGE> 107
EXHIBIT C-1
-----------
[FORM OF ASSIGNMENT FOR 144A NOTE]
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
___________________________________________________________________
___________________________________________________________________
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.15 of the Indenture shall have been satisfied.
Date:__________________ Your Signature:
----------------------------------
----------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
-----------------------------------
C-1-1
<PAGE> 108
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: _________________ _________________________________
NOTICE: To be executed by
an executive officer
C-1-2
<PAGE> 109
EXHIBIT C-2
-----------
[FORM OF ASSIGNMENT FOR REGULATION S NOTE]
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
________________________________________________________________________
________________________________________________________________________
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
[Check One]
[ ] (a) this Note is being transferred in compliance
with the exemption from registration under the
Securities Act provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in
accordance with (a) above and documents are being
furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.15 of the Indenture shall have been satisfied.
Date:__________________ Your Signature:
----------------------------------------
----------------------------------------
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
----------------------------------------
C-2-1
<PAGE> 110
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing
this Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: _________________ ______________________________________
NOTICE: To be executed by
executive officer
C-2-2
<PAGE> 111
EXHIBIT D
---------
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
__________ , ____
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Re: Cole National Group, Inc.
(the "Company") 8 5/8% Senior
Subordinated Notes due 2007
(the "Notes")
------------------------------
Dear Sirs:
In connection with our proposed purchase of $_______ aggregate
principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the
Indenture dated as of August 22, 1997 relating to the Notes and the
undersigned agrees to be bound by, and not to resell, pledge or
otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended
(the "Securities Act").
2. We understand that the Notes have not been registered under
the Securities Act, and that the Notes may not be offered or sold
except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell any Notes within two years
after the original issuance of the Notes, we will do so only (A) to the
Company or any subsidiary thereof, (B) inside the United States in
compliance with Rule 144A under the Securities Act, to a "qualified
institutional buyer" (as defined in Rule 144A), (C) inside the United
States to an "accredited investor" (as defined below) that, prior to
such transfer, furnishes to you a signed letter substantially in the
form of this letter, (D) outside the United States to a foreign person
in compliance with Rule 904 of Regulation S under the Securities Act,
(E) pursuant to the exemption from registration provided by Rule 144
under the Securities Act
D-1
<PAGE> 112
(if available), or (F) pursuant to an effective registration statement
under the Securities Act, and we further agree to provide to any person
purchasing any of the Notes from us a notice advising such purchaser
that resales of the Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, we
will be required to furnish to you and the Company such certifications,
legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the
foregoing restrictions. We further understand that the Notes purchased
by us will bear a legend to the foregoing effect.
4. We are an "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) and have such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the
Notes, and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment.
5. We are acquiring the Notes purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
-------------------------------------
Authorized Signature
D-2
<PAGE> 113
EXHIBIT E
---------
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
_____________ , ____
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Re: Cole National Group, Inc.
(the "Company") 8 5/8% Senior
Subordinated Notes due 2007
(the "Notes")
-----------------------------
Dear Sirs:
In connection with our proposed sale of $___________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Notes.
E-1
<PAGE> 114
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: -------------------------------------
Authorized Signature
E-2
<PAGE> 1
Exhibit 4.5
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of August 22, 1997
by and among
COLE NATIONAL GROUP, INC.,
and
CIBC WOOD GUNDY SECURITIES CORP.,
CREDIT SUISSE FIRST BOSTON CORPORATION,
and MCDONALD & COMPANY SECURITIES, INC.
as Initial Purchasers
================================================================================
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
1. Definitions......................................................... 1
2. Exchange Offer...................................................... 5
3. Shelf Registration.................................................. 9
4. Additional Interest................................................. 10
5. Registration Procedures............................................. 12
6. Registration Expenses............................................... 22
7. Indemnification..................................................... 24
8. Rules 144 and 144A.................................................. 27
9. Underwritten Registrations.......................................... 28
10. Miscellaneous....................................................... 28
a. Remedies................................................... 28
b. Enforcement................................................ 28
c. No Inconsistent Agreements................................. 28
d. Adjustments Affecting Registrable Notes.................... 29
e. Amendments and Waivers..................................... 29
f. Notices.................................................... 29
g. Successors and Assigns..................................... 30
h. Counterparts............................................... 30
i. Headings................................................... 30
j. Governing Law.............................................. 30
k. Severability............................................... 30
l. Entire Agreement........................................... 30
m. Notes Held by the Company or Its
Affiliates.............................................. 21
-i-
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of
August 22, 1997, by and among COLE NATIONAL GROUP, INC., a Delaware corporation
(the "Company"), and CIBC WOOD GUNDY SECURITIES CORP., CREDIT SUISSE FIRST
BOSTON CORPORATION, and MCDONALD & COMPANY SECURITIES, INC., as initial
purchasers (the "Initial Purchasers").
This Agreement is entered into in connection with the
Securities Purchase Agreement, dated as of August 15, 1997, among the Company
and the Initial Purchasers (the "Purchase Agreement") relating to the sale by
the Company to the Initial Purchasers of $125,000,000 aggregate principal amount
of the Company's 8 5/8% Senior Subordinated Notes due 2007 (the "Notes"). In
order to induce the Initial Purchasers to enter into the Purchase Agreement, the
Company has agreed to provide the registration rights set forth in this
Agreement for the benefit of the Initial Purchasers. The execution and delivery
of this Agreement is a condition to the Initial Purchasers' obligation to
purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
ADDITIONAL INTEREST: See Section 4(a).
ADVICE: See Section 5.
AGREEMENT: See the first introductory paragraph of
this Agreement.
APPLICABLE PERIOD: See Section 2(b).
CLOSING: See the Purchase Agreement.
COMPANY: See the first introductory paragraph to this
Agreement.
EFFECTIVENESS DATE: The 120th day after the Issue
Date.
EFFECTIVENESS PERIOD: See Section 3(a).
EVENT DATE: See Section 4(b).
EXCHANGE ACT: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated
thereunder.
EXCHANGE NOTES: See Section 2(a).
<PAGE> 4
-2-
EXCHANGE OFFER: See Section 2(a).
EXCHANGE REGISTRATION STATEMENT: See Section 2(a).
FILING DATE: The 45th day after the Issue Date.
HOLDER: Any holder of a Registrable Note or
Registrable Notes.
INDEMNIFIED PERSON: See Section 7(c).
INDEMNIFYING PERSON: See Section 7(c).
INDENTURE: The Indenture, dated as of August 22, 1997, between
the Company and Northwest Bank Minnesota, N.A., as trustee, pursuant to which
the Notes are being issued, as amended or supplemented from time to time in
accordance with the terms thereof.
INITIAL PURCHASERS: See the first introductory
paragraph to this Agreement.
INITIAL SHELF REGISTRATION: See Section 3(a).
INSPECTORS: See Section 5(o).
ISSUE DATE: The date on which the original Notes are
sold to the Initial Purchasers pursuant to the Purchase
Agreement.
LIEN: See the Indenture.
NASD: See Section 5(t).
NOTES: See the second introductory paragraph to this
Agreement.
PARTICIPANT: See Section 7(a).
PARTICIPATING BROKER-DEALER: See Section 2(b).
PERSON: An individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
PRIVATE EXCHANGE: See Section 2(b).
PRIVATE EXCHANGE NOTES: See Section 2(b).
<PAGE> 5
-3-
PROSPECTUS: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Notes covered by such Registration Statement, and all
other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
PURCHASE AGREEMENT: See the second introductory
paragraph to this Agreement.
RECORDS: See Section 5(o).
REGISTRABLE NOTES: The Notes upon original issuance of the
Notes and at all times subsequent thereto and, if issued, the Private Exchange
Notes, until in the case of any such Notes or any such Private Exchange Notes,
as the case may be, (i) a Registration Statement covering such Notes or such
Private Exchange Notes has been declared effective by the SEC and such Notes or
such Private Exchange Notes, as the case may be, have been disposed of in
accordance with such effective Registration Statement, (ii) such Notes or such
Private Exchange Notes, as the case may be, are sold in compliance with Rule
144, (iii) in the case of any Note, such Note has been exchanged for an Exchange
Note or Exchange Notes pursuant to an Exchange Offer or (iv) such Notes or such
Private Exchange Notes, as the case may be, cease to be outstanding.
REGISTRATION DEFAULT: See Section 4(a).
REGISTRATION STATEMENT: Any registration statement of the
Company, including, but not limited to, the Exchange Registration Statement,
which covers any of the Registrable Notes pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
RULE 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such
<PAGE> 6
-4-
securities being free of the registration and prospectus delivery
requirements of the Securities Act.
RULE 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
RULE 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated
thereunder.
SHELF NOTICE: See Section 2(c).
SHELF REGISTRATION: See Section 3(b).
SUBSEQUENT SHELF REGISTRATION: See Section 3(b).
TIA: The Trust Indenture Act of 1939, as amended.
TRUSTEE: The trustee under the Indenture and, if
existent, the trustee under any indenture governing the Exchange
Notes and Private Exchange Notes (if any).
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A
registration in which securities of the Company are sold to an underwriter(s)
for reoffering to the public.
2. EXCHANGE OFFER
(a) The Company agrees to file with the SEC as soon as
practicable after the Closing, but in no event later than the Filing Date, an
offer to exchange (the "Exchange Offer") any and all of the Registrable Notes
for a like aggregate principal amount of debt securities of the Company which
are identical to the Notes (the "Exchange Notes") (and which are entitled to the
benefits of the Indenture or a trust indenture which is substantially identical
to the Indenture (other than such changes to the Indenture or any such identical
trust indenture as are necessary to comply with any requirements of the SEC to
effect or
<PAGE> 7
-5-
maintain the qualification thereof under the TIA) and which, in either case, has
been qualified under the TIA), except that the Exchange Notes shall have been
registered pursuant to an effective Registration Statement under the Securities
Act. The Exchange Offer will be registered under the Securities Act on the
appropriate form (the "Exchange Registration Statement") and will comply with
all applicable tender offer rules and regulations under the Exchange Act. The
Company agrees to use its best efforts to (x) cause the Exchange Registration
Statement to become effective under the Securities Act on or before the
Effectiveness Date; (y) keep the Exchange Offer open for at least 30 days (or
longer if required by applicable law) after the date that notice of the Exchange
Offer is mailed to Holders; and (z) consummate the Exchange Offer on or prior to
the 60th day following the date on which the Exchange Registration Statement is
declared effective. If after such Exchange Registration Statement is initially
declared effective by the SEC, the Exchange Offer or the issuance of the
Exchange Notes thereunder is interfered with by any stop order, injunction or
other order or requirement of the SEC or any other governmental agency or court,
such Exchange Registration Statement shall be deemed not to have become
effective for purposes of this agreement. Each Holder who participates in the
Exchange Offer will be required to represent that any Exchange Notes received by
it will be acquired in the ordinary course of its business, that at the time of
the consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any person to participate in the distribution of the Exchange
Notes, and that such Holder is not an affiliate of the Company within the
meaning of Rule 405 promulgated under the Securities Act or if it is such an
affiliate, that it will comply with the registration and prospectus delivery
requirements of the Securities Act, to the extent applicable. Upon consummation
of the Exchange Offer in accordance with this Section 2, the provisions of this
Agreement shall continue to apply, MUTATIS MUTANDIS, solely with respect to
Registrable Notes that are Private Exchange Notes and Exchange Notes held by
Participating Broker-Dealers (as defined below), and the Company shall have no
further obligation to register Registrable Notes (other than Private Exchange
Notes) pursuant to Section 3 of this Agreement.
(b) The Company shall include within the Prospectus contained
in the Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which shall
contain a summary statement of the positions taken or policies made by the staff
of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3 promulgated
under the Exchange Act) of Exchange Notes received by such broker-dealer in the
Exchange Offer (a "Participating Broker-Dealer"), whether such positions or
policies have been
<PAGE> 8
-6-
publicly disseminated by the staff of the SEC or such positions or policies, in
the reasonable judgment of the Initial Purchasers, represent the prevailing
views of the staff of the SEC. Such "Plan of Distribution" section shall also
allow the use of the Prospectus by all persons subject to the prospectus
delivery requirements of the Securities Act, including all Participating
Broker-Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Notes.
The Company shall use its best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Notes, PROVIDED that such period shall not
exceed 180 days (or such longer period if extended pursuant to the last
paragraph of Section 5) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Notes acquired by them and having, or which are reasonably
likely to be determined to have, the status as an unsold allotment in the
initial distribution, the Company upon the request of either Initial Purchaser
shall, simultaneously with the delivery of the Exchange Notes in the Exchange
Offer, issue and deliver to such Initial Purchaser, in exchange (the "Private
Exchange") for the Notes held by such Initial Purchaser, a like principal amount
of debt securities of the Company that are identical in all material respects to
the Exchange Notes (the "Private Exchange Notes") (and which are issued pursuant
to the same indenture as the Exchange Notes). The Private Exchange Notes shall
bear the same CUSIP number as the Exchange Notes. Interest on the Exchange Notes
and Private Exchange Notes will accrue from the last interest payment date on
which interest was paid on the Notes surrendered in exchange therefor or, if no
interest has been paid on the Notes, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Exchange Registration Statement, together with an
appropriate letter of transmittal and related documents;
<PAGE> 9
-7-
(ii) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The City of New
York; and
(iii) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last business day
on which the Exchange Offer shall remain open.
As soon as practicable after the close of the Exchange Offer
or the Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Notes tendered and not validly
withdrawn pursuant to the Exchange Offer or the Private Exchange;
(ii) deliver to the Trustee for cancellation all Notes so
accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver promptly
to each Holder of Notes, Exchange Notes or Private Exchange Notes, as
the case may be, equal in principal amount to the Notes of such Holder
so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be
issued under (i) the Indenture or (ii) an indenture substantially identical to
the Indenture, which in either event will provide that the Exchange Notes will
not be subject to the transfer restrictions set forth in the Indenture and that
the Exchange Notes, the Private Exchange Notes and the Notes will vote and
consent together on all matters as one class and that neither the Exchange
Notes, the Private Exchange Notes nor the Notes will have the right to vote or
consent as a separate class on any matter.
(c) If (1) prior to the consummation of the Exchange Offer,
the Company or Holders of at least a majority in aggregate principal amount of
the Registrable Notes reasonably determine in good faith that (i) the Exchange
Notes would not, upon receipt, be tradeable by such Holders which are not
affiliates (within the meaning of the Securities Act) of the Company without
restriction under the Securities Act and without restrictions under applicable
state securities laws, or (ii) after conferring with counsel, the SEC is
unlikely to permit the consummation of the Exchange Offer prior to the
Effectiveness Date, (2) subsequent to the consummation of the Private Exchange,
any holder of the Private Exchange Notes so requests or (3) the Exchange Offer
is commenced and not consummated within 180 days of the date of this Agreement,
then the Company shall promptly deliver to the Holders
<PAGE> 10
-8-
and the Trustee written notice thereof (the "Shelf Notice") and shall file an
Initial Shelf Registration pursuant to Section 3. Following the delivery of a
Shelf Notice to the Holders of Registrable Notes (in the circumstances
contemplated by clauses (1) and (3) of the preceding sentence), the Company
shall not have any further obligation to conduct the Exchange Offer or the
Private Exchange under this Section 2.
(d) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder represents and warrants to
the Company that, (A) it is not an affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any Person to participate in, a distribution of the Exchange
Notes to be issued in the Exchange Offer, and (C) it is acquiring the Exchange
Notes in its ordinary course of business. Each Holder hereby acknowledges and
agrees that any Participating Broker-Dealer and any Holder using the Exchange
Offer to participate in a distribution of Exchange Notes (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in MORGAN STANLEY AND CO., INC. (available
June 5, 1991) and EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988),
as interpreted in the Commission's letter to Shearman & Sterling dated July 2,
1993, and similar no-action letters, and (2) must comply with the registration
and prospectus delivery requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale transaction must be covered
by an effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K if the
resales are of Notes obtained by such Holder in exchange for Notes acquired by
such Holder directly from the Company or an affiliate thereof.
3. SHELF REGISTRATION
If a Shelf Notice is delivered as contemplated by Section
2(c), then:
(a) INITIAL SHELF REGISTRATION. The Company shall prepare and
file with the SEC a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 covering all of the Registrable Notes (the
"Initial Shelf Registration"). If the Company shall have not yet filed an
Exchange Registration Statement, the Company shall use its best efforts to file
with the SEC the Initial Shelf Registration on or prior to the Filing Date. In
any other instance, the Company shall use its best efforts to file with the SEC
the Initial Shelf Registration within 30 days of the delivery of the Shelf
Notice. The Initial Shelf Registration shall be on Form S-1 or another appro-
<PAGE> 11
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priate form permitting registration of such Registrable Notes for resale by such
Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company shall not permit
any securities other than the Registrable Notes to be included in the Initial
Shelf Registration or any Subsequent Shelf Registration (as defined below). The
Company shall use its best efforts to cause the Initial Shelf Registration to be
declared effective under the Securities Act on or prior to the Effectiveness
Date and to keep the Initial Shelf Registration continuously effective under the
Securities Act until the date which is 36 months from the date on which such
Initial Shelf Registration is declared effective (subject to extension pursuant
to the last paragraph of Section 5 hereof) (the "Effectiveness Period"), or such
shorter period ending when (i) all Registrable Notes covered by the Initial
Shelf Registration have been sold in the manner set forth and as contemplated in
the Initial Shelf Registration, (ii) a Subsequent Shelf Registration covering
all of the Registrable Notes has been declared effective under the Securities
Act or (iii) no Registrable Notes remain outstanding.
(b) SUBSEQUENT SHELF REGISTRATIONS. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale of all of the securities registered thereunder), the Company shall use its
best efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 45 days of such cessation
of effectiveness amend the Shelf Registration in a manner to obtain the
withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all of
the Registrable Notes (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Company shall use its best efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously effective
for a period equal to the number of days in the Effectiveness Period less the
aggregate number of days during which the Initial Shelf Registration or any
Subsequent Shelf Registration was previously continuously effective. As used
herein the term "Shelf Registration" means the Initial Shelf Registration and
any Subsequent Shelf Registration.
(c) SUPPLEMENTS AND AMENDMENTS. The Company shall promptly
supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if requested by the
Holders of a majority in aggregate principal amount of the Registrable Notes
<PAGE> 12
-10-
covered by such Registration Statement or by any underwriter(s) of such
Registrable Notes.
4. ADDITIONAL INTEREST
(a) The Company and the Initial Purchasers agree that the
Holders of Registrable Notes will suffer damages if the Company fails to fulfill
its obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay additional interest on the Notes ("Additional
Interest") under the circumstances set forth below:
(i) if the Exchange Registration Statement or the Initial
Shelf Registration has not been filed on or prior to the Filing Date;
(ii) if the Exchange Registration Statement or the Initial
Shelf Registration has not been declared effective on or prior to the
Effectiveness Date; or
(iii) if either (A) the Company has not exchanged the Exchange
Notes for all Notes validly tendered in accordance with the terms of
the Exchange Offer on or prior to 60 days after the date on which the
Exchange Registration Statement was declared effective or (B) the
Exchange Registration Statement ceases to be effective at any time
prior to the time that the Exchange Offer is consummated or (C) if
applicable, the Shelf Registration has been declared effective and such
Shelf Registration ceases to be effective at any time during the
Effectiveness Period;
(each such events referred to in clauses (i) through (iii) above is a
"Registration Default"), then the sole remedy available to holders of the Notes
will be the immediate accrual of Additional Interest as follows: the per annum
interest rate on the Notes will increase by 50 basis points; and the per annum
interest rate will increase by an additional 25 basis points for each subsequent
90-day period during which the Registration Default remains uncured, up to a
maximum additional interest rate of 200 basis points per annum, PROVIDED,
HOWEVER, that (1) upon the filing of the Exchange Registration Statement or the
Initial Shelf Registration (in the case of (i) above), (2) upon the
effectiveness of the Exchange Registration Statement or a Shelf Registration (in
the case of (ii) above) or (3) upon the exchange of Exchange Notes for all Notes
tendered (in the case of (iii)(A) above), or upon the effectiveness of the
Exchange Registration Statement which had ceased to remain effective (in the
case of (iii)(B) above), or upon the effectiveness of the Shelf Registration
which had ceased to remain effective (in the case of (iii)(C) above), Additional
Interest on the Notes as a result of such clause (i),
<PAGE> 13
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(ii) or (iii) (or the relevant subclause thereof), as the case may be, shall
cease to accrue and the interest rate on the Notes will revert to the interest
rate originally borne by the Notes.
(b) The Company shall notify the Trustee within one business
day after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Any amounts of
Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section
4 will be payable in cash semi-annually on each February 15 and August 15 (to
the Holders of record on the February 1 and August 1 immediately preceding such
dates), commencing with the first such date occurring after any such Additional
Interest commences to accrue, by depositing with the Trustee, in trust for the
benefit of such Holders, immediately available funds in sums sufficient to pay
such Additional Interest. The amount of Additional Interest will be determined
by multiplying the applicable Additional Interest rate by the principal amount
of the Registrable Notes, multiplied by a fraction, the numerator of which is
the number of days such Additional Interest rate was applicable during such
period (determined on the basis of a 360-day year comprised of twelve 30-day
months), and the denominator of which is 360.
5. REGISTRATION PROCEDURES
In connection with the registration of any Registrable Notes
or Private Exchange Notes pursuant to Section 2 or 3 hereof, the Company shall
effect such registrations to permit the sale of such Registrable Notes or
Private Exchange Notes in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall:
(a) Prepare and file with the SEC, prior to the Filing Date, a
Registration Statement or Registration Statements as prescribed by
Section 2 or 3, and to use its best efforts to cause each such
Registration Statement to become effective and remain effective as
provided herein, PROVIDED that, if (1) such filing is pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, before filing any
Registration Statement or Prospectus or any amendments or supplements
thereto, the Company shall, if requested, furnish to and afford the
Holders of the Registrable Notes and each such Participating
Broker-Dealer, as the case may be, covered by such Registration
Statement, their counsel and the managing underwriter(s), if any, a
reasonable opportunity to review copies of all such documents
(including copies of any documents to be incorporated by
<PAGE> 14
-12-
reference therein and all exhibits thereto) proposed to be filed (at
least 5 business days prior to such filing). The Company shall not file
any Registration Statement or Prospectus or any amendments or
supplements thereto in respect of which the Holders must be afforded an
opportunity to review prior to the filing of such document, if the
Holders of a majority in aggregate principal amount of the Registrable
Notes covered by such Registration Statement, or such Participating
Broker-Dealer, as the case may be, their counsel, or the managing
underwriter(s), if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange
Registration Statement, as the case may be, as may be necessary to keep
such Registration Statement continuously effective for the
Effectiveness Period or the Applicable Period, as the case may be;
cause the related Prospectus to be supplemented by any prospectus
supplement required by applicable law, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force)
under the Securities Act; and comply with the provisions of the
Securities Act, the Exchange Act and the rules and regulations of the
SEC promulgated thereunder applicable to them with respect to the
disposition of all securities covered by such Registration Statement as
so amended or in such Prospectus as so supplemented and with respect to
the subsequent resale of any securities being sold by a Participating
Broker-Deal- er covered by any such Prospectus; the Company shall be
deemed not to have used its best efforts to keep a Registration
Statement effective during the Applicable Period if it voluntarily
takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers
seeking to sell Exchange Notes not being able to sell such Registrable
Notes or such Exchange Notes during that period unless such action is
required by applicable law or unless the Company complies with this
Agreement, including without limitation, the provisions of clause
5(c)(v) below.
(c) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, notify the selling Holders
of Registrable Notes, or each such Participating Broker-Dealer, as the
case may be, their counsel and the managing underwriter(s), if any,
promptly (but in any event within two business days), and confirm such
notice in writing, (i) when a
<PAGE> 15
-13-
Prospectus or any prospectus supplement or post-effective amendment
thereto has been filed, and, with respect to a Registration Statement
or any post-effective amendment thereto, when the same has become
effective (including in such notice a written statement that any Holder
may, upon request, obtain, without charge, one conformed copy of such
Registration Statement or post-effective amendment thereto including
financial statements and schedules, documents incorporated or deemed to
be incorporated by reference and exhibits), (ii) of the issuance by the
SEC of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any
preliminary Prospectus or the initiation of any proceedings for that
purpose, (iii) if at any time when a Prospectus is required by the
Securities Act to be delivered in connection with sales of the
Registrable Notes the representations and warranties of the Company
contained in any agreement (including any underwriting agreement)
contemplated by Section 5(n) below cease to be true and correct, (iv)
of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Notes or the Exchange
Notes to be sold by any Participating Bro- ker-Dealer for offer or sale
in any jurisdiction, or the initiation or threatening of any proceeding
for such purpose, (v) of the happening of any event or any information
becoming known that makes any statement made in such Registration
Statement or related Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in, or amendments or
supplements to, such Registration Statement, Prospectus or documents so
that, in the case of the Registration Statement, it will not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading, and (vi) of the Company's reasonable
determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, use its best efforts to
prevent the
<PAGE> 16
-14-
issuance of any order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of a
Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Notes or the Exchange Notes to
be sold by any Participating Broker-Dealer, for sale in any
jurisdiction, and, if any such order is issued, to use its best efforts
to obtain the withdrawal of any such order at the earliest possible
moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and
if requested by the managing underwriter(s), if any, or the Holders of
a majority in aggregate principal amount of the Registrable Notes being
sold in connection with an underwritten offering, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment
thereto such information as the managing underwriter(s), if any, or
such Holders reasonably request to be included therein, (ii) make all
required filings of such Prospectus supplement or such post-effective
amendment thereto as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment thereto and (iii) supplement or
make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, furnish to each selling
Holder of Registrable Notes and to each such Participating Broker-
Dealer who so requests and to counsel and the managing underwriter(s),
if any, who so request, without charge, one conformed copy of the
Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and
schedules, and, if requested, all documents incorporated or deemed to
be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, deliver to each selling
Holder of Registrable Notes, or each such Participating Broker-Dealer,
as the case may be, their counsel, and the managing underwriter or
underwriters, if any, without charge, as many copies of the Prospectus
or Prospectuses (including each
<PAGE> 17
-15-
form of preliminary Prospectus) and each amendment or supplement
thereto and any documents incorporated by reference therein as such
Persons may reasonably request; and, subject to the last paragraph of
this Section 5, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the
selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, and the managing underwriter or
underwriters or agents, if any, and dealers, if any, in connection with
the offering and sale of the Registrable Notes covered by or the sale
by Participating Broker-Dealers of the Exchange Notes pursuant to such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, to use its best efforts to register
or qualify (to the extent required by applicable law), and to cooperate
with the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, the managing
underwriter or underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Notes for offer
and sale under the securities or Blue Sky laws of such jurisdictions
within the United States as any selling Holder, Participating
Broker-Deal- er, or the managing underwriter or underwriters, if any,
reasonably request in writing, PROVIDED that where Exchange Notes held
by Participating Broker-Dealers or Registrable Notes are offered other
than through an underwritten offering, the Company agrees to cause its
counsel to perform Blue Sky investigations and file registrations and
qualifications required to be filed pursuant to this Section 5(h); keep
each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to
be kept effective and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions
of the Exchange Notes held by Participating Broker-Dealers or the
Registrable Notes covered by the applicable Registration Statement;
PROVIDED that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it is not then so
qualified, (B) take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or
(C) subject itself to taxation in excess of a nominal dollar amount in
any such jurisdiction.
<PAGE> 18
-16-
(i) If a Shelf Registration is filed pursuant to Section 3,
cooperate with the selling Holders of Registrable Notes and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes
to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depository Trust
Company; and enable such Registrable Notes to be in such denominations
and registered in such names as the managing underwriter or
underwriters, if any, or Holders may reasonably request.
(j) Use its best efforts to cause the Registrable Notes
covered by the Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the managing underwriter or
underwriters, if any, to consummate the disposition of such Registrable
Notes, except as may be required solely as a consequence of the nature
of such selling Holder's business, in which case the Company will
cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, upon the occurrence of any
event contemplated by paragraph 5(c)(v) or 5(c)(vi) above, as promptly
as practicable prepare and (subject to Section 5(a) above) file with
the SEC, at the expense of the Company, a supplement or post-effective
amendment to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(l) Use its reasonable best efforts to cause the Registrable
Notes covered by a Registration Statement or the Exchange Notes, as the
case may be, to be rated with the appropriate rating agencies, if so
requested by the Holders of
<PAGE> 19
-17-
a majority in aggregate principal amount of Registrable Notes covered
by such Registration Statement or the Exchange Notes, as the case may
be, or the managing underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration
Statement relating to the Registrable Notes, (i) provide the Trustee
with printed certificates for the Registrable Notes in a form eligible
for deposit with The Depository Trust Company and (ii) provide a CUSIP
number for the Registrable Notes.
(n) In connection with an underwritten offering of Registrable
Notes pursuant to a Shelf Registration, enter into an underwriting
agreement as is customary in underwritten offerings of debt securities
similar to the Notes and take all such other actions as are reasonably
requested by the managing underwriter(s), if any, in order to expedite
or facilitate the registration or the disposition of such Registrable
Notes, and in such connection, (i) make such representations and
warranties to the managing underwriter or underwriters on behalf of any
underwriters, with respect to the business of the Company and its
respective subsidiaries and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings of debt securities, and confirm
the same if and when requested; (ii) obtain opinions of counsel to the
Company and updates thereof in form and substance reasonably
satisfactory to the managing underwriter or underwriters, addressed to
the managing underwriter or underwriters covering the matters
customarily covered in opinions requested in underwritten offerings of
debt securities and such other matters as may be reasonably requested
by underwriters; (iii) obtain "cold comfort" letters and updates
thereof in form and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of any of the Company or
of any business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the
Registration Statement), addressed to the managing underwriter or
underwriters on behalf of any underwriters, such letters to be in
customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings of
debt securities and such other matters as reasonably requested by the
managing underwriter or underwriters; and (iv) if an underwriting
agreement is entered into, the same
<PAGE> 20
-18-
shall contain indemnification provisions and procedures no less
favorable than those set forth in Section 7 hereof (or such other
provisions and procedures acceptable to Holders of a majority in
aggregate principal amount of Registrable Notes covered by such
Registration Statement and the managing underwriter or underwriters or
agents) with respect to all parties to be indemnified pursuant to said
Section. The above shall be done at each closing under such
underwriting agreement, or as and to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section
3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, make available for
inspection by any selling Holder of such Registrable Notes being sold,
or each such Participating Broker-Dealer, as the case may be, the
managing underwriter or underwriters participating in any such
disposition of Registrable Notes, if any, and any attorney, accountant
or other agent retained by any such selling Holder or each such
Participating Broker-Dealer, as the case may be (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its respective subsidiaries
(collectively, the "Records") as shall be reasonably necessary to
enable them to exercise any applicable due diligence responsibilities,
and cause the officers, directors and employees of the Company and its
respective subsidiaries to supply all information in each case
reasonably requested by any such Inspector in connection with such
Registration Statement. Records which the Company determines, in good
faith, to be confidential and any Records which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors
unless (i) the disclosure of such Records is necessary to avoid or
correct a material misstatement or material omission in such
Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) the information in such Records has been made
generally available to the public. Each selling Holder of such
Registrable Notes and each such Participating Broker-Dealer or
underwriter will be required to agree that information obtained by it
as a result of such inspections shall be deemed confidential and shall
not be used by it as the basis for any market transactions in the
securities of the Company or of Cole National Corporation unless and
until such is made generally available to the public. Each selling
Holder of such Registrable Notes and each such Partici-
<PAGE> 21
-19-
pating Broker-Dealer will be required to further agree that it will,
upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the
Company to undertake appropriate action to prevent disclosure of the
Records deemed confidential at its expense.
(p) Provide an indenture trustee for the Registrable Notes or
the Exchange Notes, as the case may be, and cause the Indenture or the
trust indenture provided for in Section 2(a), as the case may be, to be
qualified under the TIA not later than the effective date of the
Exchange Offer or the first Registration Statement relating to the
Registrable Notes; and in connection therewith, cooperate with the
trustee under any such indenture and the Holders of the Registrable
Notes, to effect such changes to such indenture as may be required for
such indenture to be so qualified in accordance with the terms of the
TIA; and execute, and use its best efforts to cause such trustee to
execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the SEC to
enable such indenture to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Notes are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the
first fiscal quarter of the Company after the effective date of a
Registration Statement, which statements shall cover said 12-month
periods.
(r) Upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Company, in a form
customary for underwritten offerings of debt securities similar to the
Notes, addressed to the Trustee for the benefit of all Holders of
Registrable Notes participating in the Exchange Offer or the Private
Exchange, as the case may be, and which includes an opinion that (i)
the Company has duly authorized, executed and delivered the Exchange
Notes and Private Exchange Notes and the related indenture and (ii) the
Exchange Notes or the Private Exchange Notes, as the case may be, and
related indenture
<PAGE> 22
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constitute a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its respective terms
(with customary exceptions).
(s) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders to the
Company (or to such other Person as directed by the Company) in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be, the Company shall mark, or cause to be marked, on such
Registrable Notes that such Registrable Notes are being cancelled in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be; and, in no event shall such Registrable Notes be marked as
paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes covered by
any Registration Statement and the managing underwriter(s), if any,
participating in the disposition of such Registrable Notes and their
respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD").
(u) Use its reasonable best efforts to take all other steps
necessary to effect the registration of the Registrable Notes covered
by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Company such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, as the
Company may, from time to time, reasonably request. The Company may exclude from
such registration the Registrable Notes of any seller or Participating
Broker-Dealer who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such Holder will
forthwith discontinue disposition of such Registrable Notes covered by such
Registration Statement or Prospectus or Exchange Notes to be sold by such Holder
or Participating Broker-Dealer, as the case may be, until such Holder's receipt
of the copies of the supplemented or amended Prospectus contemplated by Section
5(k), or un-
<PAGE> 23
-21-
til it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event the Company shall give any such notice,
each of the Effectiveness Period and the Applicable Period shall be extended by
the number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of Registrable Notes
covered by such Registration Statement or Exchange Notes to be sold by such
Holder or Participating Broker-Dealer, as the case may be, shall have received
(x) the copies of the supplemented or amended Prospectus contemplated by Section
5(k) or (y) the Advice.
6. REGISTRATION EXPENSES
All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel (which may be
counsel to the Company) in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and, if requested, determination of the
eligibility of the Registrable Notes or Exchange Notes for investment under the
laws of such jurisdictions (x) where the Holders of Registrable Notes are
located, in the case of the Exchange Notes, or (y) as provided in Section 5(h),
in the case of Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing Prospectuses if the printing of
Prospectuses is reasonably requested by the managing underwriter or
underwriters, if any, or, in respect of Registrable Notes or Exchange Notes to
be sold by any Participating Broker-Dealer during the Applicable Period, by the
Holders of a majority in aggregate principal amount of the Registrable Notes
included in any Registration Statement or of such Exchange Notes, as the case
may be), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and fees and disbursements of special
counsel (which will be limited to a single firm for each related transaction)
for the sellers of Registrable Notes, (v) fees and disbursements of all
independent certified public accountants referred to in Section 5(n)(iii)
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or inci-
<PAGE> 24
-22-
dent to such performance), (vi) rating agency fees, (vii) Securities Act
liability insurance, if the Company desires such insurance, (viii) fees and
expenses of the Trustee, (ix) fees and expenses of all other Persons retained by
the Company, (x) internal expenses of the Company (including, without
limitation, all salaries and expenses of officers and employees of the Company
performing legal or accounting duties), (xi) the expense of any annual audit,
(xii) the fees and expenses incurred in connection with any listing of the
securities to be registered on any securities exchange, (xiii) the fees and
disbursements of underwriters, if any, customarily paid by issuers or sellers of
securities (but not including any underwriting discounts or commissions or
transfer taxes, if any, attributable to the sale of the Registrable Notes which
discounts, commissions or taxes shall be paid by Holders of such Registrable
Notes), and (xiv) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary in order to
comply with this Agreement.
7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each
Holder of Registrable Notes and each Participating Broker-Dealer selling
Exchange Notes during the Applicable Period, the officers and directors of each
such person, and each person, if any, who controls any such person within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act (each, a "Participant"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, the reasonable legal
fees and other expenses actually incurred in connection with any suit, action or
proceeding or any claim asserted) caused by, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or any preliminary
Prospectus, or caused by, arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information relating to any Participant furnished to the Company in writing by
such Participant expressly for use therein; PROVIDED that the foregoing
indemnity with respect to any preliminary Prospectus shall not inure to the
benefit of any Participant (or to the benefit of any person controlling such
Participant) from whom the person asserting any such losses, claims, damages or
liabilities
<PAGE> 25
-23-
purchased Registrable Notes or Exchange Notes if such untrue statement or
omission or alleged untrue statement or omission made in such preliminary
Prospectus is eliminated or remedied in the related Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) and a copy of the related Prospectus (as so amended or supplemented)
shall have been furnished to such Participant at or prior to the sale of such
Registrable or Exchange Notes, as the case may be, to such person.
(b) Each Participant will be required to agree, severally and
not jointly, to indemnify and hold harmless the Company, its directors and
officers and each person who controls the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to each Participant, but only with
reference to information relating to such Participant furnished to the Company
in writing by such Participant expressly for use in any Registration Statement
or Prospectus, any amendment or supplement thereto, or any preliminary
Prospectus. The liability of any Participant under this paragraph (b) shall in
no event exceed the proceeds received by such Participant from sales of
Registrable Notes giving rise to such obligations.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any person in respect of which indemnity may be sought pursuant
to either paragraph (a) or (b) of this Section 7, such person (the "Indemnified
Person") shall promptly notify the person against whom such indemnity may be
sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon
request of the Indemnified Person, shall retain one counsel reasonably
satisfactory to the Indemnified Person to represent the Indemnified Person and
any others the Indemnifying Person may reasonably designate in such proceeding
and shall pay the reasonable fees and expenses incurred by such counsel related
to such proceeding. In any such proceeding, any Indemnified Person shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless (i) the Indemnifying
Person and the Indemnified Person shall have mutually agreed in writing to the
contrary, (ii) the Indemnifying Person has failed within a reasonable time to
retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representations of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Person shall not, in connection with any proceeding or related
proceeding in the same jurisdic-
<PAGE> 26
-24-
tion, be liable for the fees and expenses of more than one separate law firm (in
addition to any local counsel) for all Indemnified Persons, and that all such
fees and expenses shall be reimbursed as they are incurred. Any such separate
firm for the Participants and such control persons of Participants shall be
designated in writing by Participants who sold a majority in interest of
Registrable Notes sold by all such Participants and any such separate firm for
the Company, its directors, officers and such control persons of the Company
shall be designated in writing by the Company. The Indemnifying Person shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for reasonable fees and expenses incurred by counsel as contemplated by
the third sentence of this paragraph, the Indemnifying Person agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement; PROVIDED,
HOWEVER, that the Indemnifying Person shall not be liable for any settlement
effected without its consent pursuant to this sentence if the Indemnifying
Person is contesting, in good faith, the request for reimbursement. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Person, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Person is or could have been a party and of which
indemnity could have been sought hereunder by such Indemnified Person, unless
such settlement includes an unconditional release of such Indemnified Person
from all liability on claims that are the subject matter of such proceeding.
If the indemnification provided for in paragraphs (a) and (b)
of this Section 7 is unavailable to an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraphs, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified Person as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the Company on the one hand and the Participants on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative fault of the
<PAGE> 27
-25-
Company on the one hand and the Participants on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Participants and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The parties shall agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by PRO RATA
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes exceeds the amount of any damages that such Participant has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. RULES 144 AND 144A
The Company covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder in a timely manner and, if at
any time the Company is not required to file such reports, it will, upon the
request of any Holder of Registrable Notes, make publicly available other
information of a like nature so long as necessary to permit sales pursuant to
Rule 144 or Rule 144A. The Company further covenants that so long as any
Registrable Notes remain outstanding to make available to any Holder of
Registrable Notes in connection with any sale thereof, the information required
by Rule 144A(d)(4) under the Securities Act in order to permit resales of such
Regis-
<PAGE> 28
-26-
trable Notes pursuant to (a) such Rule 144A, or (b) any similar rule or
regulation hereafter adopted by the SEC.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of such
Registrable Notes included in such offering and shall be reasonably acceptable
to the Company.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements. No underwritten
offering shall include less than $10,000,000 principal amount of the Notes
covered by such Shelf Registration.
10. MISCELLANEOUS
(a) REMEDIES. In the event of a breach by the Company of any
of its obligations under this Agreement, other than the occurrence of an event
which requires payment of Additional Interest, each Holder of Registrable Notes,
in addition to being entitled to exercise all rights provided herein, in the
Indenture or, in the case of the Initial Purchasers, in the Purchase Agreement
or granted by law, including recovery of damages, under this Agreement.
(b) ENFORCEMENT. The Trustee shall be authorized to enforce
the provisions of this Agreement for the ratable benefit of the Holders.
(c) NO INCONSISTENT AGREEMENTS. The Company has not, as of the
date hereof, and shall not, after the date of this Agreement, enter into any
agreement with respect to any of its securities that is inconsistent with the
rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not entered nor
will it enter into any agreement with respect to any of its securities which
will grant to any Person piggy-back rights with respect to a Registration
Statement.
<PAGE> 29
-27-
(d) ADJUSTMENTS AFFECTING REGISTRABLE NOTES. The Company shall
not, directly or indirectly, take any action with respect to the Registrable
Notes as a class that would adversely affect the ability of the Holders of
Registrable Notes to include such Registrable Notes in a registration undertaken
pursuant to this Agreement.
(e) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of at least a majority of the then outstanding aggregate principal amount of
Registrable Notes. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders of Registrable Notes whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of Registrable
Notes may be given by Holders of at least a majority in aggregate principal
amount of the Registrable Notes being sold by such Holders pursuant to such
Registration Statement, PROVIDED that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(f) NOTICES. All notices and other communications (including
without limitation any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(i) if to a Holder of Registrable Notes, at the most current
address given by the Trustee to the Company; and
(ii) if to the Company, Cole National Group, Inc., 591- 5
Landerbrook Drive, Suite 300, Mayfield Heights, Ohio 44124, Attention:
Chief Financial Officer, with a copy to Jones, Day, Reavis & Pogue, 901
Lakeside Avenue, Cleve- land, Ohio 44114, Attention: David P. Porter,
Esq.
All such notices and communications shall be deemed to have
been duly given: (i) when delivered by hand, if personally delivered; (ii) five
business days after being deposited in the mail, postage prepaid, if mailed;
(iii) one business day after being timely delivered to a next-day air courier;
and (iv) when receipt is acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the
<PAGE> 30
-28-
same to the Trustee under the Indenture at the address specified in such
Indenture.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Registrable Notes.
(h) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(k) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction.
(l) ENTIRE AGREEMENT. This Agreement, together with the
Purchase Agreement and the Indenture, is intended by the parties as a final
expression of their agreement, and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein.
(m) NOTES HELD BY THE COMPANY OR ITS AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company or its affiliates (as
such term is defined in Rule 405 under the Securities Act) shall not be counted
in deter-
<PAGE> 31
-29-
mining whether such consent or approval was given by the Holders of such
required percentage.
<PAGE> 32
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
COLE NATIONAL GROUP, INC.
(a Delaware corporation)
By: /s/ Jeffrey A. Cole
--------------------------
Name: Jeffrey A. Cole
Title: Chairman of the Board,
Chief Executive Officer
and Chief Financial
Officer
CIBC WOOD GUNDY SECURITIES CORP.
By: /s/ Brian Gerson
-------------------------------
Name: Brian Gerson
Title: Managing Director
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Robert Murtey
-------------------------------
Name: Robert Murtey
Title: Managing Director
MCDONALD & COMPANY SECURITIES, INC.
By: /s/ Edward J. Pentecost
-------------------------------
Name: Edward J. Pentecost
Title: Senior Vice President
<PAGE> 1
Exhibit 4.6
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE, (this "SUPPLEMENTAL
INDENTURE"), dated as of August 14, 1997, is made by and between COLE NATIONAL
GROUP, INC., a corporation duly formed and validly existing under the laws of
the State of Delaware (the "ISSUER"), and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as trustee (the "TRUSTEE").
RECITALS:
A. The Issuer and the Trustee have entered into an Indenture dated as
of September 30, 1993 (the "INDENTURE").
B. Pursuant to the Indenture, the Issuer issued and the Trustee
authenticated and delivered an aggregate principal amount of $190,000,000 of the
Issuer's 11 1/4% Senior Notes due 2001.
C. Section 9.02 of the Indenture provides, among other things, that
with the written consent of the Securityholders of not less than a majority in
aggregate principal amount of the Securities then outstanding (the "REQUISITE
CONSENTS"), the Issuer, when authorized by a resolution of its Board of
Directors, and the Trustee, may from time to time amend or supplement the
Indenture, subject to certain exceptions specified in Section 9.02 of the
Indenture.
D. Pursuant to various letter agreements, the Issuer has obtained the
Requisite Consents to the issuance of an aggregate principal amount not to
exceed $165,838,000 of its Senior Subordinated Notes due 2007.
E. This Supplemental Indenture has been duly authorized by all
necessary corporate action on the part of the Issuer.
F. The Issuer has delivered, or caused to be delivered, to the Trustee,
an Officer's Certificate and an Opinion of Counsel stating that all conditions
precedent and covenants, if any, provided for in the Indenture relating to this
Supplemental Indenture have been satisfied.
NOW THEREFORE, each party agrees for the benefit of the other party and
for the equal and ratable benefit of all Securityholders, as follows:
AGREEMENT:
SECTION 1. DEFINITIONS. Capitalized terms used in this Supplemental
Indenture and not otherwise defined herein have the meanings given them in the
Indenture.
SECTION 2. AMENDMENT TO SECTION 4.09 OF THE INDENTURE. The second
paragraph of Section 4.09 of the Indenture is hereby amended by the addition of
a new clause (d) thereto, reading as set forth below, and by redesignating the
existing clauses (d) through (i) thereof in appropriate order as clauses (e)
through (j):
(d) up to $165,838,000 aggregate principal amount of the Company's
Senior Subordinated Notes due 2007, provided that the terms of
the subordination applicable thereto are substantially the
same as the terms of the subordination applicable to the
Company's 97/8% Senior Subordinated Notes due 2006, which were
issued in November 1996,
<PAGE> 2
SECTION 3. MISCELLANEOUS.
3.1 EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution and delivery
of this Supplemental Indenture by the Issuer and the Trustee, the Indenture
shall be supplemented in accordance herewith, and this Supplemental Indenture
shall form a part of the Indenture for all purposes, and every Securityholder
heretofore or hereafter authenticated and delivered under the Indenture shall be
bound thereby. Except as supplemented hereby, all provisions of the Indenture
shall remain in full force and effect.
3.2 INDENTURE AND SUPPLEMENTAL INDENTURE CONSTRUED TOGETHER. This
Supplemental Indenture is an indenture supplemental to and in implementation of
the Indenture, and the Indenture and this Supplemental Indenture shall
henceforth be read and construed together.
3.3 CONFIRMATION AND PRESERVATION OF THE INDENTURE. The Indenture as
supplemented by this Supplemental Indenture is in all respects confirmed and
preserved.
3.4 CONFLICT WITH TRUST INDENTURE ACT. If any provision of this
Supplemental Indenture limits, qualifies or conflicts with any provision of the
Trust Indenture Act of 1939, as amended (the "ACT"), that is required under such
Act to be part of and govern any provision of this Supplemental Indenture, the
provision of such Act shall control. If any provision of this Supplemental
Indenture modifies or excludes any provision of the Act that may be so modified
or excluded, the provisions of the Act shall be deemed to apply to the Indenture
as so modified or to be excluded by this Supplemental Indenture, as the case may
be.
3.5 SEPARABILITY CLAUSE. In case any provision of this Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
3.6 EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
3.7 BENEFITS OF SUPPLEMENTAL INDENTURE. Nothing in this Supplemental
Indenture, the Indenture, or the Securities, express or implied, shall give to
any Person, other than the parties hereto and thereto and their successors
hereunder and thereunder, and the Securityholders, any benefit of any legal or
equitable right, remedy or claim under the Indenture, the Supplemental Indenture
or the Securities.
3.8 SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Supplemental Indenture by the Issuer shall bind its successors and assigns,
whether so expressed or not.
3.9 NEW YORK LAW TO GOVERN. THIS SUPPLEMENTAL INDENTURE SHALL BE DEEMED
TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS OF SAID STATE,
EXCEPT AS MAY OTHERWISE BE REQUIRED BY MANDATORY PROVISIONS OF LAW.
3.10 COUNTERPARTS. This Supplemental Indenture may be executed in two
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date and the year first above written.
COLE NATIONAL GROUP, INC.
By: /s/ Joseph Gaglioti
-----------------------------------------
Name: Joseph Gaglioti
Title: Vice President & Treasurer
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
AS TRUSTEE
By: /s/ Jane Y. Schweiger
-----------------------------------------
Name: Jane Y. Schweiger
Title: Corporate Trust Officer
3
<PAGE> 1
Exhibit 5.1
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
September 4, 1997
Cole National Corporation
5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
Re: 8 5/8% Senior Subordinated Notes Due 2007 of
Cole National Group, Inc.
--------------------------------------------
Gentlemen:
We are acting as counsel for Cole National Group, Inc., a
Delaware corporation (the "Company"), in connection with the proposed issuance
of $125,000,000 aggregate amount of the Company's 8 5/8% Senior Subordinated
Notes Due 2007 (the "Notes") to be issued pursuant to an Indenture, dated as of
August 22, 1997, (the "Indenture") between the Company and Norwest Bank
Minnesota, National Association, as Trustee (the "Trustee"), and a Registration
Rights Agreement, dated as of August 22, 1997, by and among the Company and CIBC
Wood Gundy Securities Corp., Credit Suisse First Boston Corporation and McDonald
& Company Securities, Inc. (the "Registration Rights Agreement").
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion, and based thereupon, we
are of the opinion that the Notes have been duly authorized, and when duly
executed by authorized officers of the Company, authenticated by the Trustee,
and issued in accordance with the Indenture and the Registration Rights
Agreement, will be binding obligations of the Company, entitled to the benefits
of the Indenture.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement on Form S-1 filed by the Company to effect
registration of the Notes under the Securities Act of 1933 and to the reference
to us under the caption "Legal Matters" in the Prospectus constituting a part of
such Registration Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
<PAGE> 1
Exhibit 10.33
AMENDMENT
AMENDMENT, dated as of January 13, 1997 (this "AMENDMENT"), to the
Credit Agreement, dated as of November 15, 1996 (as amended, supplemented or
otherwise modified, the "CREDIT AGREEMENT"), among COLE VISION CORPORATION, a
Delaware corporation ("COLE VISION"), THINGS REMEMBERED, INC., a Delaware
corporation ("THINGS REMEMBERED"), COLE GIFT CENTERS, INC., a Delaware
corporation ("COLE GIFTS"), PEARLE, INC., a Delaware corporation ("PEARLE") and
PEARLE SERVICE CORPORATION, a Delaware corporation ("PSC"; Cole Vision, Things
Remembered, Cole Gifts, Pearle and PSC each being referred to as a "BORROWER"
and collectively as the "BORROWERS"), the several banks and other financial
institutions from time to time parties thereto (collectively, the "LENDERS") and
CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian-chartered bank acting through its
New York Agency, as administrative agent for the Lenders thereunder (in such
capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders and the Administrative Agent are
parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the Administrative Agent and
the Lenders amend the Credit Agreement as set forth herein; and
WHEREAS, the Administrative Agent and the Lenders are willing to effect
such amendment, but only upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other good and valuable consideration, the sufficiency
of which is hereby acknowledged, the Borrowers, the Lenders and the
Administrative Agent hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms defined in the
Credit Agreement shall have such meanings when used herein.
2. AMENDMENT TO SUBSECTION 8.3. Subsection 8.3 of the Credit Agreement
is hereby amended by inserting the following new paragraph (m) at the end
thereof:
"(m) Liens on Inventory which is the subject of a trade letter of
credit issued for the account of a Borrower by CoreStates Bank, N.A. or
CoreStates Bank International, to the extent permitted pursuant to
subsection 8.1(f), on the various documents related thereto and on the
proceeds thereof; PROVIDED that (i) any such Lien is not spread to
cover any other property or assets of any Borrower, (ii) the amount of
Indebtedness secured thereby is not increased and (iii) the
<PAGE> 2
2
Lien on the subject property shall terminate according to its terms
upon payment in full of the reimbursement obligations with respect to
the relevant trade letter of credit."
3. AUTHORIZATION TO ADMINISTRATIVE AGENT. The Lenders hereby authorize
the Administrative Agent to enter into an agreement with CoreStates in
substantially the form of Exhibit A hereto.
4. AMENDMENT TO SCHEDULE II TO CREDIT AGREEMENT. Schedule II to the
Credit Agreement is hereby amended by deleting such Schedule in its entirety and
inserting in lieu thereof the Revised Schedule II attached hereto as Exhibit B.
5. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby confirms,
reaffirms and restates the representations and warranties made by it in Section
5 of the Credit Agreement, PROVIDED that each reference to the Credit Agreement
therein shall be deemed to be a reference to the Credit Agreement after giving
effect to this Amendment. Each Borrower represents and warrants that, after
giving effect to this Amendment, no Default or Event of Default has occurred and
is continuing.
6. EFFECTIVENESS. This Amendment shall be effective upon execution and
delivery by each of the Borrowers, the Administrative Agent and the Majority
Lenders.
7. CONTINUING EFFECT OF CREDIT AGREEMENT. This Amendment shall not
constitute a waiver, amendment or modification of any other provision of the
Credit Agreement not expressly referred to herein and shall not be construed as
a waiver or consent to any further or future action on the part of the Borrowers
that would require a waiver or consent of the Lenders or the Administrative
Agent. Except as expressly amended or modified herein, the provisions of the
Credit Agreement are and shall remain in full force and effect.
8. COUNTERPARTS. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Amendment signed by all the parties shall be lodged with the Borrowers and the
Administrative Agent.
9. PAYMENT OF EXPENSES. The Borrowers agree, jointly and severally, to
pay or reimburse the Administrative Agent for all of its out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of this Amendment and any other documents prepared in connection herewith, and
the consummation and administration of the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of counsel
to the Administrative Agent.
10. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND
<PAGE> 3
3
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE> 4
4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
COLE VISION CORPORATION
By: /s/ Joseph Gaglioti
--------------------------------------
Title:
THINGS REMEMBERED, INC.
By: /s/ Joseph Gaglioti
--------------------------------------
Title:
COLE GIFT CENTERS, INC.
By: /s/ Joseph Gaglioti
--------------------------------------
Title:
PEARLE, INC.
By: /s/ Joseph Gaglioti
--------------------------------------
Title:
PEARLE SERVICE CORPORATION
By: /s/ Joseph Gaglioti
--------------------------------------
Title:
<PAGE> 5
5
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY,
as Administrative Agent
By: /s/ [Authorized Signatory]
--------------------------------------
Title:
CIBC INC.
By: /s/ [Aughorized Signatory]
--------------------------------------
Title:
CREDIT SUISSE
By: /s/ Edward E. Barr
--------------------------------------
Title: Associate
By: /s/ [Authorized Signatory]
--------------------------------------
Title:
NATIONSBANK, N.A.
By: /s/ Philip S. Durand
--------------------------------------
Title: Vice President
<PAGE> 1
Exhibit 10.34
SECOND AMENDMENT
SECOND AMENDMENT, dated as of August 8, 1997 (this
"AMENDMENT"), to the Credit Agreement, dated as of November 15, 1996 (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among COLE VISION CORPORATION, a Delaware corporation ("COLE
VISION"), THINGS REMEMBERED, INC., a Delaware corporation ("THINGS REMEMBERED"),
COLE GIFT CENTERS, INC., a Delaware corporation ("COLE GIFTS"), PEARLE, INC., a
Delaware corporation ("PEARLE") and PEARLE SERVICE CORPORATION, a Delaware
corporation ("PSC"; Cole Vision, Things Remembered, Cole Gifts, Pearle and PSC
each being referred to as a "BORROWER" and collectively as the "BORROWERS"), the
several banks and other financial institutions from time to time parties thereto
(collectively, the "LENDERS") and CANADIAN IMPERIAL BANK OF COMMERCE, a
Canadian-chartered bank acting through its New York Agency, as administrative
agent for the Lenders thereunder (in such capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders and the Administrative
Agent are parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the Administrative
Agent and the Lenders amend the Credit Agreement as set forth herein; and
WHEREAS, the Administrative Agent and the Lenders are willing
to effect such amendment, but only upon the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Borrowers, the Lenders and the
Administrative Agent hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, terms
defined in the Credit Agreement shall have such meanings when used herein.
2. AMENDMENT TO SUBSECTION 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended by inserting the following new definitions in their
proper alphabetical order:
"`SENIOR SUBORDINATED 1997 NOTES': the senior subordinated
notes due 2007 proposed to be issued by CNG pursuant to a Rule 144A
offering during the month of August 1997 having substantially the same
terms as the Senior Subordinated Notes (except that they will mature in
2007 and
<PAGE> 2
2
will bear interest at a rate per annum based upon market conditions
current at the time of issuance), as the same may be amended,
supplemented or otherwise modified from time to time without violating
Section 9(m)."
"`SENIOR SUBORDINATED 1997 NOTES INDENTURE': the indenture to
be entered into between CNG and a trustee to be appointed by CNG
pursuant to which the Senior Subordinated 1997 Notes will be issued, as
the same may be amended, supplemented or otherwise modified from time
to time without violating Section 9(m)."
3. AMENDMENT TO SUBSECTION 7.7. Subsection 7.7(b) of the
Credit Agreement is hereby amended by deleting such subsection in its entirety
and substituting in lieu thereof the following:
"(b) any (i) default or event of default under any Contractual
Obligation of any Borrower or any Subsidiary, including, without
limitation, under the Senior Subordinated Notes or the Senior
Subordinated 1997 Notes or (ii) litigation, investigation or proceeding
which may exist at any time between any Borrower or any Subsidiary and
any Governmental Authority, which in either case, if not cured or if
adversely determined, as the case may be, could reasonably be expected
to have a Material Adverse Effect;"
4. AMENDMENT TO SUBSECTION 8.7. Subsection 8.7(b) of the
Credit Agreement is hereby amended by deleting such subsection in its entirety
and substituting in lieu thereof the following:
"(b) dividends to CNG in an amount sufficient to allow CNG to
pay interest on the Senior Subordinated Notes, the Senior Subordinated
1997 Notes and the CNG Notes in accordance with the terms of each
thereof, PROVIDED that CNG actually uses such dividends to make such
payments of interest;"
5. AMENDMENT TO SUBSECTION 8.9. Subsection 8.9(f) of the
Credit Agreement is hereby amended by deleting such subsection in its entirety
and substituting in lieu thereof the following:
"(f) Investments, other than the purchase of the CNG Notes,
the Senior Subordinated 1997 Notes or the Senior Subordinated Notes, in
an aggregate amount not to exceed $5,000,000."
6. AMENDMENT TO SUBSECTION 8.12. Subsection 8.12 of the Credit
Agreement is hereby amended by deleting such subsection in its entirety and
substituting in lieu thereof the following:
"8.12 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with
any Person any agreement, which prohibits or limits the ability of any
Borrower or any of its
<PAGE> 3
3
Subsidiaries to create, incur, assume or suffer to exist any Lien upon
any of its property, assets or revenues, whether now owned or hereafter
acquired, other than (a) this Agreement, (b) agreements in effect on
the Closing Date, including, without limitation, the Senior
Subordinated Notes Indenture, or any refinancing, refunding, renewal or
extension thereof which is permitted hereunder, (c) customary
non-assignment provisions under contracts to the extent such provisions
prohibit or limit the ability to grant a Lien on the rights under such
contracts, (d) restrictions on granting Liens on assets under
agreements to sell or otherwise dispose of such assets and (e) the
Senior Subordinated 1997 Notes Indenture."
7. AMENDMENT TO SECTION 9. (a) Section 9(k) of the Credit
Agreement is hereby amended by deleting such Section in its entirety and
substituting in lieu thereof the following:
"(k) The Senior Subordinated Notes or the Senior Subordinated
1997 Notes, for any reason, shall not be or shall cease to be validly
subordinated, as provided therein and in the Senior Subordinated Notes
Indenture or the Senior Subordinated 1997 Notes Indenture, to the
obligations of the Borrowers under this Agreement, any Revolving Credit
Notes and the other Loan Documents; or"
(b) Section 9(l) of the Credit Agreement is hereby amended by
deleting such Section in its entirety and substituting in lieu thereof the
following:
"(l) CNG shall engage in any business other than the owning of
the capital stock of the Borrowers and all actions incidental thereto
or in connection therewith, including, without limitation, entering
into the CNG Guarantee and Cash Collateral Agreement and the
maintenance of cash management arrangements for the Borrowers and their
Subsidiaries or CNG shall incur any material liabilities (other than
the Senior Subordinated Notes, the Senior Subordinated 1997 Notes or
the CNG Notes); or"
(c) Section 9(m) of the Credit Agreement is hereby amended by
deleting such Section in its entirety and substituting in lieu thereof the
following:
"(m) CNG shall (i) make any optional payment or prepayment on
or repurchase or redemption or purchase of the Senior Subordinated
Notes, the Senior Subordinated 1997 Notes or the CNG Notes (including,
without limitation, any payment on account of, or for a sinking or
other analogous fund for the repurchase, redemption, defeasance or
other acquisition thereof) other than (x) (so long as no Default or
Event of Default has occurred and is continuing or would occur as a
result of such repurchase), repurchases by CNG of such of the CNG Notes
and/or Senior Subordinated Notes that it is able to repurchase for an
aggregate purchase price (including fees and expenses incurred in
connection with such repurchase) not to exceed $20,000,000 and (y) the
repurchase, redemption, defeasance or other acquisition of the CNG
Notes as soon as practicable following the issuance of the Senior
Subordinated 1997 Notes with the net proceeds thereof
<PAGE> 4
4
and, to the extent such net proceeds are insufficient to complete such
repurchase, with other cash then held by CNG, (ii) amend, modify or
change, or consent or agree to any material amendment, modification or
change to any of the terms of the Senior Subordinated Notes, the Senior
Subordinated 1997 Notes or the CNG Notes (other than any such
amendment, modification or change which would extend the maturity or
reduce the amount of any payment of principal thereof or which would
reduce the rate or extend the date for payment of interest thereon),
(iii) amend, modify or change or consent or agree to any amendment,
modification or change to the subordination provisions or to any of the
other provisions of the Senior Subordinated Notes Indenture or the
Senior Subordinated 1997 Notes Indenture, or (iv) amend, modify or
change or consent to or agree to any amendment, modification or change
to any of the provisions of the Transaction Documents (other than the
Senior Subordinated Notes Indenture) which would adversely affect the
Lenders; or"
8. REPRESENTATIONS AND WARRANTIES. Each Borrower hereby
confirms, reaffirms and restates the representations and warranties made by it
in Section 5 of the Credit Agreement, PROVIDED that each reference to the Credit
Agreement therein shall be deemed to be a reference to the Credit Agreement
after giving effect to this Amendment. Each Borrower represents and warrants
that, after giving effect to this Amendment, no Default or Event of Default has
occurred and is continuing.
9. EFFECTIVENESS. This Amendment shall be effective upon (a)
execution and delivery by each of the Borrowers, the Administrative Agent and
the Majority Lenders and (b) receipt by CNG of gross proceeds of at least
$125,000,000 from the issuance by CNG of the Senior Subordinated 1997 Notes on
or before August 31, 1997.
10. CONTINUING EFFECT OF CREDIT AGREEMENT. This Amendment
shall not constitute a waiver, amendment or modification of any other provision
of the Credit Agreement not expressly referred to herein and shall not be
construed as a waiver or consent to any further or future action on the part of
the Borrowers that would require a waiver or consent of the Lenders or the
Administrative Agent. Except as expressly amended or modified herein, the
provisions of the Credit Agreement are and shall remain in full force and
effect.
11. COUNTERPARTS. This Amendment may be executed by one or
more of the parties to this Amendment on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of the
copies of this Amendment signed by all the parties shall be lodged with the
Borrowers and the Administrative Agent.
12. PAYMENT OF EXPENSES. The Borrowers agree, jointly and
severally, to pay or reimburse the Administrative Agent for all of its
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of this Amendment and any other documents prepared in
connection herewith, and the consummation and administration of the transactions
contemplated hereby, including,
<PAGE> 5
5
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
<PAGE> 6
6
13. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
COLE VISION CORPORATION
By: /s/ Joseph Gaglioti
--------------------------------------
Title: Treasurer & Assistant Secretary
THINGS REMEMBERED, INC.
By: /s/ Joseph Gaglioti
--------------------------------------
Title: Treasurer & Assistant Secretary
COLE GIFT CENTERS, INC.
By: /s/ Joseph Gaglioti
--------------------------------------
Title: Treasurer & Assistant Secretary
PEARLE, INC.
By: /s/ Joseph Gaglioti
--------------------------------------
Title: Vice President, Treasurer &
Assistant Secretary
PEARLE SERVICE CORPORATION
By: /s/ Joseph Gaglioti
--------------------------------------
Title: Vice President, Treasurer &
Assistant Secretary
<PAGE> 7
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY,
as Administrative Agent
By: /s/ Elizabeth O. Fischer
---------------------------------------
Title: Director, CIBC Wood Gundy
Securities Corp., AS AGENT
<PAGE> 8
CIBC INC.
By: /s/ Elizabeth Fischer
---------------------------------------
Title: Director, CIBC Wood Gundy
Securities Corp., AS AGENT
<PAGE> 9
CREDIT SUISSE FIRST BOSTON
By: [Authorized Signatory]
---------------------------------------
Title:
By: /s/ Kristin Lepri
---------------------------------------
Title: Associate
<PAGE> 10
NATIONSBANK, N.A.
By: /s/ Michael D. McKay
--------------------------------------
Title: Senior Vice President
<PAGE> 11
CORESTATES BANK, N.A.
By: [Authorized Signatory]
-------------------------------
Title:
<PAGE> 12
THE FUJI BANK, LIMITED
By: /s/ Peter L. Chinnici
-------------------------------
Title: Joint General Manager
<PAGE> 13
NATIONAL CITY BANK
By: [Authorized Signatory]
--------------------------------
Title:
<PAGE> 14
THE SANWA BANK, LIMITED,
CHICAGO BRANCH
By: [Authorized Signatory]
-------------------------------
Title:
<PAGE> 15
YASUDA TRUST & BANK CO.
By: [Authorized Signatory]
--------------------------------
Title:
<PAGE> 1
Exhibit 10.37
August 4, 1997
Cole National Incorporated
18903 South Miles Road
Warrensville Hts., Ohio 44128
Dear Sir or Madam:
In consideration of my employment as SENIOR VICE PRESIDENT, BUSINESS
DEVELOPMENT AND GENERAL COUNSEL of Cole National (or any of its present or
future parent or subsidiary corporations or affiliated entities are collectively
hereinafter referred to as the "Company"), as well as the salary continuation
described in Paragraph "L" hereof, I hereby agree with the Company as follows:
A. During the term of my employment I will not compete,
directly or indirectly, with the Company. In accordance with this restriction,
but without limiting its terms, I will not:
(a) enter into or engage in any business which competes
with the business of the Company; or
(b) solicit customers, business, patronage, or orders
for, or sell, any product or products in competition
with, or for any business that competes with, the
business of the Company; or
(c) divert, entice, or take away any customers, business,
patronage or orders of the Company or attempt to do
so; or
(d) promote or assist, financially or otherwise, any
person, firm, association or corporation or any other
entity engaged in any business which competes with
the business of the Company.
B. For a period of twelve (12) months following termination of
my employment with the Company, I will not enter into or engage in any business
that competes with the Company's business.
C. For a period of twelve (12) months following termination of
my employment with the Company, I will not solicit customers, business,
patronage, or orders for, or sell any product(s) in competition with the
Company's business.
<PAGE> 2
D. For a period of twelve (12) months following termination of
my employment with the Company, I will not divert, entice, or otherwise take
away any customers, business, patronage, or orders of the Company, or attempt to
do so.
E. For a period of twelve (12) months following termination of
my employment with the Company, I will not promote or assist financially or
otherwise, any person, firm, association, partnership, corporation, or any other
entity engaged in any business which competes with the Company's business.
F. For the purposes of paragraphs A through E, inclusive, I
understand that I will be competing if I engage in any or all of the activities
set forth therein directly as an individual on my own account, or indirectly as
a partner, joint venturer, employee, agent, salesman, consultant, officer and/or
director of any firm, association, corporation, or other entity, or as a
stockholder of any corporation in which I own, directly or indirectly,
individually or in the aggregate, more than one percent (1%) of the outstanding
stock.
G. For the purposes of paragraphs B through E, inclusive, the
Company's business is defined as the manufacture, production, sale, marketing
and/or distribution of any product(s) and/or the rendering of any service(s)
that are the same as or similar to those manufactured, produced, sold, marketed,
distributed and/or rendered, as of the date of my termination, by the Company.
H. I understand that the activities set forth in Paragraphs B
through E, inclusive, shall be prohibited only within the United States and
Canada or such lesser geographic area as to which or for which I was assigned or
had responsibility at the time of my termination or at any time during the
twelve (12) month period immediately preceding my termination.
I. If it shall be judicially determined that I have violated
any of my obligations under Paragraphs B through E, inclusive, then the period
applicable to the obligation which I shall have been determined to have violated
shall automatically be extended by a period of time equal in length to the
period during which said violation(s) occurred.
J. I also agree that I will not directly or indirectly at any
time solicit or induce or attempt to solicit or induce any employee(s) or any
sales representative(s), agent(s) or consultant(s) of the Company or any of its
parent, subsidiary or affiliate entities to terminate their employment,
representation or other association with the Company or such entity.
K. During the period of my employment and at any time
thereafter, I will not disclose, furnish, disseminate, make available or, except
in the ordinary course of performing my duties on behalf of the Company, use any
trade secrets or confidential business and technical information of the Company,
or its parent, subsidiaries or affiliated entities or its customers, without
limitation as to when it was acquired by me or whether it was compiled or
obtained by, or furnished to me while I was employed by the Company. Such trade
secrets and confidential business and technical information are considered to
include, without limitation, the vendor lists,
2
<PAGE> 3
vendor terms and programs, merchandise costs, financial statistics, research
data, or any other statistics and plans contained in monthly and annual review
books, profit plans, capital plans, critical issues, plans, strategic plans, or
merchandising, marketing, real estate, or store operations plans. I specifically
acknowledge that all such information, whether reduced to writing, maintained in
my mind or memory and/or maintained on electronic media of any form and whether
compiled by the Company and/or me derives independent economic value from not
being readily known to or ascertainable by proper means by others who can obtain
economic value from it disclosure or use, that reasonable efforts have been put
forth by the Company to maintain the secrecy of such information, that such
information is and will remain the sole property of the Company and that any
retention and use of such information during or after the termination of my
relationship with the Company (except in the course of performing my duties)
shall constitute a misappropriation of the Company's trade secrets.
L. It is further understood and agreed that in the event my
employment with the Company should be terminated by the Company without cause
("cause" for this purpose means gross neglect of duty, material breach of this
Agreement, dishonesty, disloyalty, the inability to discharge my duties due to
alcohol or drug addiction, or other misconduct inimicable to the best interests
of the Company), I will receive, in full and complete settlement of any claims
for compensation which I may have, a continuation of my annual base salary, in
effect at the time of the termination of my employment, for a period of up to
twelve (12) months immediately following such termination, payable in accordance
with the Company's payroll schedule; provided, however, that in the event I
obtain employment during said twelve (12) month period (and upon obtaining such
employment I will promptly notify the Company of same), the payment of any
unpaid balance hereunder, effective as of the date of such new employment, shall
be:
(i) cancelled if the annual base salary of my new employment
equals or exceeds my annual base salary at the Company at the time of
my termination; or
(ii) reduced to the amount by which my annual base salary at
the Company at the time of my termination exceeds the annual base
salary of my new employment prorated on the basis of the time remaining
in said twelve (12) month period.
As used herein, "annual base salary of my new employment"
shall equal the greater of (x) the actual annual base salary of my new
employment or (y) the average annual base salary payable to persons holding
comparable positions as I then do with my new employer with businesses
comparable to my then-new employer.
It is the intent of this Paragraph L that I will be assured of
the payment of an amount at least equal to my annual base salary at the time of
my termination at the Company for a period of twelve months following such
termination, whether through payments from the Company, my new employer or a
combination of payments from the Company and my new employer. I further agree to
use my best efforts to obtain suitable employment following such termination.
3
<PAGE> 4
In no event, however, upon the termination of my employment by
the Company, without cause, shall I receive less than the amount of money which
is payable in accordance with the Company's severance pay policy in effect at
the time of my termination.
M. I expressly agree and understand that the remedy at law for
any breach by me of this Agreement will be inadequate and that the damages
flowing from such breach are not readily susceptible to being measured in
monetary terms. Accordingly, it is acknowledged that upon my violation of any
provision of this Agreement, the Company shall be entitled to immediate
injunctive relief and may obtain a temporary order restraining any threatened or
further breach without the necessity of proof of actual damage. Nothing in this
Agreement shall be deemed to limit the Company's remedies at law or in equity
for any breach by me of any of the provisions of this Agreement which may be
pursued or availed of by the Company.
N. This Agreement is not assignable by either party without
the prior written consent of the other except that the Company may assign it
without such consent to any parent, subsidiary or affiliated entity, upon such
entity's assumption of the Company's duties and obligations hereunder, and upon
assumption such entity shall succeed to each of the Company's rights, duties and
obligations hereunder. Upon such assignment and assumption I agree to and will
become an employee of such entity, and all references to the Company in this
Agreement shall, as the context requires, be deemed to be to the entity to which
such assignment, assumption and employment relate.
O. No modification, waiver, amendment or addition to any of
the terms of this Agreement shall be effective, except as set forth in a writing
signed by me and the Company. The failure of the Company to enforce any
provision of this Agreement shall not be construed to be a waiver of such
provision or of the right of the Company thereafter to enforce each and every
provision.
P. This Agreement and any amendments thereto shall become
effective on the date of acceptance by the Company and shall be governed by, and
construed in accordance with, the internal, substantive laws of the State of
Ohio. I agree that the state and federal courts located in the State of Ohio
shall have jurisdiction in any action, suit or proceeding against me arising out
of this Agreement and I hereby: (a) submit to the personal jurisdiction of such
courts; (b) consent to service of process in connection with any action, suit or
proceeding against me; and (c) waive any other requirement (whether imposed by
statute, rule of court or otherwise) with respect to personal jurisdiction,
venue or service of process.
Q. This Agreement supersedes the provisions of each and every
other agreement or understanding, whether oral or written, between the
undersigned and the Company, or its parent, subsidiaries or affiliated entities,
relating to the subject matter contained herein, and any such agreement or
understanding shall be of no further force and effect. The provisions of this
Agreement are severable and if any one or more provisions may be determined to
be illegal or otherwise unenforceable, in whole or in part, the remaining
provisions and any partially
4
<PAGE> 5
unenforceable provision, to the extent enforceable in any jurisdiction, shall,
nevertheless, be binding and enforceable. The parties hereto agree that when
fully executed, the foregoing shall constitute a legally enforceable Agreement
between us, which also shall inure to the benefit of the Company's successors
and assigns.
Finally, I represent that prior to signing this Agreement, I
have read, fully understand and voluntarily agree to the terms and conditions as
stated above, that I was not coerced to sign this Agreement, that I was not
under duress at the time I signed this Agreement and that, prior to signing this
Agreement, I had adequate time to consider entering into this Agreement,
including without limitation, the opportunity to discuss the terms and
conditions of this Agreement, as well as its legal consequences, with an
attorney of my choice.
Very truly yours,
By: /s/ Leslie D. Dunn
----------------------------
Leslie Dolin Dunn
Acknowledged and agreed to as of
this 7th day of August 1997.
COLE NATIONAL INCORPORATED
By: /s/ Brian Smith
------------------------------------
Brian B. Smith
President and Chief Operating Officer
5
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 12.1
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
Fiscal Year Ended 13 Weeks Ended
-------------------------------------------------------------------------- --------------------------
Jan. 30, 1993 Jan. 29, 1994 Jan. 28, 1995 Feb. 1, 1996 Feb. 3 1997 May 3, 1997 May 4, 1996
------------- ------------- ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) $ 13,127 $ 19,620 $ 21,141 $ 24,549 $ (35,148) $ 4,287 $ 1,716
from operations
Fixed charges:
Interest expense 18,897 18,029 22,266 22,143 24,372 8,313 5,058
Portion of rents
representative of
interest factor (a) 8,668 8,914 9,516 10,396 13,143 5,442 2,793
-------- -------- -------- ------- -------- ------- -------
Total fixed charges 27,565 26,943 31,782 32,539 37,515 13,755 7,851
-------- --------- --------- -------- -------- ------- -------
Earnings before income
taxes and fixes charges $ 40,692 $ 46,563 $ 52,923 $ 57,088 $ 2,367 $ 18,042 $ 9,567
Ratio of earnings to fixed
charges 1.48 1.73 1.67 1.75 - 1.31 1.22
======== ========= ========= ========= ======== ======== =======
(a)One-third of rent included in the calculation is considered an appropriate portion
of rentals representative of the interest factor. Rentals include leased premises for
laboratories, distribution and retailing operations and certain leased equipment,
net of sublease rental income.
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
13 Weeks Ended May 3, 1997 Fiscal Year Ended February 3, 1997
------------------------------------------ --------------------------------------------------------
Pro Forma Adjustments
---------------------
Pro Forma Pearl
Company Adjustments Pro Forma Company Acquisition Transactions Pro Forma
------- ----------- --------- ------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss)
from operations $ 4,287 $ 1,942 $ 6,229 $ (35,148) $ 4,157 $ 7,768 $ (23,223)
Fixed charges:
Interest expense 8,313 (1,942) 6,371 24,372 11,334 (7,768) 27,938
Portion of rents
representative of
interest factor (a) 5,442 - 5,442 13,143 4,518 - 17,661
------- ------------ --------- -------- ---------- ------------ ---------
Total fixed charges 13,755 (1,942) 11,813 37,515 15,852 (7,768) 45,599
------- ------------ --------- -------- ---------- ------------ ---------
Earnings before income
taxes and fixed
charges $ 18,042 $ - $ 18,042 $ 2,367 $ 20,009 $ - $ 22,376
Ratio of earnings to
fixed charges 1.31 1.53 - -
======== ========= ========= ==========
(a)One-third of rent included in the calculation is considered an appropriate portion
of rentals representative of the interest factor. Rentals include leased premises for
laboratories, distribution and retailing operations and certain leased equipment,
net of sublease rental income.
</TABLE>
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES OF COLE NATIONAL GROUP, INC.
State of Names Subsidiaries
Corporation Name Incorporation Do Business Under
- ---------------- ------------- -----------------
COLE VISION
- -----------
Bay Cities Optical California Montgomery Ward Vision
Company Center
Cole Lens Supply, Delaware Contact Lens Supply
Inc. Content Lens Supply Co.
Cole Vision Delaware Sears Optical
Corporation Elder-Beerman Optical
Montgomery Ward vision
Center
BJ's Optical Department
Phar-Mor Optical
Target Optical
Optical Factory Outlet
Cole Vision Canada, New Brunswick, Sears Optical Vision
Inc. Canada Club
Cole Vision Delaware
Services, Inc.
Western States Washington Sears Optical
Optical, Inc.
COLE GIFT
- ---------
Cole Gift Centers, Delaware Keys N'Engraved Gifts
Inc. The Keyshop
The Keyshop (at Sears,
Venture and Montgomery
Ward)
The Gift Center
The Gift Center at Sears
Keys N'Things
Things Remembered, Delaware Things Remembered
Inc. Things Remembered-
Engraved Gifts
Things Engraved
HQ Gifts
Gifts Remembered
<PAGE> 2
State of Names Subsidiaries
Corporation Name Incorporation Do Business Under
- ---------------- ------------- -----------------
OTHER
- -----
Cole Management Delaware
Services, Inc.
PEARLE
- ------
Pearle, Inc. Delaware
Pearle Service Delaware
Corporation
Pearle VisionCare, California Pearle Vision (HMO)
Inc.
Pearle Vision Commonwealth Pearle Vision Center
Center of Puerto of Puerto Rico Pearle Vision Express
Rico, Inc. Pearle Express
Pearle Vision Ontario, Pearle Vision Center
Center Canada Canada
Limited
Pearle Vision, Inc. Delaware Pearle Vision
Pearle Vision Center
Pearle Vision Express
Pearle Eyelab Express
Pearle Eye-Tech Express
Pearle Express
Pearle Vision Texas
Managed Care HMO of
Texas, Inc.
AMERICAN VISION
- ---------------
American Vision
Centers, Inc. Delaware American Vision Centers
Eyes First
American Vision New York
Acquisition Corp.
AVC of New Jersey, New Jersey Eyes First
Inc.
American Vision Illinois American Vision Centers
Center of
Schaumburg, Inc.
2
<PAGE> 3
State of Names Subsidiaries
Corporation Name Incorporation Do Business Under
- ---------------- ------------- -----------------
American Vision New York American Vision Centers
Center of Carle
Place, Inc.
American Vision New York American Vision Centers
Center of Commack,
Inc.
NuVision, Inc. Michigan NuVision
NUVISION
- --------
Vision Maintenance Michigan
Organization, Inc.
Bell Optical, Inc. Michigan
FTH Corp. Michigan
NuVision West, Inc. Michigan NuVision
3
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Cleveland, Ohio
September 3, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Pearle, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus. Our report refers to a
change in accounting for income taxes in 1994.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Dallas, Texas
September 4, 1997
<PAGE> 1
Exhibit 24.1
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National
Group, Inc., a Delaware corporation (the "Corporation"), hereby constitutes and
appoints Joseph Gaglioti and Wayne L. Mosley, or any of them, with full power of
substitution and resubstitution, as attorneys or attorney of the undersigned,
for him or her and in his or her name, place and stead, to sign and file under
the Securities Act of 1933 one or more Registration Statement(s) on Form S-1
relating to the registration for sale of the Corporation's 8-5/8% Senior
Subordinated Notes due 2007, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.
EXECUTED as of August 29, 1997.
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer
/s/ Jeffrey A. Cole and Director
- --------------------------- ------------------------------
Signature Title
Jeffrey A. Cole
- --------------------------
Name
<PAGE> 2
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National
Group, Inc., a Delaware corporation (the "Corporation"), hereby constitutes and
appoints Jeffrey A. Cole, Joseph Gaglioti and Wayne L. Mosley, or any of them,
with full power of substitution and resubstitution, as attorneys or attorney of
the undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration Statement(s)
on Form S-1 relating to the registration for sale of the Corporation's 8-5/8%
Senior Subordinated Notes due 2007, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.
EXECUTED as of August 29, 1997.
/s/ Timothy F. Finley Director
- --------------------------- ------------------------------
Signature Title
Timothy F. Finley
- --------------------------
Name
<PAGE> 3
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National
Group, Inc., a Delaware corporation (the "Corporation"), hereby constitutes and
appoints Jeffrey A. Cole, Joseph Gaglioti and Wayne L. Mosley, or any of them,
with full power of substitution and resubstitution, as attorneys or attorney of
the undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration Statement(s)
on Form S-1 relating to the registration for sale of the Corporation's 8-5/8%
Senior Subordinated Notes due 2007, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.
EXECUTED as of August 29, 1997.
/s/ Irwin N. Gold Director
- --------------------------- ------------------------------
Signature Title
Irwin N. Gold
- ---------------------------
Name
<PAGE> 4
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National
Group, Inc., a Delaware corporation (the "Corporation"), hereby constitutes and
appoints Jeffrey A. Cole, Joseph Gaglioti and Wayne L. Mosley, or any of them,
with full power of substitution and resubstitution, as attorneys or attorney of
the undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration Statement(s)
on Form S-1 relating to the registration for sale of the Corporation's 8-5/8%
Senior Subordinated Notes due 2007, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.
EXECUTED as of August 29, 1997.
/s/ Peter V. Handal Director
- --------------------------- ------------------------------
Signature Title
Peter V. Handal
- ---------------------------
Name
<PAGE> 5
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National
Group, Inc., a Delaware corporation (the "Corporation"), hereby constitutes and
appoints Jeffrey A. Cole, Joseph Gaglioti and Wayne L. Mosley, or any of them,
with full power of substitution and resubstitution, as attorneys or attorney of
the undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration Statement(s)
on Form S-1 relating to the registration for sale of the Corporation's 8-5/8%
Senior Subordinated Notes due 2007, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.
EXECUTED as of August 29, 1997.
/s/ Charles A. Ratner Director
- --------------------------- ------------------------------
Signature Title
Charles A. Ratner
- ---------------------------
Name
<PAGE> 6
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National
Group, Inc., a Delaware corporation (the "Corporation"), hereby constitutes and
appoints Jeffrey A. Cole, Joseph Gaglioti and Wayne L. Mosley, or any of them,
with full power of substitution and resubstitution, as attorneys or attorney of
the undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration Statement(s)
on Form S-1 relating to the registration for sale of the Corporation's 8-5/8%
Senior Subordinated Notes due 2007, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.
EXECUTED as of August 29, 1997.
/s/ Walter J. Salmon Director
- --------------------------- ------------------------------
Signature Title
Walter J. Salmon
- ---------------------------
Name
<PAGE> 7
DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Cole National
Group, Inc., a Delaware corporation (the "Corporation"), hereby constitutes and
appoints Jeffrey A. Cole, Joseph Gaglioti and Wayne L. Mosley, or any of them,
with full power of substitution and resubstitution, as attorneys or attorney of
the undersigned, for him or her and in his or her name, place and stead, to sign
and file under the Securities Act of 1933 one or more Registration Statement(s)
on Form S-1 relating to the registration for sale of the Corporation's 8-5/8%
Senior Subordinated Notes due 2007, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.
EXECUTED as of August 29, 1997.
President, Chief Operating
/s/ Brian B. Smith Officer and Director
- --------------------------- ------------------------------
Signature Title
Brian B. Smith
- ---------------------------
Name
<PAGE> 1
Exhibit 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
___ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
-----------------------------
COLE NATIONAL GROUP, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 34-1744334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5915 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
(Address of principal executive offices) (Zip code)
-----------------------------
8 5/8% SENIOR SUBORDINATED NOTES DUE 2007
(Title of the indenture securities)
================================================================================
<PAGE> 2
Item 1. GENERAL INFORMATION. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. FOREIGN TRUSTEE. Not applicable.
Item 16. LIST OF EXHIBITS. List below all exhibits filed as a part of this
Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1 the
exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28, 1872,
by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of
the Currency dated January 2, 1934, approving the
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust
Company of Minneapolis, with the surviving entity
being titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January 12,
1943, as to change of corporate title of
Northwestern National Bank and Trust Company of
Minneapolis to Northwestern National Bank of
Minneapolis.*
<PAGE> 3
d. A copy of the letter dated May 12, 1983 from
the Regional Counsel, Comptroller of the Currency,
acknowledging receipt of notice of name change
effective May 1, 1983 from Northwestern National
Bank of Minneapolis to Norwest Bank Minneapolis,
National Association.*
e. A copy of the letter dated January 4, 1988 from
the Administrator of National Banks for the
Comptroller of the Currency certifying approval of
consolidation and merger effective January 1, 1988
of Norwest Bank Minneapolis, National Association
with various other banks under the title of
"Norwest Bank Minnesota, National Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the
Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with
registration statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with
registration statement number 333-7575.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 3rd day of September, 1997.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Schweiger
------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE> 5
EXHIBIT 6
September 3, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Schweiger
-----------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE> 1
EXHIBIT 99.1
COLE NATIONAL GROUP, INC.
LETTER OF TRANSMITTAL
8 5/8% SENIOR SUBORDINATED NOTES DUE 2007
CUSIP 193292AE9
TO: NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, THE EXCHANGE AGENT
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER ,
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF ORIGINAL NOTES MAY BE
WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE.
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National Association
Corporate Trust Operations Corporate Trust Operations
P.O. Box 1517 Norwest Center
Minneapolis, MN 55480-1517 Sixth and Marquette
Minneapolis, MN 55479-0113
By Hand: By Facsimile:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National Association
Corporate Trust Operations Corporate Trust Operations
Northstar East, 12th Floor (612) 667-4927
608 2nd Avenue Confirm by telephone:
Minneapolis, MN 55479-0113 (612) 667-9764
</TABLE>
------------------------
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES FOR THEIR
ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT
WITHDRAW) THEIR ORIGINAL NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION
DATE.
The undersigned acknowledges receipt of the Prospectus dated September ,
1997 (the "Prospectus") of Cole National Group, Inc. (the "Company") and this
Letter of Transmittal (the "Letter of Transmittal"), which together constitute
the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount
of its 8 5/8% Senior Subordinated Notes due 2007 (the "Exchange Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
is a part, for each $1,000 principal amount of its outstanding 8 5/8% Senior
Subordinated Notes due 2007 (the "Original Notes"), of which $125,000,000
principal amount is outstanding, upon the terms and conditions set forth in the
Prospectus. Other capitalized terms used but not defined herein have the meaning
given to them in the Prospectus.
For each Original Note accepted for exchange, the holder of such Original
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Original Note. Interest on the Exchange Notes will accrue from
the last interest payment date on which interest was paid on the Original Notes
surrendered in exchange therefor or, if no interest has been paid on the
Original Notes, from the date of original issue of the Original Notes. Holders
of Original Notes accepted for exchange will be deemed to have waived the right
to receive any other payments or accrued interest on the Original Notes. The
Company reserves the right, at any time or from time to time, to extend the
Exchange Offer at its discretion, in which
<PAGE> 2
event the term "Expiration Date" shall mean the latest time and date to which
the Exchange Offer is extended. The Company shall notify the Exchange Agent of
any extension by oral (promptly confirmed in writing) or written notice and will
make a public announcement thereof, each prior to 9:00 A.M., New York City time,
on the next business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by Holders if: (i) certificates
representing Original Notes are to be physically delivered to the Exchange Agent
herewith by Holders; (ii) tender of Original Notes is to be made by book-entry
transfer to the Exchange Agent's account at The Depository Trust Company
("DTC"), pursuant to the procedures set forth in the Prospectus under "The
Exchange Offer -- Procedures for Tendering" by any financial institution that is
a participant in DTC and whose name appears on a security position listing as
the owner of Original Notes; or (iii) tender of Original Notes is to be made
according to the guaranteed delivery procedures set forth in the prospectus
under "The Exchange Offer -- Guaranteed Delivery Procedures." DELIVERY OF
DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term "Holder" with respect to the Exchange Offer means any person: (i)
in whose name Original Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered Holder, or (ii) whose Original Notes are held of record by DTC who
desires to deliver such Original Notes by book-entry transfer at DTC. The
undersigned has completed, executed and delivered this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the Exchange
Offer.
The instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 11 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR ORIGINAL
NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
<TABLE>
<CAPTION>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
- -------------------------------------------------------------------------------------------------------
DESCRIPTION OF 8 5/8% SENIOR SUBORDINATED NOTES DUE 2007 (ORIGINAL NOTES)
- -------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL
PRINCIPAL AMOUNT
AMOUNT TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE REPRESENTED (IF LESS
(PLEASE FILL IN, IF BLANK) NUMBER(S)* BY CERTIFICATE(S) THAN ALL)**
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
TOTAL
- -------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Original Notes will be deemed to have tendered the
entire aggregate principal amount represented by the column labeled
"Aggregate Principal Amount Represented by Certificate(s)," If the space
provided above is inadequate, list the certificate numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
The minimum permitted tender is $1,000 in principal amount of Original
Notes. All other tenders must be integral multiples of $1,000.
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Original Notes in a principal
amount not tendered or not accepted for exchange, or Exchange Notes issued in
exchange for Original Notes accepted for exchange, are to be issued in the name
of someone other than the undersigned, or if the Original Notes tendered by
book-entry transfer that are not accepted for exchange are to be credited to an
account maintained by DTC.
Issue certificate(s) to:
Name: ..........................................................................
(Please Print)
Address: .......................................................................
................................................................................
(Include Zip Code)
................................................................................
(Tax Identification or Social Security No.)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Original Notes in a principal
amount not tendered or not accepted for exchange, or Exchange Notes issued in
exchange for Original Notes accepted for exchange, are to be sent to someone
other than the undersigned, or to the undersigned at an address other than that
shown above.
Mail to:
Name: ..........................................................................
(Please Print)
Address: .......................................................................
................................................................................
(Include Zip Code)
................................................................................
(Tax Identification or Social Security No.)
<PAGE> 4
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
- --------------------------------------------------------------------------------
DTC Book-Entry Account Number:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):
- --------------------------------------------------------------------------------
Window Ticket Number (if any):
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
- --------------------------------------------------------------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
<PAGE> 5
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Original Notes indicated
above. Subject to and effective upon the acceptance for exchange of the
principal amount of Original Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to the Original Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company and as Trustee under the
Indenture for the Original Notes and Exchange Notes) with respect to the
tendered Original Notes with full power of substitution to (i) deliver
certificates for such Original Notes to the Company, or transfer ownership of
such Original Notes on the account books maintained by DTC and deliver all
accompanying evidence of transfer and authenticity to, or upon the order of, the
Company and (ii) present such Original Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Original Notes, all in accordance with the terms and subject
to the conditions of the Exchange Offer. The power of attorney granted in this
paragraph shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Original Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company. The
undersigned hereby further represents that any Exchange Notes acquired in
exchange for Original Notes tendered hereby will have been acquired in the
ordinary course of business of the Holder receiving such Exchange Notes, whether
or not such person is the Holder, that neither the Holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and that neither the Holder nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities Act,
of the Company or any of its subsidiaries.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the Exchange Notes issued in exchange for the
Original Notes pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangements with any person to participate in the distribution of such
Exchange Notes. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Original Notes that
were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection with
any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The undersigned hereby acknowledges and agrees that any broker-dealer and
any Holder using the Exchange Offer to participate in a distribution of Exchange
Notes could not rely on the SEC staff position set forth in certain no-action
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
if the resales are of Exchange Notes obtained by such Holder in exchange for
Original Notes acquired by such Holder directly from the Company or an affiliate
of the Company.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment, transfer and purchase of the Original
Notes tendered hereby. All authority conferred or agreed to be conferred by this
<PAGE> 6
Letter of Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns, trustees in bankruptcy or other legal
representatives of the undersigned. This tender may be withdrawn only in
accordance with the procedures set forth in "The Exchange Offer -- Withdrawal of
Tenders" section of the Prospectus.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Original Notes when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
If any tendered Original Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Original
Notes will be returned (except as noted below with respect to tenders through
DTC), without expense, to the undersigned at the address shown below or at a
different address as may be indicated under "Special Delivery Instructions" as
promptly as practicable after the Expiration Date.
The undersigned understands that tenders of Original Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment and Delivery
Instructions," please issue the certificates representing the Exchange Notes
issued in exchange for the Original Notes accepted for exchange and return any
Original Notes not tendered or not exchanged in the name(s) of the undersigned
(or in either such event in the case of the Original Notes tendered by DTC, by
credit to the undersigned's account, at DTC). Similarly, unless otherwise
indicated under "Special Payment and Delivery Instructions," please send the
certificates representing the Exchange Notes issued in exchange for the Original
Notes accepted for exchange and any certificates for Original Notes not tendered
or not exchanged (and accompanying documents, as appropriate) to the undersigned
at the address shown below the undersigned's signature(s), unless, in either
event, tender is being made through DTC. In the event that both "Special Payment
Instructions" and "Special Payment and Delivery Instructions" are completed,
please issue the certificates representing the Exchange Notes issued in exchange
for the Original Notes accepted for exchange and return any Original Notes not
tendered or not exchanged in the name(s) of, and send said certificates to, the
person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Payment Instructions" and "Special Delivery
Instructions" to transfer any Original Notes from the name of the registered
Holder(s) thereof if the Company does not accept for exchange any of the
Original Notes so tendered.
Holders of Original Notes who wish to tender their Original Notes and (i)
whose Original Notes are not immediately available or (ii) who cannot deliver
their Original Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent, or cannot complete the procedure for book-entry
transfer, prior to the Expiration Date, may tender their Original Notes
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See
Instruction 1 regarding the completion of the Letter of Transmittal printed
below.
<PAGE> 7
PLEASE SIGN HERE WHETHER OR NOT
ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY
<TABLE>
<S> <C>
X ............................................................... .........................
Date
X ............................................................... .........................
Signature(s) of Registered Holder(s) or Authorized Signatory Date
</TABLE>
Area Code and Telephone Number: ................................................
The above lines must be signed by the registered Holder(s) of Original Notes as
their name(s) appear(s) on the Original Notes or, if the Original Notes are
tendered by a participant in DTC, as such participant's name appears on a
security position listing as the owner of Original Notes, or by person(s)
authorized to become registered Holder(s) by a properly completed bond power
from the registered Holder(s), a copy of which must be transmitted with this
Letter of Transmittal. If Original Notes to which this Letter of Transmittal
relates are held of record by two or more joint Holders, then all such Holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person must (i)
set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority to act.
See Instruction 4 regarding the completion of this Letter of Transmittal printed
below.
Name(s): .......................................................................
................................................................................
(Please Print)
Capacity: ......................................................................
Address: .......................................................................
(Include Zip Code)
SIGNATURE GUARANTEE BY AN ELIGIBLE INSTITUTION
(If Required by Instruction 4)
Certain signatures must be Guaranteed by an Eligible Institution.
................................................................................
(Authorized Signature)
................................................................................
(Title)
................................................................................
(Name of Firm)
Dated: ..................................................................., 1997
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES. This
Letter is to be completed by noteholders, either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in "The Exchange Offer -- Book-Entry
Transfer" section of the Prospectus. Certificates for all physically tendered
Original Notes, or Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed Letter (or manually signed facsimile
hereof) and any other documents required by this Letter, must be received by the
Exchange Agent at the address set forth herein on or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedures set forth below. Original Notes tendered hereby must be in
denominations of principal amount of maturity of $1,000 and any integral
multiple thereof.
Noteholders whose certificates for Original Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Original Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined in Instruction 4 below), (ii) prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Letter (or facsimile thereof) and Notice
of Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Original Notes and the amount of Original Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Original Notes, or a Book-Entry Confirmation, and any other
documents required by the Letter will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) the certificates for all physically tendered
Original Notes, in proper form for transfer, or Book-Entry Confirmation, as the
case may be, and all other documents required by this Letter, are received by
the Exchange Agent within five NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Original Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Original Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit the
delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
See "The Exchange Offer" section in the Prospectus.
2. TENDER BY HOLDER. Only a holder of Original Notes may tender such
Original Notes in the Exchange Offer. Any beneficial holder of Original Notes
who is not the registered holder and who wishes to tender should arrange with
the registered holder to execute and deliver this Letter on his or her behalf or
must, prior to completing and executing this Letter and delivering his or her
Original Notes, either make appropriate arrangements to register ownership of
the Original Notes in such holder's name or obtain a properly completed bond
power from the registered holder.
3. PARTIAL TENDERS. Tenders of Original Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Original Notes is tendered, the tendering holder should fill in the principal
amount tendered in the fourth column of the box entitled "Description of 8 5/8%
Senior Subordinated Notes due 2007 (Original Notes)" above. The entire principal
amount of Original Notes delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated. If the entire principal amount of all
Original Notes is not tendered, then Original Notes for the principal amount of
Original Notes not tendered and a certificate or certificates representing
Exchange Notes issued in exchange for any Original Notes accepted will be sent
to the Holder at his or her registered address, unless a different address is
provided
<PAGE> 9
in the appropriate box on this Letter of Transmittal, promptly after the
Original Notes are accepted for exchange.
4. SIGNATURES ON THIS LETTER; POWERS OF ATTORNEY AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter is signed by the registered holder of
the Original Notes tendered hereby, the signature must correspond exactly with
the name as written on the face of the certificates without any change
whatsoever.
If any tendered Original Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Original Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the
Original Notes specified herein and tendered hereby, no endorsements of
certificates or separate powers of attorney are required. If, however, the
Exchange Notes are to be issued, or any untendered Original Notes are to be
reissued, to a person other than the registered holder, then endorsements of any
certificates transmitted hereby or separate powers of attorney are required.
Signatures on such certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names on the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or powers of attorney are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Original Notes or signatures on powers of
attorney required by this Instruction 4 must be guaranteed by a firm which is a
participant in a recognized signature guarantee medallion program ("Eligible
Institutions").
Signatures on this Letter must be guaranteed by an Eligible Institution
unless the Original Notes are tendered (i) by a registered holder of Original
Notes (which term, for purposes of the Exchange Offer, includes any participant
in the Book-Entry Transfer Facility system whose name appears on a security
position listing as the holder of such Original Notes) who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on this Letter, or (ii) for account of an Eligible Institution.
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in the applicable box or boxes, the name and address to which Exchange
Notes or substitute Original Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal (or in the case of
tender of Original Notes through DTC, if different from DTC). In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated. Noteholders tendering
Original Notes by book-entry transfer may request that Original Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Original Notes not exchanged will be returned to the name and
address of the person signing this Letter.
6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder
whose offered Original Notes are accepted for exchange must provide the Company
(as payer) with his, her or its correct taxpayer identification number ("TIN"),
which, in the case of an exchanging holder who is an individual, is his or her
social security number. If the Company is not provided with the correct TIN or
an adequate basis for exemption, such holder may be subject to a $50 penalty
imposed by the Internal Revenue Service (the "IRS"), and payments made with
respect to Original Notes purchased pursuant to the Exchange Offer may be
subject to backup withholding at a 31% rate. If withholding results in an
overpayment of taxes, a refund may be obtained. Exempt holders (including, among
others, all corporations and certain foreign individuals)
<PAGE> 10
are not subject to these backup withholding and reporting requirements. See the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9."
To prevent backup withholding, each exchanging holder must provide his, her
or its correct TIN by completing the Substitute Form W-9 enclosed herewith,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has been notified by the IRS that he, she or it is subject to backup withholding
as a result of a failure to report all interest or dividends, or (iii) the IRS
has notified the holder that he, she or it is no longer subject to backup
withholding. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such holder must submit a statement signed
under penalty of perjury attesting to such exempt status. Such statements may be
obtained from the Exchange Agent. If the Original Notes are in more than one
name or are not in the name of the actual owner, consult the Substitute Form W-9
for information on which TIN to report. If you do not provide your TIN to the
Company within 60 days, backup withholding will begin and continue until you
furnish your TIN to the Company.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Original Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Original Notes for
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the Original Notes tendered hereby, or if tendered Original
Notes are registered in the name of any person other than the person signing
this Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Original Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
on any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
herewith, the amount of such transfer taxes will be billed directly to such
tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Original Notes listed in this Letter of
Transmittal.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Original Notes tendered.
9. NO CONDITIONAL TRANSFERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Original Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Original Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of
Original Notes nor shall any of them incur any liability for failure to give any
such notice.
10. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL NOTES. Any tendering
holder whose Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated herein for further
instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance for additional copies of the Prospectus, this Letter of
Transmittal and the Notice of Guaranteed Delivery may be directed to the
Exchange Agent at the address specified in the Prospectus.
<PAGE> 11
(DO NOT WRITE IN THE SPACE BELOW)
<TABLE>
<CAPTION>
CERTIFICATE ORIGINAL NOTES ORIGINAL NOTES
SURRENDERED TENDERED ACCEPTED
- ------------------- ------------------- -------------------
<S> <C> <C>
- ------------------ ------------------ ------------------
- ------------------ ------------------ ------------------
================== ================== ==================
</TABLE>
Delivery Prepared by _______________ Checked By ________ Date ______
<PAGE> 12
PAYER'S NAME: COLE NATIONAL GROUP, INC.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of the person or entity whose number you enter in
Part I below. See instructions if your name has changed.)
- ---------------------------------------------------------------------------------------------------------
Address
- ---------------------------------------------------------------------------------------------------------
City, state and ZIP Code
- ---------------------------------------------------------------------------------------------------------
List account number(s) here (optional)
- ---------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- Please provide your Tax-
FORM W-9 payer Identification Number -----------------------------------
("TIN") in the box at right and Social Security Number
DEPARTMENT OF THE TREASURY certify by signing and dating
INTERNAL REVENUE SERVICE below. OR
---------------------------------
TIN
----------------------------------------------------------------------
PART II -- Check the box if you are NOT subject to backup withholding
under the provisions of section 3408(a)(1)(C) of the Internal Revenue
Code because (1) you have not been notified that you are subject to
backup withholding as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has notified you that
you are no longer subject to backup withholding. [ ]
----------------------------------------------------------------------
PART III -- AWAITING TIN
- ---------------------------------------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER
- ---------------------------------------------------------------------------------------------------------
CERTIFICATION -- Under the penalties of perjury, I certify that the information provided on this form is
true, correct and complete.
- ---------------------------------------------------------------------------------------------------------
SIGNATURE DATE ,
1997
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 13
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<CAPTION>
-------------------------------------------------------
GIVE THE
FOR THIS TYPE SOCIAL SECURITY
OF ACCOUNT: NUMBER OF --
-------------------------------------------------------
<C> <S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for incompetent person(3)
a designated ward, minor
or incompetent person
7. a. The usual revocable The grantor trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not a
legal and valid trust
under State law
8. Sole proprietorship The owner(4)
account
<CAPTION>
-------------------------------------------------------
GIVE THE
FOR THIS TYPE SOCIAL SECURITY
OF ACCOUNT: NUMBER OF --
-------------------------------------------------------
<C> <S> <C>
9. A valid trust, estate or The legal entity (do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated
in the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held The partnership
in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State
or local government,
school district, or
prison) that receives
agricultural program
payments
</TABLE>
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: IF NO NAME IS CIRCLED WHEN THERE IS MORE THAN ONE NAME, THE NUMBER WILL BE
CONSIDERED TO BE THAT OF THE FIRST NAME LISTED.
<PAGE> 14
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(l).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest, or other payments to give tax-payer identification numbers to payers
who must report for payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1994, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail
to include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
8 5/8% SENIOR SUBORDINATED NOTES DUE 2007
OF
COLE NATIONAL GROUP, INC.
CUSIP 193292AE9
As set forth in the Prospectus dated September , 1997 (the "Prospectus"),
of Cole National Group, Inc. (the "Company") and in the accompanying Letter of
Transmittal and instructions thereto (the "Letter of Transmittal"), this form or
one substantially equivalent hereto must be used to accept the Company's
Exchange Offer (the "Exchange Offer") to exchange all of its outstanding 8 5/8%
Senior Subordinated Notes due 2007 (the "Original Notes") for its 8 5/8% Senior
Subordinated Notes due 2007, which have been registered under the Securities Act
of 1933, as amended, if certificates for the Original Notes are not immediately
available or if the Original Notes, the Letter of Transmittal or any other
documents required thereby cannot be delivered to the Exchange Agent, or the
procedure for book-entry transfer cannot be completed, prior to 5:00 P.M., New
York City time, on the Expiration Date (as defined in the Prospectus). This form
may be delivered by an Eligible Institution by hand or transmitted by facsimile
transmission, overnight courier or mail to the Exchange Agent as set forth
below. Capitalized terms used but not defined herein have the meaning given to
them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER ,
1997, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF ORIGINAL
NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE BUSINESS DAY PRIOR
TO THE EXPIRATION DATE.
To: Norwest Bank Minnesota, National Association, The Exchange Agent
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National Association
Corporate Trust Operations Corporate Trust Operations
P.O. Box 1517 Norwest Center
Minneapolis, MN 55480-1517 Sixth and Marquette
Minneapolis, MN 55479-0113
By Hand: By Facsimile:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National Association
Corporate Trust Operations Corporate Trust Operations
Northstar East, 12th Floor (612) 667-4927
608 2nd Avenue Confirm by telephone:
Minneapolis, MN 55479-0113 (612) 667-9764
</TABLE>
------------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A
FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Original Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Cole National Group, Inc. a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus and the Letter of Transmittal (which together constitute
the "Exchange Offer"), receipt of which is hereby acknowledged, Original Notes
pursuant to the guaranteed delivery procedures set forth in Instruction I of the
Letter of Transmittal.
The undersigned understands that tenders of Original Notes will be accepted
only in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Original Notes pursuant to the Exchange
Offer may be withdrawn only in accordance with the procedures set forth in "The
Exchange Offer -- Withdrawal of Tenders" section of the Prospectus.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
<TABLE>
<S> <C>
Certificate No(s). for Original Notes (if
available) Address
- --------------------------------------------- ---------------------------------------------
- --------------------------------------------- ---------------------------------------------
Principal Amount of Original Notes Area Code and Tel. No.
- --------------------------------------------- ---------------------------------------------
- --------------------------------------------- ---------------------------------------------
Name(s) of Record Holder(s) Signature(s)
- --------------------------------------------- ---------------------------------------------
- --------------------------------------------- ---------------------------------------------
Dated:
---------------------------------------------
If Original Notes will be delivered by
book-entry transfer at the Depository Trust
Company,
Depository Account No:
---------------------------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Original Notes exactly as its (their) name(s) appear on
certificates for Original Notes or on a security position listing as the owner
of Original Notes, or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
<PAGE> 3
PLEASE PRINT NAME(S) AND ADDRESS(ES)
NAME(S):
................................................................................
................................................................................
................................................................................
CAPACITY:
................................................................................
ADDRESS(ES):
................................................................................
................................................................................
<PAGE> 4
GUARANTEE
(Not To Be Used for Signature Guarantee)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a)
represents that the above named person(s) "own(s)" the Original Notes tendered
hereby within the meaning of Rule 14e-4 under the Exchange Act, (b) represents
that such tender of Original Notes complies with Rule 14e-4 under the Exchange
Act and (c) guarantees that delivery to the Exchange Agent of certificates for
the Original Notes tendered hereby, in proper form for transfer (or confirmation
of the book-entry transfer of such Original Notes into the Exchange Agent's
Account at the Depository Trust Company, pursuant to the procedures for
book-entry transfer set forth in the Prospectus), with delivery of a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) with any required signatures and any other required documents, will be
received by the Exchange Agent at one of its addresses set forth above within
five business days after the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND ORIGINAL NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD
SET FORTH AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE
UNDERSIGNED.
Name of Firm:
------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
(Zip Code)
Area Code and Tel. No.:
--------------------------------------------------------
Authorized Signature:
---------------------------------------------------------
Name:
--------------------------------------------------------------------------
(Please Type or Print)
Title:
-------------------------------------------------------------------------
Date:
-------------------------------------------------------------------------
NOTE: DO NOT SEND ORIGINAL NOTES WITH THIS FORM; ORIGINAL NOTES SHOULD BE SENT
WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE
AGENT WITHIN FIVE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE
EXPIRATION DATE.
