-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H3yaKk9neB5T954cqaksUoQAv78oRv7eDzIGgF/dA6nOPDFvpacA/si5mjPwTNbp 1+v3jnxGJVR2uoU22ln/Eg== 0000950152-96-006397.txt : 19961203 0000950152-96-006397.hdr.sgml : 19961203 ACCESSION NUMBER: 0000950152-96-006397 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961115 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961202 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLE NATIONAL CORP /DE/ CENTRAL INDEX KEY: 0000769644 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 341453189 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12814 FILM NUMBER: 96674881 BUSINESS ADDRESS: STREET 1: 5915 LANDERBROOK DR CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 BUSINESS PHONE: 2164494100 MAIL ADDRESS: STREET 1: 5915 LANDERBROOK DRIVE STREET 2: SUITE 300 CITY: CLEVELAND STATE: OH ZIP: 44124 FORMER COMPANY: FORMER CONFORMED NAME: CNC HOLDING CORP/DE DATE OF NAME CHANGE: 19920703 8-K 1 COLE NATIONAL CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): November 15, 1996 -------------------- Cole National Corporation ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 33-74228 34-1453189 - ------------------ -------------- ----------------------- (State or other (Commission (I.R.S. Employer jurisdiction of File Number) Identification No.) incorporation) 5915 Landerbrook Drive, Mayfield Heights, Ohio 44124 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 449-4100 ---------------- 2 Item 2. Acquisition or Disposition of Assets. ------------------------------------- On November 15, 1996, Cole National Corporation (the "Company") acquired (i) all of the issued and outstanding shares (the "PSC Shares") of the capital stock of Pearle Service Corporation ("PSC"), a company holding certain assets related to Pearle, Inc.'s ("Pearle") Dallas headquarters, and (ii), following the distribution by Pearle to The Pillsbury Company ("Pillsbury") of the proceeds from the above purchase, all of the issued and outstanding shares (the "Pearle Shares") of Pearle capital stock. The acquisition was accomplished pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement") dated September 24, 1996, by and among the Company, Pearle and Pillsbury. A copy of the Stock Purchase Agreement is filed as Exhibit 2.1 hereto. As consideration for the PSC Shares, the Company paid Pearle Vision, Inc. ("Pearle Vision"), a wholly owned subsidiary of Pearle, $24,350,000 in cash. Pearle Vision distributed the proceeds of such sale to Pearle, which then distributed the proceeds to Pillsbury. In addition, as consideration for the Pearle Shares, the Company paid Pillsbury, subject to claims which may be made under the Stock Purchase Agreement and subject to adjustment, $135,463,333 in cash and NLG 100,000,000 in cash. On November 15, 1996, following such acquisition of the Pearle Shares, Pearle Vision sold all of the issued and outstanding shares of Pearle Holdings B.V. ("Pearle Holdings") together with certain related assets to Pearle Trust B.V. ("Pearle Trust"). The disposition was accomplished pursuant to a Purchase Agreement (the "BV Purchase Agreement") dated September 24, 1996, by and among the Company and HAL Investments B.V. ("HAL"). A copy of the BV Purchase Agreement is filed as Exhibit 2.2 hereto. Prior to such disposition, the Company assigned all of its rights and obligations under the BV Purchase Agreement to Pearle and Pearle Vision in order to effectuate the transaction. The Company has an equity ownership interest of approximately 20% in Pearle Trust. Pursuant to the BV Purchase Agreement, Pearle, Pearle Vision and Pearle Trust entered into a Trademark Assignment Agreement dated November 15, 1996, under which certain trademarks necessary for the continued operation of Pearle Trust were assigned or licensed to Pearle Trust. A copy of the Trademark Assignment Agreement is filed as Exhibit 99.2 hereto. Pearle Trust paid an aggregate purchase price of approximately NLG 102,000,000 for the shares of Pearle Holdings and related assets. Following the sale of Pearle Holdings, and the distribution to the Company of the proceeds thereof, the Company transferred the PSC Shares and the Pearle Shares to Cole National Group, Inc. ("Cole Group"), a wholly owned subsidiary of the Company, for an aggregate purchase price of $154,000,000 (the "Pearle Transfer"). The Pearle Transfer was accomplished pursuant to a Purchase Agreement (the "Transfer Agreement") dated November 15, 1996, by 2 3 and among the Company and Cole Group. A copy of the Transfer Agreement is filed as Exhibit 2.3 hereto. Additionally, under the Transfer Agreement, the Company assigned to Cole Group all of the Company's rights and obligations under the Stock Purchase Agreement except for those rights and obligations which are necessary for the Company to fulfil its obligations under the BV Purchase Agreement. Cole Group financed the Pearle Transfer and the purchase of the Senior Notes through (i) cash on hand, (ii) intercompany borrowings from the Company, and (iii) the private sale of $150,000,000 of Cole Group's 9 7/8% Senior Subordinated Notes due 2006, under an Indenture (the "Indenture") dated November 15, 1996 by and among Cole Group and Norwest Bank Minnesota, National Association. A copy of the Indenture is filed as Exhibit 4.1 hereto. As part of the above transactions, certain wholly owned subsidiaries of Cole Group entered into a $75,000,000 Credit Agreement (the "Credit Agreement") dated November 15, 1996, by and among Cole Vision Corporation, Things Remembered, Inc. Cole Gift Centers, Inc., Pearle and PSC and Canadian Imperial Bank of Commerce. A copy of the Credit Agreement is filed as Exhibit 99.1 hereto. 3 4 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. ----------------------------------------------------- (a) Financial Statements of Businesses Acquired. To be filed by amendment within 60 days of November 15, 1996. (b) Pro Forma Financial Information. To be filed by amendment within 60 days of November 15, 1996. (c) Exhibits. 2.1 Stock Purchase Agreement, dated as of September 24, 1996, among The Pillsbury Company, Pearle, Inc. and Cole National Corporation. 2.2 Purchase Agreement, dated as of September 24, 1996, among Cole National Corporation and HAL Investments B.V. 2.3 Purchase Agreement, dated as of November 15, 1996, among Cole National Corporation and Cole National Group, Inc. 4.1 Indenture dated November 15, 1996, by and among Cole National Group, Inc. and Norwest Bank Minnesota, National Association. 4.2 Registration Rights Agreement dated November 15, 1996, by and among Cole National Group, Inc. and CIBC Wood Gundy Securities Corp., CS First Boston Corporation, NationsBanc Capital Markets, Inc. and Smith Barney Inc. 99.1 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. 99.2 Trademark Assignment Agreement, dated November 15, 1996, between Pearle, Inc., Pearle Vision, Inc. and Pearle Trust B.V. 99.3 CNG Guarantee and Cash Collateral Agreement, dated as of November 15, 1996, by Cole National Group, Inc. and Cole National Corporation. 4 5 99.4 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. 5 6 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COLE NATIONAL CORPORATION Date: December 2, 1996 By:/s/ Wayne L. Mosley ----------------------------- Wayne L. Mosley Vice President 6 7 EXHIBIT INDEX -------------
Pagination by Sequential Numbering Exhibit Description of Exhibit System - ------- ---------------------- -------------------- 2.1 Stock Purchase Agreement dated September 24, 1996, by and among Cole National Corporation, Pearle, Inc. and The Pillsbury Company. 2.2 Purchase Agreement dated September 24, 1996, by and among Cole National Corporation and HAL Investments B.V. 2.3 Purchase Agreement dated November 15, 1996, by and among Cole National Corporation and Cole National Group, Inc. 4.1 Indenture dated November 15, 1996, by and among Cole National Group, Inc. and Norwest Bank Minnesota, National Association. 4.2 Registration Rights Agreement dated November 15, 1996, by and among Cole National Group, Inc. and CIBC Wood Gundy Securities Corp., CS First Boston Corporation, NationsBanc Capital Markets, Inc. and Smith Barney Inc. 99.1 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. 99.2 Trademark Assignment Agreement, dated November 15, 1996, between Pearle, Inc., Pearle Vision, Inc. and Pearle Trust B.V. 99.3 CNG Guarantee and Cash Collateral Agreement, dated as of November 15, 1996, by Cole National Group, Inc. and Cole National Corporation. 99.4 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.
7 EX-2.1 2 EXHIBIT 2.1 1 Exhibit 2.1 ----------------------------------------------------- STOCK PURCHASE AGREEMENT among THE PILLSBURY COMPANY, PEARLE, INC. and COLE NATIONAL CORPORATION Dated as of September 24, 1996 ----------------------------------------------------- 2 TABLE OF CONTENTS -----------------
Page ---- ARTICLE I --------- Section 1.1 Specific Definitions.............................................................. 2 Section 1.2 Other Terms....................................................................... 12 Section 1.3 Other Definitional Provisions..................................................... 12 ARTICLE II ---------- PURCHASE AND SALE OF PSC SHARES AND PEARLE SHARES ------------------------------------------------- Section 2.1 Purchase and Sale of PSC Shares and Pearle Shares........................................................................ 12 Section 2.2 Closing; Delivery and Payment..................................................... 13 Section 2.3 Purchase Price Adjustments and Reconciliation of Debt Reduction Amount...................................................... 14 ARTICLE III ----------- REPRESENTATIONS AND WARRANTIES OF SELLER ---------------------------------------- Section 3.1 Organization and Authority of Seller.............................................. 19 Section 3.2 Organization, Authority and Qualification of Pearle........................................................................ 21 Section 3.3 Capitalization of Pearle and PSC.................................................. 22 Section 3.4 Subsidiaries of Pearle............................................................ 24 Section 3.5 Franchise Agreements.............................................................. 26 Section 3.6 Financial Information............................................................. 27 Section 3.7 Absence of Undisclosed Liabilities................................................ 30 Section 3.8 Absence of Certain Changes or Events.............................................. 30 Section 3.9 Title to Properties; Absence of Liens and Encumbrances, etc............................................................. 31 Section 3.10 Litigation........................................................................ 33 Section 3.11 Compliance with Law............................................................... 33 Section 3.12 Contracts......................................................................... 34 Section 3.13 Consents and Approvals............................................................ 36 Section 3.14 Tax Matters....................................................................... 36 Section 3.15 Intellectual Property............................................................. 37 Section 3.16 Collective Bargaining Agreements.................................................. 39 Section 3.17 Employee Benefits................................................................. 39 Section 3.18 Environmental Matters............................................................. 45 Section 3.19 Insurance......................................................................... 46 Section 3.20 Improper Payments................................................................. 47 Section 3.21 Warranties........................................................................ 47 Section 3.22 Condition of Assets............................................................... 47 Section 3.23 Brokers and Finders............................................................... 48 Section 3.24 No Other Representations or Warranties............................................ 48
3 ARTICLE IV ---------- REPRESENTATIONS AND WARRANTIES OF BUYER ---------------------------------------
Section 4.1 Organization and Authority of Buyer............................................... 49 Section 4.2 Brokers and Finders............................................................... 50 Section 4.3 Financial Capability.............................................................. 50 Section 4.4 Securities Act.................................................................... 51 Section 4.5 Consents and Approvals............................................................ 52 Section 4.6 No Other Representations or Warranties............................................ 52 ARTICLE V --------- TAX AND CERTAIN EMPLOYEE MATTERS -------------------------------- Section 5.1 Tax Sharing....................................................................... 52 Section 5.2 338 Election, Tax Indemnification................................................. 52 Section 5.3 Tax Returns....................................................................... 55 Section 5.4 Contest Provisions................................................................ 56 Section 5.5 Information to Be Provided by Buyer............................................... 58 Section 5.6 Assistance and Cooperation........................................................ 58 Section 5.7 Post-Closing Actions Which May Affect the Seller's Liability for Taxes.................................................. 59 Section 5.8 Intentionally Deleted............................................................. 60 Section 5.9 Computation of Losses Subject to Indemnification............................................................... 60 Section 5.10 Transfer Taxes.................................................................... 60 Section 5.11 Certain Employee Payment Obligations.............................................. 60 Section 5.12 Survival of Obligations........................................................... 62 ARTICLE VI ---------- CERTAIN COVENANTS AND AGREEMENTS OF SELLER AND BUYER -------------------------------- Section 6.1 Access and Information............................................................ 62 Section 6.2 Registrations, Filings and Consents............................................... 64 Section 6.3 Conduct of Business............................................................... 65 Section 6.4 Certain Buyer Obligations......................................................... 70 Section 6.5 Employee Matters.................................................................. 71 Section 6.6 Retention of Books and Records.................................................... 74 Section 6.7 Closing Date Financial Information................................................ 75 Section 6.8 Delivery of Corporate Minutes and Bank Signature Cards............................................................... 75 Section 6.9 Covenant Not-to-Compete........................................................... 76 Section 6.10 Eyelab and Pearle Marks........................................................... 78 Section 6.11 Audited Financial Statements...................................................... 79 Section 6.12 Certain Consents.................................................................. 80 Section 6.13 Transition Services............................................................... 81 Section 6.14 Financing......................................................................... 81 Section 6.15 Insurance Claims.................................................................. 82
-ii- 4
Section 6.16 Ownership of PSC.................................................................. 83 Section 6.17 Further Assurances................................................................ 83 Section 6.18 BV Pension Provision ARTICLE VII ----------- CONDITIONS TO CLOSING --------------------- Section 7.1 Conditions to Obligations of Buyer................................................ 86 Section 7.2 Conditions to Obligations of Seller............................................... 89 Section 7.3 Conditions to Obligations of Buyer and Seller........................................................................ 90 ARTICLE VIII ------------ TERMINATION ----------- Section 8.1 Termination....................................................................... 91 Section 8.2 Effect of Termination............................................................. 92 ARTICLE IX ---------- SURVIVAL AND INDEMNIFICATION ---------------------------- Section 9.1 Survival of Representations, Warranties, Covenants and Agreements; Knowledge of Breach........................................................................ 92 Section 9.2 Indemnification................................................................... 94 Section 9.3 Method of Asserting Claims, etc.................................................. 101 ARTICLE X --------- MISCELLANEOUS ------------- Section 10.1 Amendment and Modification; Waiver................................................105 Section 10.2 Return of Information.............................................................105 Section 10.3 Expenses..........................................................................106 Section 10.4 Public Disclosure.................................................................106 Section 10.5 Assignment........................................................................107 Section 10.6 Entire Agreement..................................................................107 Section 10.7 Fulfillment of Obligations........................................................108 Section 10.8 Parties in Interest; No Third Party Beneficiaries.................................................................108 Section 10.9 Schedules.........................................................................108 Section 10.10 Counterparts......................................................................108 Section 10.11 Section Headings..................................................................109 Section 10.12 Notices...........................................................................109 Section 10.13 Mediation.........................................................................110 SECTION 10.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF FORUM............................................................112 Section 10.15 Severability......................................................................113
-iii- 5 SCHEDULES - --------- Schedule 2.2(a) PSC Assets and Liabilities Schedule 2.3(c) Adjustments to Closing Date Working Capital Schedule 3.4 Subsidiaries of Pearle Schedule 3.5 Franchise Agreements Schedule 3.6(a) Financial Information Schedule 3.6(b) BV Financial Information Schedule 3.7 Undisclosed Liabilities Schedule 3.8 Certain Changes or Events Schedule 3.9 Liens, Encumbrances, etc. Schedule 3.10 Litigation Schedule 3.11 Compliance With Law Schedule 3.12 Contracts Schedule 3.13 Consents Schedule 3.14 Tax Matters Schedule 3.15 Intellectual Property Schedule 3.16 Collective Bargaining Agreements Schedule 3.17 Company Plans Schedule 3.18 Environmental Matters Schedule 3.19 Insurance Policies Schedule 3.21 Warranties Schedule 3.22 Condition of Assets Schedule 4.3 Financing Arrangements Schedule 6.3(g) Promotions Schedule 6.9(a) Competing Businesses -iv- 6 Schedule 6.9(c) Solicited Employees Schedule 7.1(b) Form of Opinion of Counsel of Seller Schedule 7.2(b) Form of Opinion of Counsel of Buyer -v- 7 STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of September 24, 1996, among THE PILLSBURY COMPANY, a Delaware corporation ("Seller"), PEARLE, INC., a Delaware corporation ("Pearle" or the "Company") and COLE NATIONAL CORPORATION, a Delaware corporation ("Buyer"). W I T N E S S E T H: WHEREAS, Seller owns all of the issued and outstanding shares of capital stock of Pearle; WHEREAS, Pearle owns, directly or indirectly, all of the issued and outstanding shares of capital stock of Pearle Service Corporation ("PSC"); WHEREAS, Buyer desires to purchase from Pearle, or one of its Subsidiaries, all of the issued and outstanding shares of PSC capital stock (consisting of 100 shares of common stock, par value $1.00 per share (the "PSC Shares")), after which time Pearle will distribute the proceeds of such sale to Seller, and Buyer and Pearle, along with Seller and its Continuing Affiliates, desire to make an election under Section 338(h)(10) of the Code with respect to the PSC Shares, as more specifically provided herein; WHEREAS, following the purchase of the PSC Shares and the distribution of the proceeds of such sale by Pearle, Buyer desires to purchase from Seller all of the issued and outstanding shares of Pearle capital stock (consisting of 100 shares of common stock, par value $1.00 per share (the "Pearle Shares")), as more specifically provided herein; and 8 NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and subject to and on the terms and conditions herein set forth, the parties hereto agree as follows: ARTICLE I --------- Section 1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth or as referenced below: "ADJUSTMENT STATEMENT" shall have the meaning set forth in Section 2.3(c). "ADJUSTMENT WORKPAPERS" shall mean the workpapers of KPMG prepared in the course of auditing the Closing Date Balance Sheet and its calculation of Closing Date Working Capital and the Adjustment Statement, excluding any audit planning memoranda or audit programs. "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by or under common control with that Person. "AGREEMENT" shall mean this Agreement and all Schedules hereto. "ANTITRUST DIVISION" shall mean the Antitrust Division of the United States Department of Justice. "AUDITED BV FINANCIAL INFORMATION" shall have the meaning set forth in Section 3.6(b). "AUDITED FINANCIAL INFORMATION" shall have the meaning set forth in Section 3.6(a). -2- 9 "BALANCE SHEET" shall have the meaning set forth in Section 3.6(a). "BUSINESS" shall have the meaning set forth in Section 6.9. "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day on which banks in New York City, New York are authorized or obligated by law or executive order to close. "BUYER" shall have the meaning set forth in the Preamble. "BV FINANCIAL INFORMATION" shall have the meaning set forth in Section 3.6(b). "BV PENSION PROVISION" shall have the meaning set forth in Section 6.18. "CALCULATED RECEIVABLES SETTLEMENT" shall have the meaning set forth in Section 9.2(a). "CLAIM NOTICE" shall have the meaning set forth in Section 9.3. "CLOSING" shall have the meaning set forth in Section 2.2(a). "CLOSING DATE" shall have the meaning set forth in Section 2.2(a). "CLOSING DATE BALANCE SHEET" shall mean an audited consolidated balance sheet of Pearle and the Subsidiaries as of the Closing Date, which shall be prepared by Seller in accordance with U.S. generally accepted accounting principles, applied on a -3- 10 basis consistent with the Balance Sheet, based on data and financial statements supplied by Buyer and Pearle, together with the audit report of KPMG. "CLOSING DATE WORKING CAPITAL" shall mean the current assets less the current liabilities of Pearle North America at the Closing Date, prepared in conformity with the calculation set forth on Schedule 2.3(c). "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMPANY PLANS" shall have the meaning set forth in Section 3.17. "CONFIDENTIALITY AGREEMENT" shall have the meaning set forth, in Section 6.1(b). "CONSENT" shall have the meaning set forth in Section 6.12. "CONTINUING AFFILIATE" shall mean Affiliates of Seller other than Pearle and its Subsidiaries. "DAMAGE THRESHOLD" shall have the meaning set forth in Section 9.1. "DEBT REDUCTION AMOUNT" shall have the meaning set forth in Section 2.3(a). "DEBT STATEMENT" shall have the meaning set forth in Section 2.3(c). "DEDUCTIBLE" shall have the meaning set forth in Section 9.1. -4- 11 "DETERMINED RECEIVABLES AMOUNT" shall have the meaning set forth in Section 9.2(a). "ENCUMBRANCES" shall have the meaning set forth in Section 3.3. "ENVIRONMENTAL LAW" means any law, regulation, code, license, permit, order, judgment, decree or injunction relating to the protection of the environment (including air, water, soil and natural resources) or the use, storage, handling, release or disposal of any hazardous or toxic substance as in effect on the date hereof. "ERISA" shall have the meaning set forth in Section 3.17. "ERISA AFFILIATE" shall have the meaning set forth in Section 3.17. "EYELAB MARKS" shall have the meaning set forth in Section 6.10. "ESTIMATED SHORT-TERM DEBT AMOUNT" shall have the meaning set forth in Section 2.3(a). "FINAL ADJUSTMENT STATEMENT" shall have the meaning set forth in Section 2.3(d). "FINANCIAL INFORMATION" shall have the meaning set forth in Section 3.6(a). "FRANCHISE AGREEMENTS" shall have the meaning set forth in Section 3.5. -5- 12 "FRANCHISE LAWS" shall have the meaning set forth in Section 3.5. "FRANCHISEE RECEIVABLES" shall have the meaning set forth in Section 9.2(a). "FSA" shall have the meaning set forth in Section 3.17 (i). "FTC" shall mean the Federal Trade Commission. "HAZARDOUS SUBSTANCE" means any substance listed, defined, designated or classified as hazardous, toxic or radioactive under any applicable Environmental Law, including petroleum and any derivative or by-products thereof, asbestos that is or may become friable, and polychlorinated biphenyls in regulated concentrations. "HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 9.2. "INDEMNIFYING PARTY" shall have the meaning set forth in Section 9.2. "INITIAL SALE" shall have the meaning set forth in Section 2.1. "INTELLECTUAL PROPERTY" shall mean trademarks, service marks, brand names, certification marks, trade dress, assumed names, trade names and other indications of origin, the goodwill associated with the foregoing, the rights thereto and registrations in any jurisdiction of, and applications in any -6- 13 jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application; inventions, discoveries and ideas, whether patentable or not in any jurisdiction; patents, applications for patents (including, without limitation, divisions, continuations, continuations in-part and renewal applications), and any renewals, extensions or reissues thereof, in any jurisdiction; non-public information, trade secrets and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any Person; all copyrights, in writings and other works, and writings and other works, whether copyrightable or not in any jurisdiction; registrations or applications for registration of copyrights in any jurisdiction, any design rights and any renewals or extensions thereof; any similar intellectual property or proprietary rights; and any claims or causes of action arising out of or related to any infringement or misappropriation of any of the foregoing. "INTERIM BV FINANCIAL INFORMATION" shall have the meaning set forth in Section 3.6(b). "INTERIM FINANCIAL INFORMATION" shall have the meaning set forth in Section 3.6(a). "IRS" shall mean the Internal Revenue Service. "KPMG" shall mean KPMG Peat Marwick LLP. "LEASE AGREEMENTS" shall have the meaning set forth in Section 3.9. -7- 14 "LIABILITIES" shall have the meaning set forth in Section 3.7. "LOSSES" shall have the meaning set forth in Section 9.2(a). "MAJOR MARKS" shall have the meaning set forth in Section 3.15(b). "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the business, assets, liabilities, financial condition, properties, operations or results of operations of Pearle and the Subsidiaries considered as a whole. "NOTE PURCHASE AGREEMENT" shall mean the Note Purchase Agreement, dated September 27, 1991, by and among Pearle Vision, Inc., the Company and Societe Generale, New York Branch ("SocGen"), as amended. "NOTICE PERIOD" shall have the meaning set forth in Section 9.3. "OWNED REAL PROPERTY" shall have the meaning set forth in Section 3.9. "PAST DUE RECEIVABLES" shall have the meaning set forth in Section 9.2(a). "PEARLE" shall have the meaning set forth in the Preamble. "PEARLE HOLDINGS" shall mean Pearle Holdings B.V., a corporation organized under the laws of the Netherlands. "PEARLE MARKS" shall have the meaning set forth in Section 6.10. -8- 15 "PEARLE NORTH AMERICA" shall mean Pearle and its Subsidiaries to the extent referred to as "Adjusted North America & Caribbean" on the Condensed Combining Pro Forma Balance Sheet attached to the Balance Sheet. "PEARLE SHARES" shall have the meaning set forth in the Preamble. "PENSION PLAN" shall have the meaning set forth in Section 3.17. "PERMITTED ENCUMBRANCES" shall have the meaning set forth in Section 3.9. "PERSON" means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, governmental or regulatory body or other entity. "PRE-CLOSING TAX PERIOD" shall have the meaning set forth in Section 5.2(c). "PRIME RATE" shall mean the rate per annum equal to the publicly announced prime commercial lending rate of The Morgan Guaranty Trust Company of New York in effect from time to time, changing as such publicly announced rate changes, effective as of the date such change is publicly announced. "PSC" shall have the meaning set forth in the Preamble. "PSC SHARES" shall have the meaning set forth in the Preamble. "PURCHASE PRICE" shall have the meaning set forth in Section 2.1. -9- 16 "RECEIVABLES CALCULATION DATE" shall have the meaning set forth in Section 9.2(a). "RECEIVABLES DETERMINATION PERIOD" shall have the meaning set forth in Section 9.2(a). "RECEIVABLES WRITEOFF AMOUNT" shall have the meaning set forth in Section 9.2(a). "RECEIVABLES SCHEDULE" shall have the meaning set forth in Section 9.2(a). "REPORT" shall have the meaning set forth in Section 6.2(a). "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SELLER" shall have the meaning set forth in the Preamble. "SELLER'S GROUP" shall mean any "affiliated group" (as defined in Section 1504(a) of the Code without regard to the limitations contained in Section 1504(b) of the Code) that includes Seller and Pearle. "SUBSEQUENT SALE" shall have the meaning set forth in Section 2.1. "SUBSIDIAR[Y][IES]" shall have the meaning set forth in Section 3.4. "TAXES" shall mean all federal, state, local or foreign income, gross receipts, windfall or excess profits, severance, property, production, sales, use, license, capital, value added, ad valorem, transfer, excise, franchise, employment, withholding -10- 17 or other taxes, duties or similar governmental charges or assessments (whether or not any such item is accounted for as a tax) imposed by or on behalf of any governmental authority and, with regard to Pearle Holdings and its subsidiaries, shall also include customs duties, environmental taxes, national luxury tax on vehicles, road taxes, social security premiums or employee insurance premiums or similar governmental charges or assessments (whether or not any such item is accounted for as a tax) imposed by or on behalf of any governmental authority, together, in every case, with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties. "TAX PACKAGE" shall have the meaning set forth in Section 5.5. "TAX RETURNS" shall mean all federal, state, local or foreign tax returns, tax reports, and declarations of estimated tax (including any schedules or attachments to any thereto), including without limitation consolidated, combined and unitary state tax returns and consolidated federal income tax returns. "THIRD PARTY CLAIM NOTICE" shall have the meaning set forth in Section 9.3. "UNAFFILIATED FIRM" shall mean an unaffiliated "big six" accounting firm to be selected and agreed upon by Buyer and Seller. "WORKING CAPITAL ADJUSTMENT AMOUNT" shall have the meaning set forth in Section 2.3(e). -11- 18 Section 1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of this Agreement and, unless otherwise indicated, shall have such meaning indicated throughout this Agreement. Section 1.3 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof", "herein", and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (b) The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (c) The terms "dollars" and "$" shall mean United States Dollars. The term "NLG" shall mean Dutch guilders. ARTICLE II ---------- PURCHASE AND SALE OF PSC SHARES AND PEARLE SHARES ------------------------------------------------- Section 2.1 PURCHASE AND SALE OF PSC SHARES AND PEARLE SHARES. Buyer agrees to purchase from Pearle, or one of its Subsidiaries, and Pearle, or one of its Subsidiaries, agrees to sell to Buyer, the PSC Shares, for an aggregate purchase price of $22,300,000 (the "Initial Sale"). After Pearle has distributed the proceeds of such sale to Seller, Buyer agrees to purchase from Seller, and Seller agrees to sell to Buyer, the Pearle Shares, for an aggregate purchase price of $137,460,000 and 100,000,000 NLG (the "Subsequent Sale"). The sum of the aggregate purchase price for the Initial Sale and the aggregate purchase price for the Subsequent Sale is hereinafter referred to -12- 19 as the "Purchase Price". The parties agree to negotiate in good faith between the date hereof and the Closing Date to reallocate the Purchase Price between the Initial Sale and the Subsequent Sale if the relative values of the PSC Shares and the Pearle Shares are determined to be different than implied by this Section 2.1. Section 2.2 CLOSING; DELIVERY AND PAYMENT. (a) The closing of the Initial Sale and Subsequent Sale (collectively, the "Closing") shall take place at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 at 10:00 A.M. (local time), on November 15, 1996, or at such other time and place as the parties hereto may mutually agree. The Subsequent Sale shall occur immediately following the consummation of the Initial Sale and the distribution of the proceeds of the Initial Sale. The date on which the Closing occurs is called the "Closing Date," and the closing of the Initial Sale shall be deemed effective at 11:58 P.M. (local time) on the Closing Date and the closing of the Subsequent Sale shall be deemed effective at 11:59 P.M. (local time) on the Closing Date. Seller agrees and represents that the tax bases and book values of PSC's assets and liabilities as of immediately prior to the Closing shall be substantially as set forth on Schedule 2.2(a) hereto. (b) On the Closing Date, Seller shall deliver (or cause to be delivered) to Buyer certificates representing the PSC Shares and the Pearle Shares duly endorsed and in form for -13- 20 transfer to Buyer, and Buyer shall pay to Seller the Purchase Price (minus any adjustment made pursuant to Section 2.3) for the PSC Shares and the Pearle Shares in immediately available funds to an account or accounts designated by Seller not less than two Business Days prior to the Closing. (c) On the Closing Date, all intercompany accounts between Pearle or the Subsidiaries, on the one hand, and Seller or its Continuing Affiliates, on the other hand, shall be cancelled, and the respective amounts shall be recorded as contributions to capital or by way of distribution in kind, as the case may be. Section 2.3 PURCHASE PRICE ADJUSTMENTS AND RECONCILIATION OF DEBT REDUCTION AMOUNT. (a) Not less than two Business Days prior to the Closing Date, Seller shall deliver to Buyer a written statement identifying (i) the amount of any long-term debt of Pearle or any of the Subsidiaries as of the Closing Date, (ii) the amount of the current maturities of long-term debt of Pearle and the Subsidiaries as of the Closing Date, (iii) an estimate of the amount equal to the sum of the short-term debt and any cash overdraft of Pearle and the Subsidiaries (the "Estimated Short- Term Debt Amount"), and (iv) an amount representing the sum of clauses (i) through (iii) above (the "Debt Reduction Amount"), in each case excluding any amounts that will be discharged or otherwise eliminated as of the Closing Date. The Purchase Price -14- 21 shall be reduced dollar-for-dollar (as set forth in (f)) by the amount of the Debt Reduction Amount, if any. (b) Any amount to be set forth in a written statement to be delivered by Seller pursuant to this Section 2.3 which is in a local currency shall be converted into U.S. currency at an exchange rate equal to the spot rate for such currency as published in THE WALL STREET JOURNAL on the last day of its publication prior to the second Business Day prior to the Closing Date. (c) As soon as reasonably practicable, but not later than 90 calendar days after the Closing Date, Seller shall deliver to Buyer the Closing Date Balance Sheet, including a calculation of Closing Date Working Capital (collectively with the Closing Date Balance Sheet, the "Adjustment Statement"), together with a determination of actual short-term debt and any cash overdraft of Pearle and the Subsidiaries at the Closing Date (the "Debt Statement") and shall cause KPMG to give Buyer and its accountants access to all of the Adjustment Workpapers. The Adjustment Statement, together with any notes thereto, will be examined by and accompanied by the report of KPMG stating that in the opinion of such firm, the Adjustment Statement presents fairly, in all material respects, the Closing Date Balance Sheet and the Closing Date Working Capital, prepared in accordance with United States generally accepted accounting principles, subject to any adjustments set forth in Schedule 2.3(c). Buyer and its representatives and accountants shall have the right to -15- 22 participate in and observe the process of the preparation of the Adjustment Statement, including the taking of a physical inventory, if any, and the pricing thereof. Buyer shall, and shall cause Pearle to, provide Seller and KPMG (i) all data and financial statements reasonably requested by Seller and (ii) reasonable access to the books and records, any other information, including work papers of its accountants, and to any employees of Pearle and the Subsidiaries to the extent necessary for the preparation of the Closing Date Balance Sheet and the Adjustment Statement. (d) Within 30 calendar days after receipt of the Adjustment Statement and the giving of access to all of the Adjustment Workpapers, Buyer shall either inform Seller in writing that the Adjustment Statement is acceptable or object to the Adjustment Statement in writing setting forth a specific description of its objections. If Buyer so objects and the parties do not resolve such objections on a mutually agreeable basis within 30 calendar days after Seller's receipt thereof, the disagreement shall be resolved within an additional 30 calendar day period by an Unaffiliated Firm. The decision of the Unaffiliated Firm shall be final and binding upon the parties. Upon the agreement of the parties or the decision of the Unaffiliated Firm as to all matters objected to, or if Buyer fails to deliver an objection to Seller within the 30 calendar day period provided above in the first sentence hereof, the Adjustment Statement (as adjusted, if necessary) shall be deemed -16- 23 the Final Adjustment Statement (the "Final Adjustment Statement") and the determination of Closing Date Working Capital as set forth in the Final Adjustment Statement shall be deemed final. Each party shall bear the fees, costs and expenses of its own accountants and shall share equally the fees, costs and expenses of the Unaffiliated Firm. Buyer and Seller shall (and Buyer shall cause Pearle to) make readily available to the Unaffiliated Firm all relevant books and records and any work papers (including those of the parties' respective accountants and the Adjustment Workpapers) relating to the Balance Sheet and the Closing Date Balance Sheet and all other items reasonably requested by the Unaffiliated Firm. (e) Upon the determination of the Final Adjustment Statement and Closing Date Working Capital in accordance with Section 2.3(d), the Purchase Price shall be adjusted, up or down, as follows: (i) if the Closing Date Working Capital is GREATER than $21,885,000, Buyer shall pay or cause to be paid to Seller the amount of such difference, and (ii) if the Closing Date Working Capital is LESS than $21,885,000, Seller shall pay or cause to be paid to Buyer and/or one or more designees of Buyer the amount of such difference (the "Working Capital Adjustment Amount"), as adjusted pursuant to Section 2.3(f). (f) Upon the determination of the Final Adjustment Statement and Closing Date Working Capital in accordance with Section 2.3(d), the Debt Reduction Amount shall be adjusted, up or down, as follows: (i) if the short-term debt and any cash -17- 24 overdrafts included in the Debt Statement is GREATER than the Estimated Short-Term Debt Amount, the Working Capital Adjustment Amount shall be adjusted dollar-for-dollar so that such difference is for the benefit of Buyer (and/or its designees), and (ii) if the amount of short-term debt and any cash overdrafts included in Closing Date Working Capital is LESS than the Estimated Short-Term Debt Amount, the Working Capital Adjustment Amount shall be adjusted dollar-for-dollar so that such difference is for the benefit of Seller (and/or its designees). (g) An amount equal to the Working Capital Adjustment Amount, as adjusted pursuant to Section 2.3(f), shall be paid by wire transfer of immediately available funds within five Business Days after the date that the determination of Closing Date Working Capital is deemed final in accordance with Section 2.3(d), together with interest thereon from the Closing Date to the date of payment calculated at the Prime Rate. ARTICLE III ----------- REPRESENTATIONS AND WARRANTIES OF SELLER ---------------------------------------- Pearle and Seller, with respect only to Sections 3.1, 3.2, 3.3, 3.13, 3.14, 3.23 and 3.24 hereof, represent and warrant to Buyer as of the date hereof and as of the Closing Date (except that representations and warranties that are made as of a specific date need be true only as of such date) as follows: Section 3.1 ORGANIZATION AND AUTHORITY OF SELLER. Seller has been duly incorporated, is validly existing and is in good standing under the laws of the State of Delaware, with full -18- 25 power and authority to enter into this Agreement and to perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by Seller and constitutes a legal, valid and binding obligation of Seller, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles, and no other proceedings on the part of Seller are necessary to authorize this Agreement and the consummation of the transactions contemplated hereby. Neither the execution and delivery of this Agreement nor compliance by Seller with its terms and provisions will (a) violate any provision of the certificate of incorporation or by-laws of Seller; (b) subject to obtaining the consents referred to in Section 3.13, conflict with, or result in the breach of, or constitute a default under, or result in the termination, cancellation or acceleration (whether after the giving of notice or the lapse of time or both) of any right or obligation of Seller, or to a loss of any benefit to which Seller is entitled under, any contract, franchise, license, agreement, lease, indenture or other instrument to which Seller is a party; or (c) assuming compliance with the matters set forth in Sections 3.13 and 4.5, to the knowledge of Seller, violate or result in a breach of or constitute a default under any law, rule, regulation, judgment, injunction, order, decree or other restriction of any court or governmental authority to which -19- 26 Seller is subject, except where, in all cases, individually or in the aggregate such violation, conflict, breach, termination, default, cancellation, acceleration or loss would not be reasonably likely to prohibit or materially impair or delay Seller's ability to perform its obligations under this Agreement. Section 3.2 ORGANIZATION, AUTHORITY AND QUALIFICATION OF PEARLE. Pearle is duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with full power and authority to own or lease its assets and to carry on its business substantially as currently conducted and is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where, individually or in the aggregate, the failure to be so qualified would be reasonably likely to have a Material Adverse Effect. Neither the execution and delivery of this Agreement nor compliance by Pearle or any Subsidiary with its terms and provisions will (a) violate any provision of the certificate of incorporation or by-laws (or comparable governing instruments) of Pearle or any Subsidiary; (b) subject to obtaining the consents referred to in Section 3.13, conflict with, or result in the breach of, or constitute a default under, or result in the termination, cancellation or acceleration (whether after the giving of notice or the lapse of time or both) of any right or obligation of Pearle or any of the Subsidiaries, or to a loss of any benefit to which Pearle or any of the Subsidiaries is entitled under, any contract, franchise, license, agreement, lease, indenture or -20- 27 other instrument to which Pearle or any of the Subsidiaries is a party; or (c) assuming compliance with the matters set forth in Sections 3.13 and 4.5, to the knowledge of Pearle, violate or result in a breach of or constitute a default under any law, rule, regulation, judgment, injunction, order, decree or other restriction of any court or governmental authority to which Pearle or any of the Subsidiaries is subject, except where, in all cases (other than those relating to the certificate of incorporation or by-laws (or comparable governing instruments) of Pearle or any Subsidiary or any contract required to be disclosed on Schedule 3.12 or any governmental permit or license the failure of which to maintain would be reasonably likely to impair the ability of Pearle or any Subsidiary to conduct its business substantially in the ordinary and usual course consistent with past practice), alone or in the aggregate, such violation, conflict, breach, termination, default, cancellation, acceleration or loss would not be reasonably likely to have a Material Adverse Effect. Section 3.3 CAPITALIZATION OF PEARLE AND PSC. (a) The authorized capital stock of Pearle consists of 1,000 shares of common stock, par value $1.00 per share, of which only the Pearle Shares are validly issued and outstanding. The Pearle Shares are duly authorized, validly issued, fully paid and nonassessable and are owned of record and beneficially by Seller. Seller has good and valid title to the Pearle Shares and, upon consummation of the transactions contemplated in this Agreement, shall have -21- 28 transferred such title to the Pearle Shares to Buyer pursuant to the terms of this Agreement, free and clear of any liens, charges, pledges, security interests, adverse claims or other encumbrances (collectively, "Encumbrances"), other than such Encumbrances which were incurred by Buyer or caused to be incurred by Pearle or any Subsidiary by Buyer as a result of the transactions contemplated by this Agreement. There are no preemptive or other outstanding rights, subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities or other agreements or arrangements of any character or nature whatsoever under which Seller, Pearle or its Subsidiaries is or may become obligated to vote, issue, assign or transfer any shares of the capital stock, or rights or warrants to acquire, or securities convertible into shares of capital stock, of Pearle or any of its Subsidiaries. (b) The authorized capital stock of PSC consists of 1,000 shares of common stock, par value $1.00 per share, of which only the PSC Shares are validly issued and outstanding. The PSC Shares are duly authorized, validly issued, fully paid and nonassessable and are owned of record and beneficially by Pearle. Pearle has good and valid title to the PSC Shares and, upon consummation of the transactions contemplated in this Agreement, shall have transferred such title to the PSC Shares to Buyer pursuant to the terms of this Agreement, free and clear of any Encumbrances, other than such Encumbrances which were incurred by Buyer or caused to be incurred by Pearle or any Subsidiary by -22- 29 Buyer as a result of the transactions contemplated by this Agreement. There are no preemptive or other outstanding rights, subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities or other agreements or arrangements of any character or nature whatsoever under which Seller, Pearle or its Subsidiaries is or may become obligated to vote, issue, assign or transfer any shares of the capital stock, or rights or warrants to acquire, or securities convertible into shares of capital stock, of PSC or any of its Subsidiaries. Section 3.4 SUBSIDIARIES OF PEARLE. Schedule 3.4 hereto lists the name of each subsidiary of Pearle in which Pearle owns, beneficially or of record directly or indirectly, securities representing 50 percent (50%) or more of the aggregate voting power (each a "Subsidiary," and, collectively, the "Subsidiaries"), together with the jurisdiction of its organization and the record and beneficial holder of all shares of such Subsidiary. The shares of capital stock of each Subsidiary that are owned by Pearle or a Subsidiary, as the case may be, are free and clear of all Encumbrances, other than such Encumbrances which were incurred by Buyer or caused to be incurred by Buyer, directly or indirectly, as a result of the transactions contemplated by this Agreement; all such capital stock is duly authorized, validly issued, fully paid and nonassessable and, except as set forth on Schedule 3.4 hereto, such shares are the only shares of capital stock of such Subsidiaries issued and outstanding. Each Subsidiary is a -23- 30 corporation duly organized, validly existing and (in jurisdictions recognizing the concept of good standing) in good standing under the laws of its jurisdiction of organization, has the power and authority to own or lease its assets and to carry on its business substantially as it is now being conducted, and is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction where the ownership or operation of its properties and assets or the conduct of its business requires such qualification, except where, individually or in the aggregate, the failure to be so qualified would not be reasonably likely to have a Material Adverse Effect. With respect to Pearle Holdings and each of its subsidiaries, there has been no proposal made or resolution adopted (by the competent corporate body(ies)) for the dissolution or liquidation of such company nor do any circumstances exist, to the knowledge of Pearle, which may result in the dissolution or liquidation of such company, and no proposal has been made or resolution adopted (by the competent corporate body(ies)) for the statutory merger of such company with another entity or for a splitting of such company, except where, individually or in the aggregate, such dissolution or liquidation would not be reasonably likely to have a Material Adverse Effect. Pearle does not own beneficially or of record, directly or indirectly, an equity or other ownership interest in any Person other than the Subsidiaries. Section 3.5 FRANCHISE AGREEMENTS. All franchise agreements between Pearle or its Subsidiaries and third parties -24- 31 as of the date hereof are hereinafter referred to as the Franchise Agreements. Schedule 3.5(i) hereto lists substantially all Franchise Agreements, copies of each of which, including any material addenda, modifications or side letters, have previously been made available to Buyer. Except as set forth on Schedule 3.5(ii) or to the extent that such defects, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect, all of the Franchise Agreements are valid and binding in accordance with their terms. Pearle is in compliance in all respects with all of its obligations under the Franchise Agreements and there exists, on the part of Pearle, no default with respect to any Franchise Agreement, except for those defaults listed on Schedule 3.5(iii) hereto and such failures to comply and defaults which, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect. Neither Pearle nor any Subsidiary has received notice of, and neither Pearle nor any Subsidiary has knowledge of, any default by any other party under any Franchise Agreement, except for those defaults listed on Schedule 3.5(iv) hereto and those defaults which, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect. Pearle is in compliance with all laws, rules and regulations of all governmental authorities in jurisdictions in which Pearle has franchises applicable to the sale of franchises or the service and operation of a franchise system ("Franchise Laws"), and the enforcement by Pearle or any Subsidiary of any Franchise -25- 32 Agreement in accordance with its terms will not violate any Franchise Law, except where such noncompliance or enforcement, as the case may be, would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect. Section 3.6 FINANCIAL INFORMATION. (a) Attached hereto as Schedule 3.6 (a) is a copy of (i) the audited consolidated balance sheets of Pearle and the Subsidiaries as of September 30, 1994 and September 30, 1995 and the consolidated statements of operations, stockholder's equity and cash flows for the fiscal years ended September 30, 1993, September 30, 1994 and September 30, 1995 (collectively, with the notes thereto and independent auditors report therein, the "Audited Financial Information") and (ii) a copy of the pro forma unaudited consolidated balance sheet (the "Balance Sheet") of Pearle and the Subsidiaries as of June 30, 1996 and the related consolidated statements of operations, stockholder's equity and cash flows for the nine months then ended (collectively, with the notes thereto, the "Interim Financial Information"). The Audited Financial Information and the Interim Financial Information (together, the "Financial Information") have been prepared in accordance with U.S. generally accepted accounting principles applied on a consistent basis (except as may be noted therein), and present fairly, in all material respects, the consolidated financial position of Pearle and its Subsidiaries as of September 30, 1994 and September 30, 1995 and June 30, 1996, respectively, and the consolidated statements of operations, stockholder's equity and -26- 33 cash flows of Pearle and its Subsidiaries for the fiscal years ended September 30, 1993, September 30, 1994 and September 30, 1995 and the nine months ended June 30, 1996, respectively, subject, in the case of the Interim Financial Information, to normal year-end adjustments and the notes regarding the pro forma adjustments reflected therein. (b) Attached hereto as Schedule 3.6(b) is a copy of (a) the audited consolidated balance sheets of Pearle Holdings and its subsidiaries as of September 30, 1994 and September 30, 1995 and the consolidated statements of operations for the fiscal years ended September 30, 1994 and September 30, 1995 and source of funds for the fiscal year ended September 30, 1995 (collectively, with the notes thereto and the independent auditors' report thereon, the "Audited BV Financial Information") and (b) a copy of the pro forma unaudited consolidated balance sheet of Pearle Holdings and its subsidiaries as of June 30, 1996 and the related consolidated statements of operations and source of funds for the nine months then ended (collectively, with the notes thereto, the "Interim BV Financial Information"). The Audited BV Financial Information and the Interim BV Financial Information (together, the "BV Financial Information") have been prepared in accordance with Dutch generally accepted accounting principles applied on a consistent basis (except as may be noted therein), and present, in all material respects, a true and fair view of the financial position and results of Pearle Holdings and its subsidiaries as of September 30, 1994, September 30, 1995 and -27- 34 June 30, 1996, respectively, and the results for the fiscal years ended September 30, 1994 and September 30, 1995 and the nine months ended June 30, 1996, respectively, subject, in the case of the Interim BV Financial Information, to normal year-end adjustments and the notes regarding the pro forma adjustments reflected therein. Except as set forth in Schedule 3.6(a) or (b) or Schedule 3.8, from and after October 1, 1995, there has not been any change by Pearle or Pearle Holdings in accounting principles (including tax accounting principles), practices or methods. Section 3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in or provided for and fully reserved against in the Financial Information or the BV Financial Information or as set forth in Schedule 3.7 hereto, there are no debts, liabilities or obligations, whether accrued, contingent, absolute, determined, determinable or otherwise (collectively, the "Liabilities"), of Pearle or the Subsidiaries except for: (i) Liabilities that have arisen in the ordinary and usual course of business consistent with past practice since June 30, 1996, none of which, alone or in the aggregate would be likely to have a Material Adverse Effect, (ii) intercompany accounts between Pearle or the Subsidiaries and Seller or its Affiliates and (iii) Liabilities incurred by Buyer or caused to be incurred by Pearle or any Subsidiary by Buyer as a result of the transactions contemplated by this Agreement. -28- 35 Section 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Schedule 3.6(a), Schedule 3.6(b), Schedule 3.8 or Schedule 3.12 hereto, from and after July 1, 1996 Pearle and the Subsidiaries have conducted their businesses only in, and have not engaged in any material transaction other than according to, the ordinary and usual course of such businesses consistent with past practice and there has not been (i) any change in the financial condition, properties, business or results of operations of Pearle and the Subsidiaries, except those changes that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect or (ii) any material damage, destruction or other casualty loss with respect to any material asset or property owned, leased or otherwise used by Pearle or any of the Subsidiaries not covered by insurance. Except as set forth in Schedule 3.6(a), 3.6(b) or Schedule 3.8 hereto and except for increases or amendments in the ordinary and usual course of business consistent with past practice or as required by law, from and after October 1, 1995, there has not been any material increase in the compensation payable or to become payable by Pearle or any Subsidiary to any of their directors, officers or employees or any increase in the benefits under, or adoption of, any bonus, insurance, pension or other employee benefit plan, payment or arrangement, for or with any such directors, officers or employees. Section 3.9 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES, ETC. (a) All leases and subleases entered into by -29- 36 Pearle or its Subsidiaries as of the date hereof are hereinafter referred to as the Lease Agreements. Schedule 3.9(a)(i) hereto lists substantially all Lease Agreements, copies of each of which, including any material addenda, modifications or side letters, have previously been made available to Buyer. Schedule 3.9(a)(ii) hereto lists all properties owned by Pearle or the Subsidiaries as of the date hereof (the "Owned Real Property"). Except as set forth on Schedule 3.9(a)(iii) hereto, each of Pearle and the Subsidiaries has good and, in the case of the Owned Real Property, marketable title to, or a valid and binding leasehold interest in, all of the properties and assets owned or leased by Pearle or any Subsidiary free and clear of any Encumbrances, except for: (i) any Encumbrances reflected in the Financial Information or the BV Financial Information; (ii) any Encumbrances incurred or created from and after July 1, 1996 in the ordinary and usual course of business consistent with past practice and which, alone or in the aggregate, would not be reasonably likely to have a Material Adverse Effect; (iii) any Encumbrances which, alone or in the aggregate, would not materially adversely affect Pearle's ability to conduct its business substantially as heretofore conducted; (iv) any Encumbrances for taxes, assessments and other governmental charges not yet due and payable or due but not delinquent or being contested in good faith by appropriate proceedings; (v) any mechanics', workmen's, repairmen's, warehousemen's, carriers' or other like liens and encumbrances arising in the ordinary and -30- 37 usual course of business consistent with past practice or being contested in good faith by appropriate proceedings (the "Permitted Encumbrances"); and (vi) any Encumbrances which are matters of public record or would be shown by a current title report or survey or physical inspection, such as easements, quasi easements, covenants, licenses, rights of way, land use, zoning or other legal requirements, ordinances or plans, which, alone or in the aggregate, would not be reasonably likely to materially adversely affect Pearle's ability to conduct its business substantially as heretofore conducted. (b) Except as set forth on Schedule 3.9(b) hereto, neither Pearle nor any Subsidiary is in default under any leases (including, without limitation, the Lease Agreements) under which Pearle or any Subsidiary is the lessee of real or personal property, and no event has occurred which, with notice or lapse of time, or both, would constitute such a default, or permit termination, modification or acceleration under any such lease, except defaults or events which, alone or in the aggregate, would not be reasonably likely to have a Material Adverse Effect. Section 3.10 LITIGATION. Except as set forth in Schedule 3.10 hereto, there are, as of the date hereof, no claims, actions, suits, proceedings or investigations pending or, to the knowledge of Pearle, threatened against Pearle or any Subsidiary or any of their respective properties or assets at law, in equity or otherwise, in, before, or by, any court or governmental agency or authority. -31- 38 Section 3.11 COMPLIANCE WITH LAW. Except as set forth in Schedule 3.11, the business of Pearle and the Subsidiaries is not being conducted in violation of any law, ordinance or regulation of any governmental entity, and all governmental approvals, permits and licenses required to conduct the business (including, without limitation, the franchise business) of Pearle and the Subsidiaries have been obtained and are in full force and effect and are being complied with in all respects, except for any violations or noncompliance which, alone or in the aggregate, do not and would not be reasonably likely to have a Material Adverse Effect; it being understood that nothing in this representation is intended to address any compliance issue that is (x) related to any Environmental Law or (y) the subject of any other representation or warranty set forth herein. Section 3.12 CONTRACTS. Except as set forth in Schedule 3.12 and except for contracts entered into by Buyer or caused by Buyer to be entered into by Pearle or any Subsidiary in connection with this Agreement and the transactions contemplated hereby, neither Pearle nor any Subsidiary is a party to, or bound by, any contract of any kind which is to be performed or as to which Pearle or any Subsidiary may have any right or obligation after the Closing Date other than (i) purchase orders, franchise agreements, leases and general contracts and subcontracts relating to store construction which have been entered into in the ordinary and usual course of business consistent with past practice, or (ii) any other contracts entered into in the -32- 39 ordinary and usual course of business consistent with past practice pursuant to which Pearle or the Subsidiary, as the case may be, is or would be obligated to expend, or entitled to receive, less than $100,000 in any 12-month period or which is subject to cancellation by Pearle or the Subsidiary, as the case may be, upon less than three (3) months' notice, without incurring any expenditure and without penalty or increased cost. All contracts to which Pearle or any Subsidiary is a party constitute valid and binding obligations of Pearle or any Subsidiary, as the case may be, enforceable against Pearle or any Subsidiary, as the case may be, in accordance with their respective terms (subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles) and in full force and effect, except for such contracts the invalidity or unenforceability of which alone or in the aggregate would not be reasonably likely to have a Material Adverse Effect. There is not any pending or, to the knowledge of Pearle, threatened cancellation, existing default, or event under any such contract which, after notice or lapse of time, or both, would constitute a default, except for such pending or threatened cancellations, existing defaults or events which, alone or in the aggregate, would not be reasonably likely to have a Material Adverse Effect. Section 3.13 CONSENTS AND APPROVALS. Except as set forth in Schedule 3.13 or as required by the HSR Act, the -33- 40 execution, delivery and performance of this Agreement will not require Seller, Pearle, or any of its Subsidiaries to obtain any consent, waiver, authorization or approval of, or make any filing with or give notice to, any Person, except for such consents, waivers, authorizations or approvals (other than those relating to any contract required to be disclosed on Schedule 3.12 or any governmental permit or license the failure of which to maintain would impair the ability of Pearle or any Subsidiary to conduct their businesses in the ordinary and usual course consistent with past practice) which the failure to obtain would not be reasonably likely to have a Material Adverse Effect. Section 3.14 TAX MATTERS. (a) Except as set forth in Schedule 3.14 hereto, as reflected in the Financial Information or BV Financial Information or as would not be reasonably likely to have a Material Adverse Effect, (i) all Tax Returns required to be filed prior to the Closing Date with respect to the Seller's Group or Pearle and/or any of the Subsidiaries have been duly filed, (ii) all Taxes shown to be due on such Tax Returns have been paid in full, (iii) no deficiencies for any Taxes with respect to such Tax Returns have been asserted and (iv) no waivers of statutes of limitation have been given or requested with respect to any Taxes with respect to such Tax Returns. Except as set forth on Schedule 3.14 hereto, no material unresolved issue has been raised either in writing or, to Seller's knowledge, other than in writing, by any governmental authority in the course of any audit with respect to Taxes on the -34- 41 income, assets, operations, activities, etc. of Pearle or any Subsidiary. (b) The information set forth on Schedule 3.14 identifying, as of June 30, 1996, the tax bases of Pearle in the Subsidiaries organized under the laws of the Netherlands and the tax bases of Pearle Holdings in its subsidiaries, the tax bases of the assets of the Subsidiaries organized under the laws of the Netherlands, the foreign tax credits available to Pearle and the earnings and profits of Pearle Holdings and its subsidiaries is true and correct in all material respects. Section 3.15 INTELLECTUAL PROPERTY. (a) Schedule 3.15(a) sets forth a list and brief description (including where applicable the country of registration) of (i) all patents, patent applications, registered trademarks, trademark applications, registered copyrights and copyright applications that are owned by Pearle or the Subsidiaries and used in their businesses and (ii) all agreements under which Pearle or the Subsidiaries are licensed or otherwise permitted to use Intellectual Property. Except as set forth on Schedule 3.15(a), Pearle or a Subsidiary owns all right, title and interest in and to all Intellectual Property owned or used (other than pursuant to agreements under which Pearle or the Subsidiaries are licensed or otherwise permitted to use such Intellectual Property) by Pearle or any Subsidiary, free and clear of all Encumbrances (except Permitted Encumbrances). -35- 42 (b) To the knowledge of Pearle (i) except as set forth in Schedule 3.15(b)(i), with respect to Intellectual Property of Pearle and the Subsidiaries other than trademarks, no product (or component thereof or process) used, sold or manufactured by Pearle and the Subsidiaries infringes on or otherwise violates the valid and enforceable patents of any other Person or any confidentiality obligation enforceable against Pearle, (ii) with respect to the trademarks listed in Schedule 3.15(b)(ii) (the "Major Marks"), except as set forth in Schedule 3.15(b)(iii), there are no restrictions that would materially impair the use of the Major Marks in connection with the business of Pearle and the Subsidiaries and the Major Marks, to the knowledge of Pearle, do not infringe upon or otherwise violate the valid and registered trademarks of any other Person, and (iii) no Person is challenging or, to the knowledge of Pearle, infringing or otherwise violating the Intellectual Property of Pearle and the Subsidiaries (excluding trademarks included on Schedule 3.15(b)(ii)), except in each case for challenges, infringements or violations, which alone or in the aggregate, would not be reasonably likely to materially adversely affect Pearle's ability to conduct its business substantially as heretofore conducted. Section 3.16 COLLECTIVE BARGAINING AGREEMENTS. Except as set forth in Schedule 3.16, neither Pearle nor any Subsidiary is a party to or bound by any labor agreement or collective bargaining agreement respecting its employees, nor is there -36- 43 pending, or to the knowledge of Pearle threatened, any strike, walkout or other work stoppage or any union organizing effort by or respecting the employees. From and after October 1, 1995, Pearle and the Subsidiaries have not experienced any material labor dispute. Section 3.17 EMPLOYEE BENEFITS. (i) Schedule 3.17(i) hereto contains a true and complete list of each employee benefit plan subject to ERISA and each other material employee benefit, stock purchase, stock option, severance, change-in-control, fringe benefit, collective bargaining, bonus, incentive and deferred compensation plan, agreement, program, policy or other arrangement, with respect to which current or former employees or directors of Pearle or the Subsidiaries participate, which is maintained, sponsored or contributed to by Pearle or the Subsidiaries, and each employment agreement maintained by Pearle or any of the Subsidiaries that is not terminable on less than 90 days' notice without any payment (other than agreements mandated by foreign statute ("FSAs")) by Pearle or any of the Subsidiaries. All such plans, agreements, programs, policies and arrangements shall be collectively referred to as the "Company Plans". (ii) With respect to each Company Plan, Seller has delivered or made available to Buyer a current, accurate and complete copy (or, to the extent no such copy exists, an accurate description) thereof and, to the extent applicable: (A) any related trust agreement or other funding instrument; (B) the most -37- 44 recent determination letter; (C) any summary plan description; and (D) for the three most recent plan years (I) the Form 5500 and attached schedules, (II) audited financial statements and (III) actuarial valuation reports. (iii) Except with respect to any "Grand Met Plan which will not be available after the sale," identified on Schedule 3.17(i), all Company Plans and all FSAs are in substantial compliance with all applicable laws, including the Code and the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the laws of Puerto Rico, Canada and the Netherlands, and each Company Plan and each FSA has been established, operated and administered in all material respects, in accordance with all applicable laws, including ERISA and the Code and the laws of Puerto Rico, Canada and the Netherlands. Pearle has received or has requested from the IRS within the applicable remedial amendment period a favorable determination letter from the IRS with respect to the qualified status of each Company Plan that is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan") and that is intended to be qualified under Section 401(a) of the Code, and nothing has occurred, whether by action or failure to act, that would be reasonably likely to cause the revocation of such letter. Except as set forth in Schedule 3.10 hereto, there is, as of the date hereof, no pending or, to the knowledge of Pearle, threatened action, suit, claim or investigation relating to the Company Plans (other than any "Grand Met plan which will not be available -38- 45 after the sale," identified on Schedule 3.17(i)) or the FSAs and, to the knowledge of Pearle, no facts exist which could give rise to any such action, suit, claim or investigation. Except with respect to any taxes or penalties which would not be reasonably likely to result in a material liability, neither Pearle nor any of the Subsidiaries has engaged in any transactions with respect to any Company Plan or any FSA that could be reasonably likely to subject Pearle or any of the Subsidiaries to a tax or penalty imposed by Section 4975 of the Code or any other applicable rule, regulation or law of any federal, state, local or foreign governmental authority. (iv) Except as set forth on Schedule 3.17(iv), as of the date hereof, no liability under Title IV of ERISA has been or is expected to be incurred by Pearle or any of the Subsidiaries with respect to any ongoing, frozen or terminated "single-employer plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them, or the single-employer plan of any entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate"), other than the payment of premiums to the Pension Benefit Guaranty Corporation, or with respect to any "multiemployer plan" (within the meaning of Section 3(37) of ERISA) contributed to by Pearle or any of the Subsidiaries or any ERISA Affiliate. Neither Pearle nor any of the Subsidiaries has contributed, or been obligated to -39- 46 contribute, to a single-employer plan or a multiemployer plan at any time during the six-year period prior to the date hereof. (v) Except as set forth on Schedule 3.17(v), all contributions required to be made by Pearle or any of the Subsidiaries under the terms of any Company Plan or FSA have been timely made or have been reflected in the Financial Information or the BV Financial Information. Neither Pearle nor any of the Subsidiaries has provided, or is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. Except as set forth on Schedule 3.17(v), no Pension Plan that is maintained or contributed to by Pearle or any of the Subsidiaries has or has incurred an accumulated funding deficiency within the meaning of Section 302 of ERISA or Section 412 of the Code, nor has any waiver of the minimum funding standards of Section 302 of ERISA or Section 412 of the Code been requested of or granted by the IRS with respect to any such Pension Plan, nor has any lien in favor of any such Pension Plan arisen under Section 412(n) of the Code or Section 302(f) of ERISA. (vi) Except as set forth on Schedule 3.17(vi) or as may be required by law, neither Pearle nor any of the Subsidiaries has any obligations for retiree health and life benefits under any Company Plan. (vii) Except as set forth on Schedule 3.17(vii), the consummation of the transactions contemplated by this Agreement will not (x) entitle any of the directors, employees or former -40- 47 employees (or their beneficiaries or dependents) of Pearle or any of the Subsidiaries to severance pay or (y) accelerate or provide any other rights or credits under, or increase the amount payable or trigger any other obligation pursuant to, any of the Company Plans (other than any "Grand Met plan which will not be available after the sale," as identified on Schedule 3.17(i)). (viii) Except with respect to any noncompliance which would not be reasonably likely to result in a material liability, with respect to each group health plan that is subject to Section 4980B of the Code, Pearle and each of the Subsidiaries have complied in all material respects with the continuation requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA and with respect to each group health plan subject to Section 1862(b)(1) of the Social Security Act (the "Act"), Pearle and each of its Subsidiaries have complied with the secondary payer requirement of such Act. (ix) Except as set forth on Schedule 3.17(ix), no Company Plan is funded through a "welfare benefit fund" as defined in Section 419(e) of the Code, and no benefits under any Company Plan are provided through a voluntary employees' beneficiary association (within the meaning of Section 501(c)(9) of the Code) or a supplemental unemployment benefit plan (within the meaning of Section 501(c)(17) of the Code) and, to the knowledge of Pearle, no material liability is reasonably expected to be incurred due to excise taxes or other penalties resulting from any such method of funding or provision of benefits. -41- 48 (x) To the knowledge of Pearle, there are no leased employees within the meaning of Section 414(n) of the Code who perform services for Pearle or any of the Subsidiaries in a magnitude which would reasonably be expected to result in the disqualification of any Company Plan under Section 401(a) of the Code. (xi)With respect to any insurance policy providing for the benefits under any Company Plan or FSA, except as set forth on Schedule 3.17 (xi) or would not result in a material liability: (x) there is no liability of Pearle or any of the Subsidiaries in the nature of a retroactive or retrospective rate adjustment, loss sharing arrangement, or other actual or contingent liability, nor would there be any such liability if such insurance policy were terminated on the date hereof; and (y) to the knowledge of Pearle, no insurance company issuing such a policy is in receivership, conservatorship, liquidation or similar proceedings and no such proceedings with respect to any insurer are imminent. (xii) To the knowledge of Pearle except as set forth on Schedule 3.17(xii), the execution and performance of this Agreement will not result in payments (or transfers of property) being made by Pearle or any of the Subsidiaries to any "disqualified individual" (within the meaning of Section 280G(c) of the Code); which payments: (x) constitute "excess parachute payments" (within the meaning of Section 280G(d)(1) of the Code), -42- 49 or (y) result in the imposition of any excise tax under Section 4999 of the Code. Section 3.18 ENVIRONMENTAL MATTERS. Except as disclosed in Schedule 3.18, Pearle and the Subsidiaries are and have been (i) in substantial compliance with applicable Environmental Laws; (ii) have not received any written notices from any Person alleging the violation of, or any claim or liability under, any applicable Environmental Law; (iii) are not the subject of any court order, administrative order or decree arising under any Environmental Law; (iv) have not generated, stored, used, emitted, discharged or disposed of any Hazardous Substance that requires reporting, removal, remedial action or other response under applicable Environmental Laws; and (v) to Pearle's knowledge, do not own, lease or operate any real property (and any buildings, structures or materials on such real property) that contains or includes any asbestos, polychlorinated biphenyls, lead paint, urea formaldehyde, underground storage tanks or sumps. Section 3.19 INSURANCE. Schedule 3.19 hereto lists all insurance policies maintained by or on behalf of Pearle or any of the Subsidiaries. All such insurance policies are in full force and effect, all premiums with respect thereto have been paid to the extent due and no notice of cancellation or termination has been received with respect to any such policy (other than policies that have been replaced or are intended to be replaced prior to the expiration thereof by policies providing -43- 50 substantially the same coverage), except where any termination of such policies or the failure to pay premiums with respect thereto would not be reasonably likely to have a Material Adverse Effect. Except as set forth on Schedule 3.10 hereto under the heading "Insurance Cases", as of the date hereof, there is no claim by or on behalf of Pearle or any Subsidiary pending under any of such policies as to which coverage has been denied or, to Pearle's knowledge, is being disputed, except where any denial of coverage would not be reasonably likely to have a Material Adverse Effect. Section 3.20 IMPROPER PAYMENTS. To Pearle's knowledge, no improper payment has been made by or on behalf of Pearle or any of the Subsidiaries which is in violation of any applicable federal, state, local or foreign law, rule or regulation, public disclosure of which would be reasonably likely to have a Material Adverse Effect. Section 3.21 WARRANTIES. All products manufactured or sold by Pearle or any of the Subsidiaries have been in substantial conformity with applicable contractual commitments and all express or implied warranties, except as set forth on Schedule 3.10 or to the extent that nonconformity would, individually or in the aggregate, not have a Material Adverse Effect. Schedule 3.21 contains an accurate summary of all written warranties offered by Pearle or any of the Subsidiaries as of the date of this Agreement. Section 3.22 CONDITION OF ASSETS. Except as set forth on Schedule 3.22, the personal property owned or leased by Pearle -44- 51 or any of the Subsidiaries and the improvements and structures located on the real property owned or leased by Pearle or any of the Subsidiaries and the fixtures and appurtenances thereto have been reasonably maintained in the ordinary course of business, are in working order, reasonable wear and tear excepted, are reasonably suitable for the uses for which they are intended and conform to the requirements of applicable law, except in all cases to the extent that any breach, failure or inaccuracy, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect. Section 3.23 BROKERS AND FINDERS. Other than Morgan Stanley & Co. Incorporated ("Morgan Stanley"), Seller, Pearle and the Subsidiaries have not employed any broker, finder, consultant or intermediary in connection with the transactions contemplated by this Agreement who would be entitled to a broker's, finder's or similar fee or commission in connection therewith or upon the consummation thereof, or if the Closing does not occur. Seller agrees to bear all costs it incurs, including fees and expenses of Morgan Stanley, in connection with the transactions contemplated by this Agreement unless otherwise expressly provided herein. Section 3.24 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and warranties contained in this Article III, neither Seller, Pearle, the Subsidiaries nor any other Person makes any other express or implied representation or warranty on behalf of Seller, Pearle, or the Subsidiaries. -45- 52 ARTICLE IV ---------- REPRESENTATIONS AND WARRANTIES OF BUYER --------------------------------------- Buyer represents and warrants to Seller as of the date hereof and as of the Closing Date (except that representations and warranties that are made as of a specific date need be true only as of such date) as follows: Section 4.1 ORGANIZATION AND AUTHORITY OF BUYER. Buyer has been duly incorporated, is validly existing and is in good standing under the laws of its jurisdiction of incorporation, with full power and authority to enter into this Agreement and perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by Buyer and constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles, and no other proceedings on the part of Buyer are necessary to authorize this Agreement and the consummation of transactions contemplated hereby. Neither the execution and delivery of this Agreement nor compliance by Buyer with its terms and provisions will (a) violate any provision of the certificate of incorporation or by-laws of Buyer; (b) subject to obtaining the consents referred to in Section 4.5, conflict with, or result in the breach of, or constitute a default under, or result in the termination, cancellation or acceleration (whether after the giving of notice -46- 53 or the lapse of time or both) of any right or obligation of Buyer, or to a loss of any benefit to which Buyer is entitled under, any contract, franchise, license, agreement, lease, indenture or other instrument to which Buyer is a party; or (c) assuming compliance with the matters set forth in Sections 3.13 and 4.5, to the knowledge of Buyer, violate or result in a breach of or constitute a default under any law, rule, regulation, judgment, injunction, order, decree or other restriction of any court or governmental authority to which Buyer is subject, except where, in all cases, such a violation would not be reasonably likely to prohibit or materially impair or delay Buyer's ability to perform its obligations under this Agreement. Section 4.2 BROKERS AND FINDERS. Other than Houlihan Lokey Howard & Zukin and Smith Barney Inc., Buyer has not employed any broker, finder, consultant or intermediary in connection with the transactions contemplated by this Agreement who would be entitled to a broker's, finder's or similar fee or commission in connection therewith or upon the consummation thereof, or if the Closing does not occur. Buyer agrees to bear all costs it incurs, including fees and expenses of Houlihan Lokey Howard & Zukin and Smith Barney Inc., in connection with the transactions contemplated by this Agreement unless otherwise expressly provided herein. Section 4.3 FINANCIAL CAPABILITY. Schedule 4.3 hereto sets forth the source of funds which Buyer contemplates it has or -47- 54 will have available to it to purchase the PSC Shares and Pearle Shares in accordance with the terms and conditions contemplated by this Agreement, including copies of any and all commitments or agreements with financial institutions to provide funding for such purchase and any "highly confident" letters with respect to Buyer's ability to obtain such funding. On the Closing Date, Buyer will have sufficient funds to purchase the PSC Shares and Pearle Shares on the terms and conditions contemplated by this Agreement. Section 4.4 SECURITIES ACT. Buyer is acquiring the PSC Shares and Pearle Shares solely for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act. Buyer acknowledges that the PSC Shares and Pearle Shares are not registered under the Securities Act or any applicable state securities law, and that the PSC Shares and Pearle Shares may not be transferred or sold except pursuant to the registration provisions of such Securities Act or pursuant to an applicable exemption therefrom and pursuant to state securities laws and regulations as applicable. Section 4.5 CONSENTS AND APPROVALS. Except as required by the HSR Act, the execution, delivery and performance of this Agreement will not require Buyer to obtain any consent, waiver, authorization or approval of, or make any filing with or give notice to, any Person. -48- 55 Section 4.6 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and warranties contained in this Article IV, neither Buyer nor any other Person makes any other express or implied representation or warranty on behalf of Buyer. ARTICLE V --------- TAX AND CERTAIN EMPLOYEE MATTERS -------------------------------- Section 5.1 TAX SHARING. As of the Closing Date, any and all tax sharing agreements and arrangements shall be cancelled as between Seller and the Continuing Affiliates, on the one hand, and Pearle and its Subsidiaries on the other, and no further payments shall be made by Pearle or any of its Subsidiaries to Seller or any Continuing Affiliate, or by Seller to Pearle or its Subsidiaries, pursuant thereto. Section 5.2 338 ELECTION, TAX INDEMNIFICATION. (a) Pearle, along with Seller and its Continuing Affiliates, and Buyer shall make a joint election under Section 338(h)(10) of the Code with respect to the purchase of the PSC Shares and under any similar provisions of state or foreign law. In consideration of Buyer making such election, 60 days after the Closing Date Seller shall pay to Buyer $3,500,000. Seller represents that the sale by Pearle of the PSC Shares is eligible for such election. As soon as practicable after the date hereof, Seller (and, to the extent required, any Continuing Affiliate) shall prepare, subject to Buyer's approval, for execution by Pearle and Buyer on the Closing Date, all IRS Forms, as well as similar state and foreign forms, necessary to effect such election. Seller and Buyer agree -49- 56 that, for purposes of all reports and returns with respect to Taxes, allocations among the assets of PSC shall be made, subject to the provisions of applicable law, in accordance with the fair market values of such assets. (b) Buyer and Seller agree that no election shall be made under Section 338(h)(10) of the Code or under any similar provisions of state or foreign law with respect to the purchase of the Pearle Shares. (c) (i) Seller hereby agrees to indemnify Buyer and hold it harmless from all liability for Taxes imposed on Pearle and its Subsidiaries (including without limitation liability under Treasury Regulations section 1.1502-6 or any comparable provision of state or foreign law) for any taxable year or period ending on or before the Closing Date and, in the case of any taxable year or period beginning before and ending after the Closing Date, the portion of such period ending on and including the Closing Date (the "Pre-Closing Tax Period"), which, for the avoidance of doubt, includes in all cases all Taxes imposed on Pearle and its Subsidiaries in respect of the sale of the PSC Shares, the joint election under Section 338(h)(10) of the Code or under any similar provisions of state or foreign law, and any transaction or transactions (including transfers of assets) related to either, and (ii) if Buyer or any Affiliate, within two (2) years following the Closing Date, sells, in one or more transactions, more than 50% of the capital stock of Pearle Holdings and/or assets (outside the ordinary course of business) of Pearle -50- 57 Holdings and its subsidiaries and distributes the proceeds thereof to Pearle, Seller agrees to pay Buyer an amount equal to the lesser of (x) the incremental Taxes imposed upon Buyer or any of its Affiliates by reason of such sale and/or distribution (after giving effect to any foreign tax credits utilizable by Buyer or any of its Affiliates or (y) $15,000,000; except to the extent, with respect to clause (i), such Taxes are reflected as a liability on the Closing Date Balance Sheet. Seller shall be entitled to all refunds of such Taxes described in this Section 5.2(c) (except to the extent, with respect to clause (i), such Taxes are reflected as a liability on the Closing Date Balance Sheet). (d) Buyer hereby agrees to indemnify Seller and its Affiliates and hold them harmless from all liability for Taxes imposed on Pearle and its Subsidiaries for any taxable year or period beginning after the Closing Date and, in the case of any taxable year or period beginning before and ending after the Closing Date, the portion of such period beginning after the Closing Date. Buyer shall be entitled to all refunds of such Taxes. (e) Whenever it is necessary to determine liability for Taxes for a portion of a taxable year or period beginning before and ending after the Closing Date, the determination shall be made assuming that there was a closing of the books at 11:59 p.m. (local time) on the Closing Date, except that Taxes (other than Taxes measured by net income or gains), exemptions, -51- 58 allowances or deductions that are calculated on an annual basis shall be apportioned on a time basis. (f) For purposes of this Article V, a taxable year or period, or portion thereof (and any phrase of similar import), includes any span of time (i) for which income is to be determined, with respect to any Tax based on or measured by income or (ii) during or at the end of which assets are to be measured, with respect to any Tax based on or measured by assets. Section 5.3 TAX RETURNS. Seller shall file or cause to be filed when due all Tax Returns that are required to be filed by or with respect to Pearle and its Subsidiaries for taxable years or periods ending on or before the Closing Date and shall pay any Taxes due in respect of such Tax Returns, and Buyer shall file or cause to be filed when due all Tax Returns that are required to be filed by or with respect to Pearle and its Subsidiaries for taxable years or periods ending after the Closing Date and shall remit any Taxes due in respect of such Tax Returns. Seller shall pay Buyer the Taxes for which Seller is liable pursuant to Section 5.2(c) but which are payable with Tax Returns to be filed by Buyer pursuant to the previous sentence not less than 10 days prior to the due date for the filing of such Tax Returns; provided that an advance payment calculated by Buyer in respect of any indemnification pursuant to Section 5.2(c)(ii) shall be made by Seller to Buyer within fifteen (15) days following the transaction or transactions triggering such indemnification, and Seller or Buyer, as applicable, shall pay -52- 59 over to the other any difference between such advance payment and the indemnification calculated by reference to the Tax Returns for the taxable year that includes the triggering transaction or transactions not less than 10 days prior to the due date for the filing of such Tax Return. Section 5.4 CONTEST PROVISIONS. Buyer shall promptly notify Seller in writing upon receipt by Buyer, any of its affiliates or Pearle of notice of any pending or threatened audits or assessments which may materially affect the tax liabilities of Pearle for which Seller would be required to indemnify Buyer pursuant to Section 5.2(c), provided that failure to comply with this provision shall not affect Buyer's right to indemnification hereunder. Seller shall have the sole right to represent Pearle's interests in any tax audit or administrative or court proceeding relating to taxable periods ending on or before the Closing Date, and to employ counsel of its choice at its expense; Seller shall keep Buyer informed on a timely basis regarding the prosecution of such audit or proceeding. Notwithstanding the foregoing, Seller shall not be entitled to settle, either administratively or after the commencement of litigation, any claim for Taxes which could adversely affect the liability for Taxes of the Buyer or Pearle for any period after the Closing Date to any extent (including, but not limited to, the imposition of income tax deficiencies, the reduction of asset basis or cost adjustments, the lengthening of any amortization or depreciation periods, the denial of amortization or depreciation -53- 60 deductions, or the reduction of loss or credit carryforwards) without the prior written consent of Buyer. Such consent shall not be unreasonably withheld, and shall not be necessary to the extent that Seller has indemnified the Buyer (and Buyer agrees that it has been so indemnified) against the effects of any such settlement. Seller shall be entitled to participate at its expense in the defense of any claim for Taxes for a year or period ending after the Closing Date which may be the subject of indemnification by Seller pursuant to Section 5.2(c) and, with the written consent of Buyer, and at Seller's sole expense, may assume the entire defense of such tax claim. Neither Buyer nor Pearle may agree to settle any tax claim for the portion of the year or period ending on the Closing Date which may be the subject of indemnification by Seller under Section 5.2(c) without the prior written consent of Seller, which consent shall not be unreasonably withheld. Section 5.5 INFORMATION TO BE PROVIDED BY BUYER. With respect to the taxable year of Seller within which the Closing Date occurs, Buyer shall promptly cause Pearle to prepare and provide to Seller, at Seller's expense, a package of tax information materials (the "Tax Package"), which shall be completed in accordance with past practice including past practice as to providing the information, schedules and work papers and as to the method of computation of separate taxable income or other relevant measure of income of Pearle. Buyer -54- 61 shall cause the Tax Package for the portion of the taxable period ending on the Closing Date to be delivered to Seller within one hundred eighty (180) days after the Closing Date. Section 5.6 ASSISTANCE AND COOPERATION. After the Closing Date, each of Seller and Buyer shall at the expense of the party which is either responsible for the preparation or filing of any Tax Return under this Article V or for the liability under this Article V, as applicable: (i) assist (and cause their respective affiliates to assist) the other party in preparing any Tax Returns or reports which such other party is responsible for preparing and filing in accordance with this Article V; (ii) cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding, any Tax Returns of Pearle or any Subsidiary; (iii) make available to the other and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of Pearle or any Subsidiary; (iv) provide timely notice to the other in writing of any pending or threatened tax audits or assessments of Pearle or any Subsidiary for taxable periods for which the other may have a liability under this Article V; and (v) furnish the other with copies of all correspondence received from any taxing authority in connection with any tax audit or information request with respect to any -55- 62 taxable periods for which the other may have a liability under this Article V. Section 5.7 POST-CLOSING ACTIONS WHICH MAY AFFECT THE SELLER'S LIABILITY FOR TAXES. Except to the extent required by law, neither Buyer, Pearle, nor any Affiliate of either shall, without the prior written consent of the Seller which consent shall not be unreasonably withheld, (i) amend any Tax Return filed by, or with respect to, Pearle or any of its Subsidiaries for any taxable period, ending on or before the Closing Date, or (ii) carryback any net operating loss, capital loss, excess foreign tax credit, or other similar losses, deductions or credits derived with respect to any period beginning after the Closing Date to any taxable year of Pearle or any of its Subsidiaries ending on or before the Closing Date. Section 5.8 INTENTIONALLY DELETED. Section 5.9 COMPUTATION OF LOSSES SUBJECT TO INDEMNIFICATION. The amount of any liability or loss for which indemnification is provided under Section 5.2 (other than Section 5.2(c)(ii)) shall be computed net of the present value (based on Buyer's cost of capital) of any Tax benefit or savings realized or to be realized in the future with respect to such liability or loss. Section 5.10 TRANSFER TAXES. Seller shall be liable for any transfer taxes arising from Pearle's sale of the PSC Shares and any assets transferred in connection therewith. Buyer -56- 63 and Seller shall each be liable for one-half of any transfer taxes arising from the sale of the Pearle Shares. Section 5.11 CERTAIN EMPLOYEE PAYMENT OBLIGATIONS. Notwithstanding any other provision of this Agreement to the contrary, Seller and the Continuing Affiliates shall be responsible for, shall pay and shall indemnify, defend and hold harmless Buyer and its Affiliates (including, after the Closing Date, Pearle and the Subsidiaries) against and in respect of all Losses arising out of any of the following: (a) Any retention payment obligation created before the Closing Date (whether or not payable on or before the Closing Date or thereafter) with respect to any directors or employees of Pearle or any of its Affiliates, including, without limitation, the retention payments referred to in Item 9 of Schedule 3.7; (b) Any severance payment obligation created before the Closing Date with respect to termination of any executive committee members named in Schedule 5.11(b); (c) Any obligation for postretirement medical benefits for any retired employees or covered dependents to the extent that the amount of any such obligation exceeds any accrued liability on the Closing Date Balance Sheet; (d) Any obligation arising out of any plan identified on Schedule 3.17(i) as "a Grand Met plan which will not be available after the sale"; and (e) Any obligation for accumulated liability for accrued vacation obligation under the vacation policy for periods -57- 64 prior to January 1, 1996 (whether or not payable on or before the Closing Date or thereafter) to the extent that the amount of any such obligation exceeds any accrued liability on the Closing Date Balance Sheet. Section 5.12 SURVIVAL OF OBLIGATIONS. The obligations of the parties set forth in this Article V shall be unconditional and absolute and shall remain in effect without limitation as to time. ARTICLE VI ---------- CERTAIN COVENANTS AND AGREEMENTS OF SELLER AND BUYER -------------------------------- Section 6.1 ACCESS AND INFORMATION. (a) Seller shall permit Buyer and its representatives after the date of execution of this Agreement to have reasonable access, during regular business hours and upon reasonable advance notice, to the real property owned or leased by Pearle and the Subsidiaries and to the officers and employees of Pearle and the Subsidiaries, subject to Seller's reasonable rules and regulations, and shall furnish, or cause to be furnished, to Buyer any financial and operating data and other information that is available with respect to the business and properties of Pearle and the Subsidiaries as Buyer shall from time to time reasonably request; PROVIDED THAT the foregoing shall not require Seller to permit any inspection, or to disclose any information, that in its reasonable judgment would result in the disclosure of any trade secrets of third parties or violate any of Seller's, Pearle's or -58- 65 any of the Subsidiaries' obligations with respect to confidentiality if Seller shall have used reasonable best efforts to obtain the consent of such third party to such inspection or disclosure. Seller will assist Buyer and its representatives in gaining access to the franchisees, the associate store owners and the licensees of Pearle and the Subsidiaries. (b) In the event of the termination of this Agreement, Buyer at its own expense shall promptly deliver (without retaining any copies thereof) to Seller, or (at Seller's option) confirm in writing to Seller that it has destroyed all information furnished to Buyer or its representatives by Seller, Pearle, the Subsidiaries or any of their respective agents, employees or representatives as a result hereof or in connection herewith, whether so obtained before or after the execution hereof, and all analyses, compilations, forecasts, studies or other documents prepared by Buyer or its representatives which contain or reflect any such information. Buyer shall at all times prior to the Closing Date, and in the event of termination of this Agreement, cause any information so obtained to be kept confidential and will not use, or permit the use of, such information in its business or in any other manner or for any other purpose except as contemplated hereby. (c) All information provided or obtained pursuant to clause (a) above shall be held by Buyer in accordance with and subject to the terms of the confidentiality agreement, dated -59- 66 May 21, 1996, between Buyer and Grand Metropolitan PLC (the "Confidentiality Agreement"). Section 6.2 REGISTRATIONS, FILINGS AND CONSENTS. (a) Seller and Buyer will cooperate and use their respective reasonable best efforts to fulfill the conditions precedent to the other party's obligations hereunder, including but not limited to, securing as promptly as practicable all consents, approvals, waivers and authorizations required, necessary or desirable in connection with the transactions contemplated hereby; PROVIDED THAT Buyer shall not have any obligation to undertake any financial obligation in connection therewith (other than that associated with the filing of the Report or any actions contemplated by Section 6.2(b)). Buyer and Seller will promptly file documentary materials required by the HSR Act, Environmental Laws and each of the other items listed in Section 3.13 and Section 4.5 and promptly file any additional information requested as soon as practicable after receipt of request thereof; PROVIDED THAT each party shall duly file with the FTC and the Antitrust Division the notification and report form (the "Report") required under the HSR Act with respect to the sale and purchase of PSC Shares and Pearle Shares no later than three Business Days after the date hereof. (b) Without limiting the provisions set forth in paragraph (a) above, Buyer shall use its reasonable best efforts to take or cause to be taken all actions necessary, proper or advisable to obtain any consent, waiver, approval or -60- 67 authorization relating to the HSR Act that is required for the consummation of the transactions contemplated by this Agreement. Section 6.3 CONDUCT OF BUSINESS. Prior to the Closing, and except as otherwise expressly permitted by this Agreement or consented to or approved by Buyer in writing, Seller covenants and agrees that: (a) Pearle and the Subsidiaries shall, and Seller shall cause Pearle and the Subsidiaries to, operate their business only in the ordinary and usual course consistent with past practice and use reasonable best efforts which are consistent with past practice to preserve their properties and business and relationships with franchisees, associate store owners, employees, suppliers, customers and other Persons with whom they have commercial dealings, of Pearle and the Subsidiaries; (b) Seller shall cause insurance coverage at presently existing levels to be maintained on behalf of Pearle and the Subsidiaries so long as such insurance is available at commercially reasonable rates; (c) Pearle and the Subsidiaries shall not, and Seller shall cause Pearle and the Subsidiaries not to, (i) change or amend their certificates of incorporation or by-laws (or comparable governing instruments), (ii) authorize, issue or sell any shares of their capital stock, or authorize, issue or sell any securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe -61- 68 for, any shares of their capital stock or enter into any agreement obligating them to do any of the foregoing, or (iii) declare or set aside for payment any dividends or other distributions to be paid after the Closing; notwithstanding the foregoing, but subject to clause (iii) above, Pearle and the Subsidiaries shall be permitted at all times prior to the Closing Date to make distributions of cash to Seller except to the extent of any applicable cash balances that Pearle or any Subsidiary is required to maintain pursuant to any applicable rule, regulation or law; (d) Pearle and the Subsidiaries shall not, and Seller shall cause Pearle and the Subsidiaries not to, directly or indirectly, redeem, purchase or otherwise acquire any of the PSC Shares, Pearle Shares or shares of any Subsidiary; (e) Pearle and the Subsidiaries shall not, and Seller shall cause Pearle and the Subsidiaries not to, merge or consolidate with or into any other Person; (f) Pearle and the Subsidiaries shall, and Seller shall cause Pearle and the Subsidiaries to, (i) not approve any new capital expenditures (other than those for cooling or heating units or commitments identified on the Attachment to Item 4 of Schedule 3.7) in excess of $50,000 individually and $500,000 in the aggregate; (ii) not dispose of or incur, create or assume any Encumbrance on any individual capital asset of Pearle or the Subsidiaries if the greater of the book value and the fair market value of such capital asset -62- 69 exceeds $100,000 other than Permitted Encumbrances or pursuant to current forecasts of Pearle's business; (iii) not incur any indebtedness for money borrowed other than bank loans and overdrafts that consist of issued and outstanding accounts payable and payroll checks which have not been presented for payment or indebtedness incurred in the ordinary and usual course of business consistent with past practice as financed by Seller or a Continuing Affiliate; and (iv) not enter into a contract, agreement, commitment or arrangement with respect to any of the foregoing; (g) Pearle and the Subsidiaries shall not, and Seller shall cause Pearle and the Subsidiaries not to, (i) promote any employees (other than such promotions that were being processed prior to the date hereof and which are identified on Schedule 6.3(g) or have the effect of filling a vacated position), (ii) set any new bonus targets or opportunities for any period beginning after September 30, 1996, or (iii) except for increases in the ordinary and usual course of business consistent with past practice or as required by law, increase the compensation payable or to become payable by Pearle or any of the Subsidiaries to any of their directors, officers or employees or increase the benefits under or establish any bonus, insurance, pension or other employee benefit plan, payment or arrangement, for or with any such directors, officers or employees, PROVIDED THAT in -63- 70 no event shall the sum total of merit pay increases with respect to all employees eligible for such merit pay increases exceed current levels of compensation by more than four percent in the aggregate; (h) Pearle and the Subsidiaries shall not, and Seller shall cause Pearle and the Subsidiaries not to, change their respective selling, collection, or payment practices, or the accounting practices utilized in the preparation of the Financial Information or BV Financial Information, or the tax accounting practices utilized in the preparation of Tax Returns, except as required by applicable law; (i) Pearle and the Subsidiaries shall not, and Seller shall cause Pearle and the Subsidiaries not to, conduct their business in violation of any law, ordinance or regulation of any governmental entity (including, without limitation, those relating to environmental protection, sales or operation of franchises and occupational safety and health practices), except for possible violations which alone or in the aggregate do not and are not reasonably likely to have a Material Adverse Effect; (j) Pearle and the Subsidiaries shall not, and Seller shall cause Pearle and the Subsidiaries not to, (i) loan or advance any monies, except travel and other employee expenses in the ordinary and usual course of business consistent with past practice, (ii) discharge any obligation for money borrowed (other than money owed to Seller and its -64- 71 Continuing Affiliates incurred in the ordinary and usual course of business consistent with past practice), (iii) forgive, release, waive or terminate any rights of substantial value other than in the ordinary and usual course of business consistent with past practice, or (iv) enter into any contract, agreement, commitment or arrangement with respect to advertising in excess of $250,000; and (k) Except in connection with the items set forth on the Attachment to Item 4 of Schedule 3.7 or with the consent of Buyer (whose consent with respect to this paragraph (k) shall not be unreasonably withheld), Pearle and the Subsidiaries shall not, and Seller shall cause Pearle and the Subsidiaries not to, enter into any franchise agreement or lease agreement or amend in any material respect or terminate any Franchise Agreement or Lease Agreement or enter into a contract, agreement, commitment or arrangement with respect to any of the foregoing. Section 6.4 CERTAIN BUYER OBLIGATIONS. (a) Buyer shall promptly amend the Pearle Vision Uniform Franchise Offering Circular, as amended, to reflect the purchase and sale of the PSC Shares and the Pearle Shares. (b) Seller shall, or shall cause one of its Continuing Affiliates to, satisfy all payment obligations of Pearle Vision, Inc. and Pearle under the Note Purchase Agreement and Buyer shall cause each of Pearle and Pearle Vision, Inc. to comply with its -65- 72 respective obligations under the terms of the Note Purchase Agreement with respect to franchisees and shall use its best efforts to cause Pearle and Pearle Vision, Inc. to collect all principal, interest and other amounts due from the franchisees on the notes and to cause such amounts to be paid to the Lock-Box (as defined in the Note Purchase Agreement) or directly to SocGen or, with respect to any note required to be repurchased by Seller or one of its Continuing Affiliates under the terms of the Note Purchase Agreement, directly to Seller or one of its Continuing Affiliates. To the extent that Buyer, Pearle, Pearle Vision, Inc. or one of their Affiliates, including through lock box accounts or otherwise, receives any type of payment from franchisees, such party shall promptly remit a pro rata portion of the amount of such payment from a franchisee having amounts due on the notes to the Lock-Box, SocGen or Seller or one of its Continuing Affiliates, as the case may be. With respect to any note required to be repurchased under the terms of the Note Purchase Agreement, Buyer shall cooperate with Seller and its Continuing Affiliates to the same extent that Pearle and Pearle Vision, Inc. are obligated on the date hereof under the terms of the Note Purchase Agreement to assist in the collection on the amounts due from the franchisees on the notes and to perform such other obligations to SocGen. Section 6.5 EMPLOYEE MATTERS. (a) Buyer shall cause Pearle to retain in employment all employees of Pearle and the Subsidiaries who were employed on the Closing Date, for a period -66- 73 of at least 30 days, at the same rate of compensation in effect immediately prior to the Closing, except for any employees (i) who are terminated for cause, (ii) who voluntarily terminate their employment or (iii) who were employed for a limited time period and are terminated upon expiration of that time period. Except for any plan, program or policy, or portion thereof referred to in Section 5.11 for which Seller or any of the Continuing Affiliates are responsible and except with respect to any plan, program or policy identified on Schedule 3.17(i) as "a Grand Met plan which will not be available after the sale," Buyer shall cause Pearle and the Subsidiaries to maintain for a period of at least one year after the Closing Date employee compensation and benefit plans, programs and policies that, in the aggregate, will provide benefits to employees of Pearle and the Subsidiaries that are substantially equivalent in the aggregate as those provided pursuant to the employee benefit plans, programs and policies of Pearle and the Subsidiaries in effect on the date hereof (as disclosed on Schedule 3.17(i) hereto); PROVIDED, HOWEVER, that any severance plans maintained by Pearle or any of the Subsidiaries as of the date of this Agreement shall remain in effect without any modification adverse to the participants thereunder for at least two years after the Closing Date, and any participant in either such plan whose employment is terminated and is otherwise eligible for severance benefits shall be entitled to severance benefits based upon base pay and employment position at levels at least equal to those applicable as of the -67- 74 Closing Date (other than on account of any reduction in position voluntarily agreed to in writing by any participant). (b) Employees of Pearle and the Subsidiaries shall be given credit for all service with Pearle, the Subsidiaries and Seller and its Affiliates (including any other service credited for purposes of the Company Plans) under all employee benefit plans, programs and policies of Buyer (including vacation) in which they become participants for purposes of eligibility and vesting and benefit accrual (but not credit for benefit accrual under defined benefit pension plans). (c) Subject to the rights of Pearle and the Subsidiaries to amend, modify or terminate Company Plans in accordance with their terms, Buyer shall, and shall cause Pearle and its Subsidiaries to, honor all Company Plans in accordance with their terms other than any "Grand Met plan which will not be available after the sale," identified on Schedule 3.17(i). Effective as of the Closing Date, Pearle and its Subsidiaries shall cease being participating employers with respect to any employee benefit plans maintained by Seller or the Continuing Affiliates. Effective as of, or as soon as practicable following the Closing Date, Buyer shall cause Pearle to cause the Trustee of the Pearle, Inc. Profit Sharing Plus Plan Trust to withdraw from the Pooled Investment Trust Agreement establishing the Grand Metropolitan ADS Group Trust. (d) Except as expressly provided in this Agreement, nothing herein shall create any restriction on the ability of -68- 75 Buyer or any of its Affiliates (including Pearle and the Subsidiaries after the Closing Date), to amend, modify or terminate any employee benefit plan of Buyer or any of Buyer's Affiliates. Section 6.6 RETENTION OF BOOKS AND RECORDS. Each party shall and shall cause its respective Affiliates to, retain until all applicable tax statutes of limitations (including periods of waiver) have expired all books, records and other documents pertaining to Pearle and the Subsidiaries in existence on the Closing Date that are required to be retained under current retention policies and to make the same available after the Closing Date for inspection and copying by the other party or its agents at such other party's expense, during regular business hours and upon reasonable request and upon reasonable advance notice. After the expiration of such period, no such books and records shall be destroyed by either party without first advising the other party in writing detailing the contents thereof and giving the other party at least 120 days to obtain, at its expense, possession thereof. Each party agrees that any such records made available by the other party will be kept strictly confidential and used only for tax purposes or as reasonably required in connection with any third party claim. Section 6.7 CLOSING DATE FINANCIAL INFORMATION. For a period of one year from and after the Closing Date, to the extent reasonably necessary for Seller or its Affiliates to prepare consolidated financial statements or any governmental permits, -69- 76 licenses or required filings and to comply with reporting obligations in respect thereof, upon written request of Seller, Pearle and the Subsidiaries will provide, and Buyer shall use its reasonable best efforts to cause Pearle and the Subsidiaries to provide, at Seller's expense, to Seller and its accountants within 20 Business Days of such request with such computer support, access to employees and Buyer's accountants and financial information of Pearle or the Subsidiaries as of the Closing Date as Seller may reasonably request in the format customarily required by Seller or its Affiliates and, upon Seller's request, it will be accompanied by supplemental financial schedules customarily required by Seller or its Affiliates in support of such financial information. Seller agrees that such records will be kept strictly confidential and used only for tax purposes. Section 6.8 DELIVERY OF CORPORATE MINUTES AND BANK SIGNATURE CARDS. At the Closing, Seller shall deliver to Buyer the minutes and stock books of Pearle and each of the Subsidiaries, and promptly following the Closing shall deliver signature cards from all banks or financial institutions with which Pearle or any Subsidiary has any account designating signatures approved by Buyer. Section 6.9 COVENANT NOT-TO-COMPETE. (a) Seller acknowledges and agrees that the value to Buyer of the transactions provided for herein would be substantially diminished if Seller or any of the Continuing -70- 77 Affiliates were to enter into certain business activities, and Seller has agreed to the covenant in this Section 6.9 as an inducement to Buyer to enter into this Agreement. Seller specifically acknowledges and agrees that the covenants in this Section 6.9 are commercially reasonable and reasonably necessary to protect the interests Buyer intends to acquire hereunder. If any court of competent jurisdiction shall in any proceedings refuse to enforce such covenant, in whole or in part, because the time limit or geographical extent applicable thereto is deemed unreasonable in the jurisdiction, it is expressly understood and agreed that such covenant shall not be void. Instead, for the purpose of such proceedings, such temporal or geographic limitations shall be deemed to be reduced to the extent necessary to permit the enforcement of such covenant in the particular jurisdiction. Seller agrees that, for five years after the Closing Date, it shall not, directly or indirectly through the Continuing Affiliates, franchisees or otherwise, engage in the ownership, operation or management of retail stores offering eyecare products anywhere in the world (the "Business"); PROVIDED, HOWEVER, that Seller and the Continuing Affiliates may: (i) acquire up to 10% of the outstanding securities and other interests in any Person that competes with the Business; (ii) acquire any securities and other interests in any Person if (x) the revenues of such Person that are attributable to business that compete with the Business -71- 78 exceed 10% of such Person's total annual revenues, provided that the Seller hereby agrees to divest or cause the divestiture of such interest that directly competes with the Business within one calendar year from any such acquisition or (y) the revenues of such Person that are attributable to business that compete with the Business do not exceed 10% of such Person's total annual revenues; (iii) maintain and continue in accordance with current and past practice the operations described on Schedule 6.9(a); (iv) perform any act or conduct any business contemplated by this Agreement. (b) Seller and Buyer agree that money damages would be an inadequate remedy for a violation of the covenant set forth in Section 6.9(a). (c) Seller agrees that, for a period of two (2) years following the Closing Date, neither Seller nor any Continuing Affiliate shall solicit the employment of any person, other than an individual listed on Schedule 6.9(c) hereto, it knows to be an employee of Pearle or any of its Subsidiaries or employ any person it knows to be such an employee (other than any hourly worker or any Employee who serves in a clerical function) without the prior written consent of Buyer; PROVIDED, HOWEVER, that (i) general solicitations of employment published in a journal, newspaper or other publication of general circulation and not specifically directed towards such employees shall not be deemed -72- 79 to constitute solicitation for purposes of this Section 6.9(c) and (ii) Seller, its Continuing Affiliates and representatives shall not be prohibited from employing any such person who contacts them on his or her own initiative and without any solicitation by Seller, its Continuing Affiliates and representatives. Section 6.10 EYELAB AND PEARLE MARKS. Prior to the Closing Date, each of Seller and its Continuing Affiliates which might have an interest therein will quitclaim to Pearle all its right, title and interest in any of the "Eyelab" trademarks listed on Schedule 3.15(a) hereto (the "Eyelab Marks") and all derivatives thereof or in any of the "Pearle" or "Pearle Vision" trademarks and all derivatives thereof (the "Pearle Marks") and will assign all rights and the goodwill associated therewith to Pearle. Seller and its Continuing Affiliates will cease to use the Eyelab Marks, the Pearle Marks or any confusingly similar names as of the Closing Date. Notwithstanding the foregoing, Buyer shall permit Seller and its Continuing Affiliates to continue to use the Eyelab Marks, the Pearle Marks and derivatives thereof for non-commercial purposes, including winding down their affairs; provided that Seller and its Continuing Affiliates may continue to use the Eyelab Marks, the Pearle Marks or any derivatives thereof in its financial reporting, and otherwise may not use the Eyelab Marks or any derivatives thereof for more than 90 days following the Closing Date, and following Closing, each of Seller and its Continuing -73- 80 Affiliates shall not hold itself out as doing business under the Eyelab Marks, the Pearle Marks or any derivatives thereof. On or before the Closing Date, Seller shall cause any Continuing Affiliate which has in its name the word "Pearle" or the phrase "Pearle Vision" to change such name to eliminate the word "Pearle" or the phrase "Pearle Vision", as applicable. The parties agree to negotiate in good faith between the date hereof and the Closing Date upon any alternative proposals to effect the transfer of the Eyelab Marks. Section 6.11 AUDITED FINANCIAL STATEMENTS. (a) As soon as reasonably practicable after September 30, 1996, Seller shall cooperate with Buyer to prepare (i) an audited consolidated balance sheet and consolidated statements of income and cash flows of Pearle and the Subsidiaries as of, and for the year ended, September 30, 1996, accompanied by a standard opinion report of KPMG, (ii) such other financial statements and schedules as Buyer shall reasonably request, in each case in order for Buyer to comply with the requirements of the Securities and Exchange Commission. (b) Seller acknowledges that KPMG has agreed, subject to review of the offering documents, to the inclusion of the Audited Financial Information, together with the additional information to be provided pursuant to Section 6.11, in any materials, including materials filed with the Securities and Exchange Commission and any state or foreign regulatory authority, used in connection with obtaining the financing of the -74- 81 transaction contemplated by this Agreement, any registered exchange offer required to be made in connection with such financing and any subsequent financing or securities offering. Seller shall use reasonable efforts to cause KPMG to provide to Buyer, at Buyer's expense, (i) any consents required in connection with such use of such financial information, (ii) comfort letters, in form and substance customary for such matters, with respect to the periods covered by such financial information, and (iii) such other assistance as Buyer may reasonably request. Section 6.12 CERTAIN CONSENTS. Prior to the Closing, each of Seller and Pearle shall use its reasonable best efforts to obtain (and Buyer shall cooperate in obtaining) all consents, approvals, authorizations, waivers or notifications from any third party, including any governmental authority (each a "Consent") necessary to effect the transfer of all contracts, Franchise Agreements, Lease Agreements, governmental permits and licenses and other instruments and arrangements as contemplated hereby; PROVIDED, HOWEVER, that neither party shall be required to pay or commit to pay any amount to (or incur any obligation in favor of) any person from whom any such Consent may be required (other than nominal governmental filing fees payable to any governmental authority). Section 6.13 TRANSITION SERVICES. Seller shall provide Buyer certain transition services that Seller or its Continuing Affiliates currently provide for Pearle or the -75- 82 Subsidiaries, including cash management, insurance, treasury, tax and data processing services, at current charges for a period (a) with respect to all services other than data processing, not to exceed six months after the Closing Date and (b) with respect to data processing services not to exceed 18 months after the Closing Date, in each case pursuant to and in accordance with the terms of an agreement to be negotiated in good faith by Buyer and Seller and executed on or before the Closing Date. Section 6.14 FINANCING. Buyer shall use its reasonable best efforts to obtain the funds necessary to purchase the PSC Shares and the Pearle Shares as contemplated by Section 4.3 hereof or otherwise. Section 6.15 INSURANCE CLAIMS. Following the Closing, but with respect only to occurrences occurring prior to Closing: (a) Seller and the Continuing Affiliates shall provide Pearle and the Subsidiaries with (i) the benefit of such existing workers compensation or general liability, automobile liability or other insurance policies as currently cover Pearle and the Subsidiaries and (ii) the benefit of such existing claims made policies, including director and officer and pension trust liability insurance policies, which policies will be continued in force by Seller or a Continuing Affiliate for claims made after the Closing Date based upon wrongful acts committed or allegedly committed prior to the Closing Date, but only to the extent Seller or such Continuing Affiliate is able, using its reasonable best efforts (which shall not require the expenditure of funds in -76- 83 excess of amounts reimbursed as provided in Section 6.15(b), or the filing of any lawsuit), to obtain such benefits and (b) Buyer shall, or shall cause Pearle or a Subsidiary to, promptly reimburse Seller or any such Continuing Affiliate, with respect to any amounts required to be paid after the Closing Date by Seller and the Continuing Affiliates with respect to insurance premiums, including any taxes, assessments and claims handling charges, and deductibles or self-insured retentions applicable to such policies. Notwithstanding the foregoing, nothing in this Agreement shall prevent or interfere with Seller's or any of its Continuing Affiliates' right to terminate or otherwise discontinue any insurance policy applicable to losses relating to claims arising from incidents occurring after the Closing Date for any reason, including without limitation, in connection with the settlement or discharge of any claim. Buyer agrees to assume any obligation of Seller or any of its Continuing Affiliates to provide collateral or security on behalf of Pearle or any Subsidiary with respect to such insurance polices covering workers' compensation, general liability, product liability and auto liability; PROVIDED that the aggregate amount of collateral or security in respect of any such coverage shall not be required to exceed at any time the sum of (a) the reserves then allocable to the liability covered thereby and (b) the applicable claims handling expenses. Section 6.16 OWNERSHIP OF PSC. Buyer agrees that, for a period of two (2) years following the Closing Date, neither -77- 84 Pearle nor any Subsidiary shall become the owner of the PSC Shares nor shall PSC be merged or liquidated with or into Pearle or any Subsidiary. Section 6.17 FURTHER ASSURANCES. At any time after the Closing Date, Seller and Buyer shall, and Buyer shall cause Pearle or any Subsidiary to, promptly execute, acknowledge and deliver any other assurances or documents reasonably requested by Buyer or Seller, as the case may be, and necessary for Buyer or Seller, as the case may be, to satisfy its obligations hereunder or obtain the benefits contemplated hereby. Section 6.18 BV PENSION PROVISION. To the extent all of the following time periods are commercially reasonable, within 21 calendar days after the date hereof, Seller shall cause its actuary to calculate the provision for pension backservice liabilities of Pearle Holdings and its subsidiaries, as of September 30, 1996, determined on the same basis as used in calculating the pension backservice liability provision of NLG 1,424,612 reflected in the September 30, 1995 balance sheet included in the Audited BV Financial Information; PROVIDED that Seller's actuary shall use the most recent available actuarial tables in use in the Netherlands including, without limitation, the most recent available mortality rates, and Seller shall deliver such calculation (the "BV Pension Provision") to Buyer, together with all relevant books and records and any work papers (including those of Seller's actuary) relating to the calculation of the BV Pension Provision. Within 10 calendar days after -78- 85 receipt of the calculation of the BV Pension Provision, Buyer shall either inform Seller in writing that the BV Pension Provision is acceptable or object to it in writing setting forth a specific description of its objections. If Buyer so objects and the parties do not resolve such objection on a mutually agreeable basis within 10 calendar days after Seller's receipt thereof, the disagreement shall be resolved within an additional 14 calendar day period by an Unaffiliated Firm. The decision of the Unaffiliated Firm shall be final and binding upon the parties. Upon the agreement of the parties or the decision of the Unaffiliated Firm as to all matters objected to, or if Buyer fails to deliver an objection to Seller within the 10 calendar day period provided above, the BV Pension Plan shall be deemed final. Each party shall bear the fees, costs and expenses of its own accountants and shall share equally the fees, costs and expenses of the Unaffiliated Firm. Buyer and Seller shall (and prior to the Closing Date Seller shall cause Pearle to and, if the BV Pension Provision is not then final, after the Closing Date Buyer shall cause Pearle to) make readily available to the Unaffiliated Firm all relevant books and records and any work papers (including those of the parties' respective actuaries) relating to the calculation of the BV Pension Provision and all other items reasonably requested by the Unaffiliated Firm. Promptly following the final determination of the BV Pension Provision, (a) if such determination is made on or prior to the Closing Date, Seller shall cause to remain in Pearle Holdings or -79- 86 the applicable pension plans a cash balance (together with insurance for which premiums have been paid) in an amount equal to the lesser of the amount of the BV Pension Provision or NLG 2,000,000 or (b) if such determination is made after the Closing Date, (i) in the event Seller shall have caused to remain in Pearle Holdings or the applicable pension plans a cash balance (together with insurance for which premiums have been paid) of NLG 2,000,000 and such amount exceeds the later determined BV Pension Plan Provision, Buyer shall pay to Seller such difference, or (ii) Seller shall pay to Buyer an amount equal to the lesser of the amount of the BV Pension Provision or NLG 2,000,000. ARTICLE VII ----------- CONDITIONS TO CLOSING --------------------- Section 7.1 CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver by Buyer in writing on or prior to the Closing Date of each of the following conditions: (a) Each of the representations and warranties of Seller and Pearle contained in this Agreement which refer to a Material Adverse Effect or otherwise reference a concept of materiality shall be true when made and as of the Closing Date, and each of the other representations and warranties of Seller and Pearle contained in this Agreement shall be true in all material respects when made and as of the -80- 87 Closing Date, with the same effect as though such representations and warranties had been made on and as of the Closing Date (except (i) representations and warranties that are made as of a specific date need be true, or true in all material respects, as the case may be, only as of such date and (ii) as expressly permitted by this Agreement to change between the date of this Agreement and the Closing Date); PROVIDED, THAT exclusively for purposes of this Section 7.1(a), the representations and warranties contained in Sections 3.10 and Section 3.18 shall be read as though they were qualified by reference to a requirement of, or the requirement of a reasonable likelihood of, "Material Adverse Effect"; each of the covenants and agreements of Seller to be performed on or prior to the Closing Date shall have been duly performed in all material respects; and Buyer shall have received at the Closing certificates to that effect dated as of the Closing Date and executed on behalf of each of Pearle and Seller by its President or any of its Vice Presidents and its Secretary or any of its Assistant Secretaries. (b) Buyer shall have received from Seller an opinion of Jerome J. Jenko, counsel to Seller, dated as of the Closing Date, substantially in the form of Schedule 7.1(b) hereof. (c) Seller shall have delivered to Buyer resignations of all directors of Pearle and the Subsidiaries (in their -81- 88 capacity as directors) and all officers of Pearle and the Subsidiaries who are not also employees of Pearle or a Subsidiary. (d) Buyer shall have funds available to it sufficient to purchase the PSC Shares and the Pearle Shares in accordance with the terms and conditions contemplated by this Agreement. (e) Pearle, Pearle Vision, Inc. and Seller or one of its Continuing Affiliates shall have entered into an amendment to the Note Purchase Agreement with SocGen pursuant to which (i) Seller or one of its Continuing Affiliates shall have assumed all payment obligations of Pearle Vision, Inc. and Pearle under the terms of the Note Purchase Agreement and (ii) Pearle and Pearle Vision, Inc. shall have been released from all payment obligations thereunder and from all of their respective covenant obligations under the Note Purchase Agreement to the extent that such covenant obligations relate solely to Pearle and/or Pearle Vision, Inc. and not to their obligations to assist in the collection of the principal, interest and other amounts due from the franchisees on the notes or to cause franchisees to take, or prevent them from taking, certain actions. Section 7.2 CONDITIONS TO OBLIGATIONS OF SELLER. The obligation of Seller to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver -82- 89 in writing by Seller on or prior to the Closing Date of each of the following conditions: (a) Each of the representations and warranties of Buyer contained in this Agreement qualified by a concept of materiality shall be true when made and as of the Closing Date, and each of the other representations and warranties of Buyer contained in this Agreement shall be true in all material respects when made and as of the Closing Date, with the same effect as though such representations and warranties had been made on and as of the Closing Date (except (i) representations and warranties that are made as of a specific date need be true, or true in all material respects, as the case may be, only as of such date and (ii) as expressly permitted by this Agreement to change between the date of this Agreement and the Closing Date); each of the covenants and agreements of Buyer to be performed on or prior to the Closing Date shall have been duly performed in all material respects; and Seller shall have received at the Closing certificates to that effect dated as of the Closing Date and executed on behalf of Buyer by its President or any of its Vice Presidents and its Secretary or any of its Assistant Secretaries. (b) Seller shall have received from Jones, Day, Reavis & Pogue, as counsel for Buyer, an opinion, dated as of the Closing Date, substantially in the form of Schedule 7.2(b) hereof. -83- 90 Section 7.3 CONDITIONS TO OBLIGATIONS OF BUYER AND SELLER. The obligations of the parties to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver by both parties on or prior to the Closing Date of the following conditions: (a) Each party shall have duly filed with the FTC and the Antitrust Division the Report required under the HSR Act with respect to the sale and purchase of the PSC Shares and the Pearle Shares and the waiting period required by the HSR Act, and any extensions thereof obtained by request or other action of the FTC and/or the Antitrust Division, shall have expired or been earlier terminated by the FTC and the Antitrust Division. (b) No court or governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, or non-appealable judgment, decree, injunction or other order which is in effect on the Closing Date and prohibits the consummation of the Closing. ARTICLE VIII ------------ TERMINATION ----------- Section 8.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing: (a) by agreement of Buyer and Seller; (b) by either Buyer or Seller, by giving written notice of such termination to the other party, if (x) any -84- 91 condition to the terminating party's obligations hereunder has not been satisfied or waived and (y) the Closing shall not have occurred on or prior to January 31, 1997; PROVIDED THAT the terminating party is not in material breach of its obligations under this Agreement; (c) by either Buyer or Seller, by giving written notice of such termination to the other party, if (x) each condition thereto shall have been satisfied or waived and (y) the Closing shall not have occurred on or prior to January 31, 1997; PROVIDED THAT the terminating party is not in material breach of its obligations under this Agreement; (d) by either Buyer or Seller if there shall be in effect any law or regulation that prohibits the consummation of the Closing or if consummation of the Closing would violate any non-appealable final order, decree or judgment of any court or governmental body having competent jurisdiction; (e) by Seller if the Closing shall not have occurred on or prior to 10 Business Days following the satisfaction of all the conditions to Closing set forth in Sections 7.1 and 7.3 hereof as a result of any action or inaction by Buyer. (f) by Buyer if the Closing shall not have occurred on or prior to 10 Business Days following the satisfaction of all the conditions to Closing set forth in Sections 7.2 and 7.3 hereof as a result of any action or inaction by Seller. Section 8.2 EFFECT OF TERMINATION. In the event of the termination of this Agreement in accordance with Section 8.1 -85- 92 hereof, this Agreement shall thereafter become void and have no effect, and no party hereto shall have any liability to the other party hereto or their respective Affiliates, directors, officers or employees, except for the obligations of the parties hereto contained in this Section 8.2 and in Sections 10.2, 10.3, 10.4, 10.11 and 10.12 hereof, and except that nothing herein will relieve any party from liability for any breach of this Agreement prior to such termination. ARTICLE IX ---------- SURVIVAL AND INDEMNIFICATION ---------------------------- Section 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS; KNOWLEDGE OF BREACH. Notwithstanding any otherwise applicable statute of limitations, the representations and warranties included or provided for herein shall survive the Closing until the later to occur of: (i) April 30, 1998 and (ii) the first anniversary of the Closing Date; PROVIDED, HOWEVER, that any representation or warranty contained in Section 3.18 hereof shall survive the Closing until the third anniversary of the Closing Date and any representation, warranty, covenant or agreement contained in Sections 3.14, 3.23, 4.2 and 4.4 and Article V hereof shall survive the Closing until the expiration of the applicable statute of limitations (including any waivers or extensions thereof) with respect to such matters and PROVIDED, FURTHER, however, that any representation, warranty, covenant or agreement contained in Sections 3.1, 3.2 and 3.3 shall survive the Closing and shall remain in effect -86- 93 without limitation as to time. The covenants and other agreements contained in this Agreement shall survive the Closing until the date or dates specified therein or (except as to Section 6.5(a)) the expiration of the applicable statute of limitations (including any waivers or extensions thereof) with respect to such matters, whichever is later. Except with respect to the representations, warranties, covenants and agreements contained in Sections 2.4, 3.14(b), 3.23, 4.2 and 6.4 and Article V hereof, in no event shall Buyer be liable to Seller or Seller be liable to Buyer, as the case may be, for any breach of the representations, warranties, covenants and agreements included or provided for herein or in any schedule or certificate or other document delivered pursuant to this Agreement, unless and until all claims for which Losses are recoverable hereunder by Buyer or Seller, as the case may be, exceed $2,500,000 (the "Deductible") (PROVIDED THAT those Losses recoverable by Buyer pursuant to Section 9.2(a)(ii) shall not be included in the calculation of such Deductible), in which case Buyer or Seller, as the case may be, shall be entitled to Losses in an amount up to the Purchase Price in the aggregate; PROVIDED, HOWEVER, that Buyer or Seller, as the case may be, shall be liable only for the amount by which all such Losses exceed the Deductible, PROVIDED, FURTHER, that to the extent any representation or warranty is not qualified by the terms "material", "materiality" or "Material Adverse Effect" Buyer or Seller, as the case may be, shall only be liable for such Losses attributable to each individual proven -87- 94 damage (or group of damages arising from the same event, condition or course of conduct) that is in excess of $50,000 (the "Damage Threshold") without regard to the Damage Threshold once the amount of the Damage Threshold has been exceeded in the particular instance. Section 9.2 INDEMNIFICATION. (a) (i) With respect to any claim for which the Seller, on the one hand, or Buyer, on the other hand (the "Indemnifying Party"), receives notice from the Buyer, on the one hand, or Seller, on the other hand, as the case may be (the "Indemnified Party") during the period commencing on the Closing Date and ending, as the case may be, upon the expiration of the periods, if any, specified in Section 9.1 hereof, the Indemnifying Party shall, subject to the limitations set forth in Sections 9.1 hereof, indemnify, defend and hold harmless the Indemnified Party, against and in respect of all losses, damages, liabilities, costs and expenses (including reasonable attorneys' fees and expenses incurred in investigating, preparing or defending any claims covered hereby, net of the recovery of any insurance proceeds) ("Losses") sustained or incurred arising out of any breaches of the Indemnifying Party's or Pearle's representations, warranties, covenants and agreements set forth in this Agreement (other than representations, warranties, covenants and agreements set forth in Article V, as to which the indemnification provisions set forth in Article V shall govern) and (ii) Seller shall, subject to the limitations set forth in -88- 95 Sections 9.1 hereof other than the Deductible and the Damage Threshold, indemnify, defend and hold harmless Buyer against and in respect of: (A) all Losses sustained or incurred arising out of the presence, removal or cleanup relating to the underground storage tanks referred to in Item 7 of Schedule 3.7; PROVIDED THAT Seller shall only be liable for Losses in an amount up to $250,000; (B) 75% of the aggregate sum of (I) the excess (the "Determined Receivables Amount") of the resultant of (a) the amount of any and all writeoffs, writedowns and/or reductions as reflected in the audited financial statements of the Buyer for the fiscal years ending February 1, 1997, January 31, 1998 and January 30, 1999 (the "Receivables Determination Period") specifically relating to or in connection with the failure to collect any receivables owed by franchisees pursuant to any notes, accounts and deferred rents, in each case, as reflected in the Closing Date Balance Sheet (the "Franchisee Receivables"), less any recovery of fixed assets or inventory (in each case, valued on a basis consistent with the respective valuation practices of Pearle in effect as of the date hereof) recognized upon store closings, takebacks or the seizure of assets in connection therewith during, and as reflected in the audited financial statements of the Buyer for, each fiscal year during the Receivables Determination Period -89- 96 (individually, with respect to each such fiscal year, and collectively, with respect to all such fiscal years, the "Receivables Writeoff Amount"), over (b) the amount reserved for bad debts specifically identified in connection with the Franchisee Receivables reflected in the Closing Date Balance Sheet and (II) an amount (the "Calculated Receivables Settlement") equal to the aggregate sum of the principal amounts of the notes, accounts and deferred rents underlying the Franchisee Receivables in which payments of interest on or of such principal as of January 30, 1999 (the "Receivables Calculation Date") are more than 90 days past due (the "Past Due Receivables") as set forth on a Franchisee Receivables aging schedule to be delivered by Buyer to Seller no later than April 30, 1999 (the "Receivables Schedule"). Within 30 calendar days after receipt of the Receivables Schedule, Seller shall either inform Buyer in writing that the Receivables Schedule, Determined Receivables Amount and the Calculated Receivables Settlement are acceptable or object to any of them in writing setting forth a specific description of its objections. If Seller so objects and the parties do not resolve such objections on a mutually agreeable basis within 30 calendar days after Seller's receipt thereof, the disagreement shall be resolved within an additional 30 calendar day period by an Unaffiliated Firm. The decision of the Unaffiliated Firm shall be final and binding upon the -90- 97 parties. Upon the agreement of the parties or the decision of the Unaffiliated Firm as to all matters objected to, or if Seller fails to deliver an objection to Buyer within the 30 calendar day period provided above, the Receivables Schedule, Determined Receivables Amount and the Calculated Receivables Settlement (as adjusted, if necessary) shall be deemed final. Each Party shall bear the fees, costs and expenses of its own accountants and shall share equally the fees, costs and expenses of the Unaffiliated Firm. Buyer and Seller shall (and Buyer shall cause Pearle to) make readily available to the Unaffiliated Firm all relevant books and records and any work papers (including those of the parties' respective accountants) relating to the Receivables Schedule and the calculation of the Determined Receivables Amount and the Calculated Receivables Settlement and all other items reasonably requested by the Unaffiliated Firm. Seller shall pay Buyer 75% of the Determined Receivables Amount with respect to any fiscal year in which there is a cumulative positive Determined Receivables Amount and 75% of the Calculated Receivables Settlement within 15 Business Days of the final determination of each such amount; PROVIDED THAT, if with respect to any fiscal year in which there is a cumulative positive Receivables Writeoff Amount there is not a cumulative positive Determined Receivables Amount, the Receivables Writeoff Amount shall be carried forward into the next fiscal year. Within 15 -91- 98 Business Days of April 30, 2003, Buyer shall pay Seller an amount equal to 75% of the sum of any and all receivables collected between January 31, 1999 and April 30, 2003 and fixed assets and inventory recovered (in each case, valued on a basis consistent with the respective valuation practices of Pearle in effect as of the date hereof), in each case in connection with (i) the Determined Receivables Amounts and (ii) the Calculated Receivables Settlement; PROVIDED THAT the maximum amount of such payment shall not exceed 75% of the sum of all Determined Receivables Amounts and the Calculated Receivables Settlement. (C) 50% of all Losses relating to workers' compensation claims arising from incidents occurring prior to the Closing Date which are first presented, filed or made within one year after the Closing Date, to the extent that the amount of all such Losses exceed the reserve relating to workers' compensation liabilities reflected in the Closing Date Balance Sheet. (D) 50% of all Losses relating to personal injury claims arising from incidents occurring prior to the Closing Date which are first presented, filed or made within three years after the Closing Date, to the extent that the amount of all such Losses exceed the reserve relating to personal injury claims reflected in the Closing Date Balance Sheet; (E) all Losses relating to obligations of Seller or any of its Affiliates with respect to Pearle GMBH; -92- 99 (F) all Losses relating to any liabilities for net costs incurred by Buyer or any of its Affiliates in connection with the closing of stores closed prior to the Closing Date to the extent such costs exceed the amounts reflected in the Closing Date Balance Sheet; (G) up to NLG 300,000 of Losses sustained or incurred arising out of any breaches of Seller's or Pearle's representations or warranties set forth in Section 3.18 to the extent they relate to Pearle Holdings or its subsidiaries; (H) all Losses relating to any breach by Seller of any funding obligation in Section 6.18. The parties agree that, with respect to all claims for which Losses would be recoverable pursuant to clauses (A) through (H) above, Section 9.2(a)(ii) hereto shall be the sole and exclusive remedy of Buyer and any amounts not recovered pursuant to Section 9.2(a)(ii) shall be deemed not to be Losses for any other purposes. Any payments pursuant to this Section 9.2 or Article V shall be treated as an adjustment to the Subsequent Sale Purchase Price for all Tax purposes. (b) Seller releases and waives any right of indemnity and contribution from Pearle and the Subsidiaries. (c) The indemnity provided herein and in Article V as it relates to this Agreement and the transactions contemplated by this Agreement shall be the sole and exclusive remedy of the -93- 100 parties hereto, their Affiliates, successors and assigns with respect to any and all claims for losses, damages, liabilities, costs and expenses sustained or incurred arising out of this Agreement and the transactions contemplated by this Agreement, except for the right of the parties hereto to seek specific performance of the obligations set forth in Article II and Sections 6.4, 6.5 and 6.9 of this Agreement. Section 9.3 METHOD OF ASSERTING CLAIMS, ETC. All claims for indemnification by any Indemnified Party hereunder shall be asserted and resolved as set forth in this Section 9.3 except for claims pursuant to Article V hereof (as to which the provisions of Article V shall be applicable). In the event that any written claim or demand for which an Indemnifying Party would be liable to any Indemnified Party hereunder is asserted against or sought to be collected from any Indemnified Party by a third party, such Indemnified Party shall promptly, but in no event more than 15 days following such Indemnified Party's receipt of such claim or demand, notify the Indemnifying Party of such claim or demand and the amount or the estimated amount thereof to the extent then feasible (which estimate shall not in any manner prejudice the right of the Indemnified Party to indemnification to the fullest extent provided hereunder) (the "Third Party Claim Notice") and in the event that an Indemnified Party shall assert a claim for indemnity under this Article IX, not including a third party claim, the Indemnified Party shall notify the Indemnifying Party promptly following its discovery of the facts -94- 101 or circumstances giving rise thereto (together, with a Third Party Claim Notice, a "Claim Notice"); PROVIDED, THAT no such notice need be provided to an Indemnifying Party if the Deductible has not been exceeded and will not be exceeded by such claim or demand; and PROVIDED, FURTHER, that the failure to notify on the part of the Indemnified Party in the manner set forth herein shall not foreclose any rights otherwise available to such Indemnified Party hereunder, except to the extent that the Indemnifying Party is prejudiced by such failure to notify. The Indemnifying Party shall have 30 days from the personal delivery or mailing of the Third Party Claim Notice (except that such a period shall be decreased to a time 10 days before a scheduled appearance date in a litigated matter) (the "Notice Period") to notify the Indemnified Party (i) whether or not the Indemnifying Party disputes the liability of the Indemnifying Party to the Indemnified Party hereunder with respect to such claim or demand and (ii) whether or not it desires to defend the Indemnified Party against such claim or demand, which it shall not be entitled to do until the Deductible is exceeded. All costs and expenses incurred by the Indemnifying Party in defending such claim or demand shall be a liability of, and shall be paid by, the Indemnifying Party; PROVIDED, HOWEVER, that the amount of such expenses shall be a liability of the Indemnifying Party hereunder, subject to the limitations set forth in Section 9.1 hereof. In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it -95- 102 desires to defend the Indemnified Party against such claim or demand, which it shall not be entitled to do until the Deductible is exceeded and except as hereinafter provided, the Indemnifying Party shall have the right to defend the Indemnified Party by appropriate proceedings and by counsel reasonably acceptable to the Indemnified Party. If any Indemnified Party desires to participate in, but not control, any such defense or settlement it may do so at its sole cost and expense. The Indemnified Party shall not settle a claim or demand without the consent of the Indemnifying Party. The Indemnifying Party shall not, without the prior written consent of the Indemnified Party, settle, compromise or offer to settle or compromise any such claim or demand on a basis which would result in the imposition of a consent order, injunction or decree which would restrict the future activity or conduct of, or which would otherwise have a material adverse effect on, the Indemnified Party or any subsidiary or Affiliate thereof. If the Indemnifying Party elects not to defend the Indemnified Party against such claim or demand, whether by not giving the Indemnified Party timely notice as provided above or otherwise, then the Indemnified Party shall have the right to assume the defense of such claim and the amount of any such claim or demand, or, if the same be contested by the Indemnified Party, then that portion of any such claim or demand as to which such defense is unsuccessful (and all reasonable costs and expenses pertaining to such defense) shall be the liability of the Indemnifying Party hereunder, subject to the -96- 103 limitations set forth in Section 9.1 hereof. In such event, the Indemnified Party may defend against any such claim in any manner it deems appropriate and may settle any such claim or consent to the entry of any judgment with respect thereto; PROVIDED THAT it shall (i) act reasonably and in good faith, (ii) notify the Indemnifying Party of its intent to settle such claim or consent to such judgment and (iii) receive the consent of the Indemnifying Party for such settlement or consent to judgment (which consent shall not be unreasonably withheld and shall be deemed to have been received if the Indemnifying Party shall not have objected within five Business Days after the receipt of the notification referred to in (ii) above). To the extent the Indemnifying Party shall control or participate in the defense or settlement of any third party claim or demand, the Indemnified Party will give to the Indemnifying Party and its counsel reasonable access to all business records and other documents relevant to such defense or settlement, and shall permit them to consult with the employees and counsel of the Indemnified Party. The Indemnifying Party will keep such business records and other documents strictly confidential and will use them only for the purposes of defense or settlement pursuant hereto. The Indemnified Party shall use its reasonable best efforts in the defense of all such claims, and in connection therewith shall be entitled to reimbursement by the Indemnifying Party of expenses directly related to efforts undertaken at the specific request of the Indemnifying Party. -97- 104 ARTICLE X --------- MISCELLANEOUS ------------- Section 10.1 AMENDMENT AND MODIFICATION; WAIVER. This Agreement may only be amended or modified in writing, signed by Seller and Buyer, at any time prior to the Closing with respect to any of the terms contained herein. At any time prior to the Closing either Seller or Buyer may (i) extend the time for the performance of any of the obligations or other acts of the other party hereto, (ii) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions of the other party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party granting such extension or waiver. Section 10.2 RETURN OF INFORMATION. If for any reason whatsoever the sale and purchase of the PSC Shares and the Pearle Shares pursuant to this Agreement is not consummated, Buyer shall promptly return to Seller or Pearle all books, records and documents of Seller, Pearle or any Subsidiary (including all copies, if any, thereof) furnished by Seller, Pearle, or any of their respective agents, employees, or representatives, and shall not use or disclose the information contained in such books, records or documents for any purpose or make such information available to any other entity or person. -98- 105 Section 10.3 EXPENSES. Except as otherwise expressly provided in this Agreement, whether or not the transactions contemplated by this Agreement are consummated, the parties shall bear their own respective expenses (including, but not limited to, all compensation and expenses of counsel, financial advisors, consultants, actuaries and independent accountants) incurred in connection with this Agreement and the transactions contemplated hereby. Section 10.4 PUBLIC DISCLOSURE. Each of the parties to this Agreement hereby agrees with the other parties hereto that, except as may be required to comply with the requirements of applicable law or the rules and regulations of each stock exchange upon which the securities of either of the parties or its Affiliates is listed, no press release or similar public announcement or communication will be made or caused to be made concerning the execution or performance of this Agreement unless specifically approved in advance by all parties hereto; PROVIDED, HOWEVER, that to the extent that either party to this Agreement is required by law or the rules and regulations of any stock exchange upon which the securities of either of the parties or its Affiliates is listed to make such a public disclosure, such public disclosure shall only be made after prior consultation with the other party to this Agreement. Section 10.5 ASSIGNMENT. No party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other party hereto; -99- 106 PROVIDED, THAT Buyer may assign this Agreement to a wholly owned subsidiary; PROVIDED, HOWEVER, that such assignment shall not be permitted if it would subject Seller or any Continuing Affiliate to any additional obligations and shall not, in any case, relieve Buyer of any of its obligations under this Agreement. Section 10.6 ENTIRE AGREEMENT. This Agreement (including all Schedules hereto) contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, except for the Confidentiality Agreement which will remain in full force and effect for the term provided for therein. Section 10.7 FULFILLMENT OF OBLIGATIONS. Any obligation of any party to any other party under this Agreement, which obligation is performed, satisfied or fulfilled by an Affiliate of such party, shall be deemed to have been performed, satisfied or fulfilled by such party. Section 10.8 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than Buyer, Seller, or their successors or permitted assigns, any rights or remedies under or by reason of this Agreement. Section 10.9 SCHEDULES. The inclusion of any matter in any schedule to this Agreement shall be deemed to be an -100- 107 inclusion for all purposes of this Agreement, including each representation and warranty to which it may relate (PROVIDED that the relevance of such inclusion is reasonably apparent in the context), but inclusion therein shall expressly not be deemed to constitute an admission by Seller, or otherwise imply, that any such matter is material or creates a measure for materiality for the purposes of this Agreement. Section 10.10 COUNTERPARTS. This Agreement and any amendments hereto may be executed in one or more counterparts, each of which shall be deemed to be an original by the parties executing such counterpart, but all of which shall be considered one and the same instrument. Section 10.11 SECTION HEADINGS. The section and paragraph headings and table of contents contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. Section 10.12 NOTICES. All notices hereunder shall be deemed given if in writing and delivered personally or sent by telecopy, telex or telegram or by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other addresses as shall be specified by like notice): -101- 108 (a) if to Seller, to: The Pillsbury Company Pillsbury Center 200 South Sixth Street Minneapolis, MN 55402-1464 Attention: Jerome J. Jenko Senior Vice President, General Counsel and Secretary fax: (612) 330-4543 With a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attention: Francis J. Aquila, Esq. fax: (212) 558-3588 (b) if to the Company, to: Pearle, Inc. 2534 Royal Lane Dallas, TX 75229 Attention: Barbara McAninch General Counsel fax: (972) 277-5798 With a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attention: Francis J. Aquila, Esq. fax: (212) 558-3588 (c) if to Buyer, to: Cole National Corporation 5915 Landerbrook Drive Mayfield Heights, Ohio 44124 Attention: Treasurer fax: (216) 461-3489 -102- 109 With a copy to: Jones, Day, Reavis & Pogue North Point 401 Lakeside Avenue Cleveland, Ohio 44114 Attention: David P. Porter, Esq. fax: (216) 579-0212 Any notice given by mail or telegram shall be effective when received. Any notice given by telex shall be effective when the appropriate telex or telecopy answerback is received. Section 10.13 MEDIATION. All disputes arising under this Agreement shall be submitted to a mediation panel prior to the filing of any lawsuit; PROVIDED, HOWEVER, that either party may seek a preliminary injunction or other preliminary judicial relief regardless of the provisions of this Section, if, in its judgment, such action is necessary to avoid irreparable damage. The mediation panel shall consist of three persons. One shall be an internationally recognized firm of independent public accountants as to which Seller and Buyer mutually agree. The panel shall have one former judge from the Southern District of New York who regularly is employed as a mediator for disputes. The third member of the panel shall be an investment banker from a firm of recognized national standing, but not from Morgan Stanley or Houlihan Lokey Howard & Zukin or Smith Barney Inc. The party desiring to submit any matter to mediation shall do so by written notice to the other party, which notice shall set forth the items to be mediated and the party's choice of the three panel members along with a written statement of their -103- 110 credentials. The party receiving the notice shall within fifteen (15) days after receipt of the notice either approve the proposed mediation panel choices, or designate other individuals by written notice to the first party. The first party shall within fifteen (15) days after receipt of such notice either approve such choices or disapprove the same. If both parties shall have approved three persons then such persons shall be the mediation panel for the purposes of working with the parties to resolve the dispute; otherwise, the dispute shall be referred to the National Association for Dispute Resolution, Inc., which shall select a panel of persons with the qualifications set forth above. The mediation panel shall be required to conduct a mediation session within fifteen (15) days after being notified of their selection. All parties shall send high level representatives with the ability to resolve the dispute but no outside lawyers shall participate. The parties shall work with the mediation panel in good faith for at least a period of three (3) days if necessary to resolve the dispute. If the parties are unable to resolve the dispute, litigation may then be filed. The fees and expenses of the mediation panel will be paid equally by Buyer and Seller. SECTION 10.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF FORUM. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF. EACH PARTY HERETO AGREES THAT IT SHALL BRING ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO -104- 111 THIS AGREEMENT OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE SUPREME COURT OF THE STATE OF NEW YORK FOR THE COUNTY OF NEW YORK (THE "CHOSEN COURTS") AND (I) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE CHOSEN COURTS, (II) WAIVES ANY OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN THE CHOSEN COURTS, (III) WAIVES ANY OBJECTION THAT THE CHOSEN COURTS ARE AN INCONVENIENT FORUM OR DO NOT HAVE JURISDICTION OVER ANY PARTY HERETO AND (IV) AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY IN ANY SUCH ACTION OR PROCEEDING SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE WITH SECTION 10.12 OF THIS AGREEMENT. BUYER IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM AS ITS AGENT AND ATTORNEY-IN-FACT FOR THE ACCEPTANCE OF SERVICE OF PROCESS AND MAKING AN APPEARANCE ON ITS BEHALF IN ANY SUCH CLAIM OR PROCEEDING AND TAKING ALL SUCH ACTS AS MAY BE NECESSARY OR APPROPRIATE IN ORDER TO CONFER JURISDICTION OVER IT UPON THE CHOSEN COURTS AND BUYER STIPULATES THAT SUCH CONSENT AND APPOINTMENT IS IRREVOCABLE AND COUPLED WITH AN INTEREST. Section 10.15 SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or entity or any circumstance, is invalid or -105- 112 unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. -106- 113 IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of the parties hereto as of the date first written above. THE PILLSBURY COMPANY By /S/ JEROME J. JENKO -------------------------------- Name: Jerome J. Jenko Title: Senior Vice President PEARLE, INC. By /S/ JEROME J. JENKO -------------------------------- Name: Jerome J. Jenko Title: Senior Vice President COLE NATIONAL CORPORATION By /S/ JEFFREY A. COLE -------------------------------- Name: Jeffrey A. Cole Title: Chairman and Chief Executive Officer -107- EX-2.2 3 EXHIBIT 2.2 1 Exhibit 2.2 ---------------------------------------- PURCHASE AGREEMENT among COLE NATIONAL CORPORATION and HAL INVESTMENTS B.V. Dated as of 24 September, 1996 ---------------------------------------- 2 TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE 1 DEFINITIONS......................................... 2 Section 1.1 Specific Definitions................................ 2 Section 1.2 Other Terms......................................... 6 Section 1.3 Other Definitional Provisions....................... 6 ARTICLE 2 PURCHASE AND SALE OF THE SHARES AND CERTAIN ASSETS.............................................. 6 Section 2.1 Purchase and Sale of the Shares and the Other Assets........................................ 6 Section 2.2 Closing; Delivery and Payment....................... 6 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF CNC............... 7 Section 3.1 Organization and Authority of CNC................... 7 Section 3.2 Capital Stock of Pearle B.V......................... 8 Section 3.3 European Intellectual Property...................... 9 Section 3.4 Representations and Warranties under Master Agreement.................................... 9 Section 3.5 No Other Representations or Warranties.............. 9 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER............. 10 Section 4.1 Organization and Authority of Buyer................. 10 Section 4.2 Securities Act...................................... 11 Section 4.3 No Other Representations or Warranties.............. 11 ARTICLE 5 ENFORCEMENT, COOPERATION AND CERTAIN OTHER COVENANTS........................................... 12 Section 5.1 Enforcement......................................... 12 Section 5.2 Enforcement of Master Agreement Non- Compete............................................. 13 Section 5.3 Cooperation......................................... 13 ARTICLE 6 NON-COMPETE......................................... 14 Section 6.1 CNC's Covenant Not-to-Compete....................... 14 Section 6.2 Buyer's Covenant Not-to-Compete..................... 15 Section 6.3 Injunctive Relief................................... 15 Section 6.4 Hiring of Employees................................. 16 ARTICLE 7 CONDITIONS TO CLOSING............................... 16 Section 7.1 Conditions to Obligations of Buyer.................. 16 Section 7.2 Conditions to Obligations of Buyer and CNC................................................. 17 ARTICLE 8 TERMINATION......................................... 17 ARTICLE 9 MISCELLANEOUS....................................... 18
i 3 TABLE OF CONTENTS ----------------- (continued)
PAGE ---- Section 9.1 Amendment and Modification; Waiver.................. 18 Section 9.2 Expenses............................................ 18 Section 9.3 Public Disclosure................................... 19 Section 9.4 Assignment.......................................... 19 Section 9.5 Entire Agreement.................................... 20 Section 9.6 Fulfillment of Obligations.......................... 20 Section 9.7 Parties in Interest; No Third Party Beneficiaries....................................... 20 Section 9.8 Counterparts........................................ 20 Section 9.9 Section Headings.................................... 21 Section 9.10 Notices............................................. 21 Section 9.11 Mediation........................................... 22 Section 9.12 Severability........................................ 23
ii 4 PURCHASE AGREEMENT PURCHASE AGREEMENT (the "Agreement"), dated as of 24 September, 1996, among COLE NATIONAL CORPORATION, a Delaware corporation ("CNC"), and HAL Investments B.V., a company organized under the laws of the Netherlands ("HAL"). W I T N E S S E T H: WHEREAS, CNC is purchasing all of the issued and outstanding shares of capital stock of Pearle, Inc., a Delaware corporation, pursuant to that certain Stock Purchase Agreement among The Pillsbury Company ("Pillsbury"), Pearle, Inc. and CNC, dated as of September 30, 1996 (the "Master Agreement"); WHEREAS, Pearle Holdings B.V., a company organized under the laws of the Netherlands ("Pearle B.V."), is a wholly-owned subsidiary of Pearle, Inc; WHEREAS, after consummation of the transactions contemplated by the Master Agreement, CNC will own indirectly all of the issued and outstanding shares of capital stock of Pearle B.V.; WHEREAS, CNC desires to sell and transfer to Buyer, and Buyer desires to purchase from CNC, all of the issued and outstanding shares of Pearle B.V. capital stock (consisting of 500 shares of common stock, par value NLG 1,000.00 per share (the "Shares")), together with certain assets, as more specifically provided herein; and 5 NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and subject to and on the terms and conditions herein set forth, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS ----------- Section 1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth or as referenced below: "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by or under common control with that Person. "AGREEMENT" shall mean this Agreement and all Schedules hereto. "BELGIAN CONTRACTS" shall mean the GIB Contract, the Agency Agreement by and between Pearle Vision, Inc., as successor to Pearle Health Services Inc., Brilmij Maatschappij Tot Exploitatie Van Optiek Bedrijven B.V. and GB.Inno.BM S.A., dated November 1, 1985, as amended, and all franchising agreements for franchises in the countries of Belgium or Luxembourg to which Pearle Vision, Inc., as successor to Pearle Health Services Inc., and GIB are parties, all as they exist as of the Closing Date. "BELGIAN ROYALTY PAYMENTS" shall mean the royalty payments paid under the Belgian Contracts. 2 6 "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day on which banks in New York City, New York or Rotterdam, the Netherlands are authorized or obligated by law or executive order to close. "BUYER" shall mean HAL, until HAL has assigned this Agreement pursuant to Section 9.4 and, thereafter, shall mean Newco. "BUYER'S TERRITORY" shall mean the now existing European Union countries, the no existing European Free Trade Association countries, Albania, Andorra, Belarus, Bulgaria, the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Russia, Slovakia, Slovenia, Turkey, Ukraine, the former Yugoslavia and any other territories that as of the date hereof are usually referred to as being part of Europe. "CLOSING" shall have the meaning set forth in Section 2.2(a). "CLOSING DATE" shall have the meaning set forth in Section 2.2(a). "CNC" shall have the meaning set forth in the Preamble. "CNC'S TERRITORY" shall mean all territories in the world except those territories specifically in Buyer's Territory. "ENCUMBRANCES" shall have the meaning set forth in Section 3.3. 3 7 "EUROPEAN INTELLECTUAL PROPERTY RIGHTS" shall mean the Intellectual Property rights to be assigned to Buyer pursuant to the Trademark Assignment Agreement. "GIB" shall mean GB.Inno.BM S.A. or any successor or Affiliate thereof. "GIB CONTRACT" shall mean the Sales, Marketing and Distribution Agreement between Pearle Vision, Inc., as successor to Pearle Health Services Inc., Brilmij Maatschappij Tot Exploitatie Van Optiek Bedrijven B.V. and GB.Inno.BM S.A., dated October 3, 1983, as amended. "NEWCO" means a company yet to be incorporated under the laws of the Netherlands, with such corporate power and authority and capitalization as shall be determined by HAL, which shall be sufficient to support Newco's obligations under this Agreement. OTHER ASSETS" shall mean such assets as the parties may agree, including, without limitation, (a) the European Intellectual Property Rights, (b) the assignment of the Belgian Royalty Payments and the agreement by Buyer to perform certain obligations pursuant to Section 5.4 hereof, and (c) CNC's covenant not-to-compete contained in Section 6.1 hereof. "PEARLE B.V." shall have the meaning set forth in the Preamble. "PERSON" means any individual, corporation, partnership, firm, joint venture, association, joint-stock 4 8 company, trust, unincorporated organization, governmental or regulatory body or other entity. "PILLSBURY" shall have the meaning set forth in the Preamble. "PILLSBURY PAYMENT" shall have the meaning set forth in Section 2.3. "PURCHASE PRICE" shall have the meaning set forth in Section 2.1. "SECURITIES ACT" shall mean the United States Securities Act of 1933, as amended. "SHARES" shall have the meaning set forth in the Preamble. "SUBSIDIARY][IES]" shall mean each subsidiary of Pearle B.V. in which Pearle B.V. owns, beneficially or of record directly or indirectly, securities representing 50 percent (50%) or more of the aggregate voting power as listed on Schedule 3.4 to the Master Agreement (collectively, the "Subsidiaries"). "TRADEMARK ASSIGNMENT AGREEMENT" shall mean an agreement on terms mutually acceptable to Buyer and CNC pursuant to which CNC shall assign to Buyer or, at Buyer's direction, Pearle B.V. or any of its Subsidiaries, all Intellectual Property rights owned or used by Pearle, Inc. or its Subsidiaries as of the Closing Date to the extent such rights relate to Buyer's Territory. 5 9 Section 1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of this Agreement and, unless otherwise indicated, shall have such meaning indicated throughout this Agreement. Capitalized terms used and not defined herein shall have the meanings ascribed to such terms in the Master Agreement. Section 1.3 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof", "herein", and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (b) The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (c) The term "NLG" shall mean Dutch guilders. ARTICLE 2 PURCHASE AND SALE OF THE SHARES AND CERTAIN ASSETS -------------------------------------------------- Section 2.1 PURCHASE AND SALE OF THE SHARES AND THE OTHER ASSETS. Upon the terms and subject to the conditions set forth herein, Buyer shall purchase from CNC and CNC shall sell to Buyer the Shares and the Other Assets, for an aggregate purchase price of NLG 102,920,000 (the "Purchase Price") to be allocated among the Shares and the respective Other Assets prior to the Closing. 6 10 Section 2.2 CLOSING; DELIVERY AND PAYMENT. (a) The closing (the "Closing") shall take place simultaneously with the closing of the Master Agreement. The date on which the Closing occurs is called the "Closing Date," and the Closing shall be deemed effective at 11:59 P.M. (local time) on the Closing Date. (b) On the Closing Date, CNC shall cause (i) the Shares to be transferred pursuant to a Notarial Deed of Transfer before any civil law notary of Nauta Dutilh, Rotterdam or any of their deputies and (ii) shall cause the Other Assets to be transferred and (A) the parties shall execute any and all documents and do such other acts as are reasonably necessary in connection therewith and (B) Buyer shall pay to CNC the Purchase Price in immediately available funds an account or accounts to be designated by CNC. These accounts will be designated by CNC not less than two Business Days prior to the Closing. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF CNC ------------------------------------- CNC represents and warrants to Buyer as of the date hereof and as of the Closing Date (except that representations and warranties that are made as of a specific date need be true only as of such date) as follows: Section 3.1 ORGANIZATION AND AUTHORITY OF CNC. CNC has been duly incorporated, is validly existing and is in good 7 11 standing under the laws of the State of Delaware, with full power and authority to enter into this Agreement and to perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by CNC and constitutes a legal, valid and binding obligation of CNC, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles, and no other proceedings on the part of CNC, are necessary to authorize this Agreement and the consummation of the transactions contemplated hereby. Neither the execution and delivery of this Agreement nor compliance by CNC with its terms and provisions will violate any provision of the certificate of incorporation or by-laws of CNC. Section 3.2 CAPITAL STOCK OF PEARLE B.V.. Between the date hereof and the delivery of the Shares pursuant to the Notarial Deed of Transfer referred to in Section 2.2, CNC shall not, and shall cause each of its Subsidiaries (including, following the closing under the Master Agreement, Pearle and Pearle B.V.) not to, grant or agree to grant any preemptive or other outstanding rights, subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities or other agreements or arrangements of any character or nature whatsoever under which CNC or any of its Subsidiaries is or may become obligated to vote, issue, assign or transfer any shares of 8 12 the capital stock, or rights or warrants to acquire, or securities convertible into shares of capital stock, of Pearle B.V. or any of its Subsidiaries. As of the Closing, Pearle will have good and valid title to the Shares and, upon consummation of the transactions contemplated in this Agreement, shall have transferred such title to the Shares to Buyer pursuant to the terms of this Agreement, free and clear of any Encumbrances, other than such Encumbrances which were incurred by Buyer or caused to be incurred by Pearle B.V. or any Subsidiary by Buyer as a result of the transactions contemplated by this Agreement. Section 3.3 EUROPEAN INTELLECTUAL PROPERTY. Between the date hereof and the delivery of the Trademark Assignment Agreement, CNC shall not, and shall cause each of its Subsidiaries (including, following the closing under the Master Agreement, Pearle and Pearle B.V.) not to, grant or agree to grant any rights to the European Intellectual Property to any third party. Section 3.4 REPRESENTATIONS AND WARRANTIES UNDER MASTER AGREEMENT. From and after the closing under the Master Agreement, CNC makes to Buyer the representations and warranties made in Sections 3.2 through 3.24 of the Master Agreement, to the extent such representations and warranties relate to Pearle B.V. or any of its Subsidiaries. Section 3.5 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and warranties contained in this 9 13 Article 3, neither CNC nor any other Person makes any other express or implied representation or warranty on behalf of CNC. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER --------------------------------------- Buyer represents and warrants to CNC as of the date hereof and as of the Closing Date (except that representations and warranties that are made as of a specific date need be true only as of such date) as follows: Section 4.1 ORGANIZATION AND AUTHORITY OF BUYER. Buyer is duly incorporated and validly existing under the laws of the Netherlands, with full power and authority to own or lease its assets and to carry on its business substantially as currently conducted. There has been no proposal made or resolution adopted (by the competent corporate body(ies)) for the dissolution or liquidation of such company, and no proposal has been made or resolution adopted (by the competent corporate body(ies)) for the statutory merger of such company with another entity or for a splitting of such company. This Agreement has been duly authorized, executed and delivered by Buyer and constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles, and no other 10 14 proceedings on the part of Buyer are necessary to authorize this Agreement and the consummation of transactions contemplated hereby. Neither the execution and delivery of this Agreement nor compliance by Buyer with its terms and provisions will violate any provision of the Articles of Association (in Dutch "Statuten") of Buyer. Section 4.2 SECURITIES ACT. Buyer is acquiring the Shares solely for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act. Buyer acknowledges that the Shares are not registered under the Securities Act or any applicable state securities law, and that such Shares may not be transferred or sold except pursuant to the registration provisions of such Securities Act or pursuant to an applicable exemption therefrom and pursuant to state securities laws and regulations as applicable. Section 4.3 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and warranties contained in this Article IV, neither Buyer nor any other Person makes any other express or implied representation or warranty on behalf of Buyer. 11 15 ARTICLE 5 ENFORCEMENT, COOPERATION AND CERTAIN OTHER COVENANTS ---------------------------------------------------- Section 5.1 ENFORCEMENT. In the event of any breach of Section 3.4 hereof, if Buyer gives notice to CNC within the applicable time period therefor under the Master Agreement that Pillsbury or Pearle, Inc. has breached any representation, warranty, covenant or agreement contained in the Master Agreement with respect to Pearle B.V. or its Subsidiaries for which CNC is entitled to indemnification pursuant to the Master Agreement, CNC shall promptly (a) enforce, for and on behalf of Buyer and under Buyer's direction, its rights to indemnification with respect to any Losses related thereto pursuant to the Master Agreement and (b) pay to Buyer any amounts received (or with respect to which the benefit through the set-off of any claim under the Master Agreement has been received) by CNC with respect thereto; PROVIDED, however, that, (i) the rights hereunder shall be subject to the Damage Threshold, (ii) Buyer shall be entitled to Losses in an amount up to the Purchase Price in the aggregate, and (iii) for purposes of the Deductible, (A) all Losses of CNC under the Master Agreement and of Buyer hereunder shall be accumulated, (B) to the extent the Deductible has been exceeded, with respect to all Losses recoverable by CNC under the Master Agreement, CNC shall first satisfy to the fullest possible extent any claim of Buyer hereunder within two Business Days after CNC receives payment from Pillsbury for any Losses. 12 16 Section 5.2 ENFORCEMENT OF MASTER AGREEMENT NON-COMPETE. If Buyer gives notice to CNC that there has been any breach by Pillsbury or any of its Affiliates of the non-competition agreement in the Master Agreement with respect to the Buyer's Territory, CNC shall promptly enforce, for and on behalf of Buyer and under Buyer's direction, its rights under Section 6.9 of the Master Agreement, including, without limitation, including the procurement of injunctive relief. In order to effect such enforcement, CNC hereby constitutes and appoints Buyer its attorney-in-fact, with full power of substitution and resubstitution, for it and in its name, place and stead, to sign any and all pleadings and other documents in connection with the enforcement of Section 6.9 of the Master Agreement with respect to Buyer's Territory, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite or necessary to have done in and about the premises, as full to all intents and purposes as CNC might or could do. Section 5.3 COOPERATION. CNC and Buyer shall cooperate and use their respective reasonable best efforts to fulfill CNC's obligations under the Master Agreement with respect to Pearle B.V. and the Subsidiaries, within the applicable time period therefor under the Master Agreement, including but not limited to Sections 2.4, 5.2, 5.3, 5.4, 5.5, 5.6, 5.7, 6.1, 6.2, 6.4, 6.5, 6.6, 6.7 and 7.2 of the Master Agreement. 13 17 ARTICLE 6 NON-COMPETE ----------- Section 6.1 CNC'S COVENANT NOT-TO-COMPETE. CNC acknowledges and agrees that the value to Buyer of the transactions provided for herein would be substantially diminished if CNC were to enter into certain business activities in Buyer's Territory and CNC has agreed to the covenant in this Section 6.1 as an inducement to Buyer to enter into this Agreement. CNC specifically acknowledges and agrees that the covenants in this Section 6.1 are commercially reasonable and reasonably necessary to protect the interests Buyer intends to acquire hereunder. If any court of competent jurisdiction shall in any proceedings refuse to enforce such covenant, in whole or in part, because the time limit or geographical extent applicable thereto is deemed unreasonable in the jurisdiction, it is expressly understood and agreed that such covenant shall not be void. Instead, for the purpose of such proceedings, such temporal or geographic limitations shall be deemed to be reduced to the extent necessary to permit the enforcement of such covenant in the particular jurisdiction. CNC agrees that, for five years after the Closing Date, it shall not, directly or indirectly through franchisees or otherwise, engage in the ownership, operation or management of retail stores offering eyecare products in Buyer's Territory other than through its participation in Newco or any of its Affiliates. 14 18 Section 6.2 BUYER'S COVENANT NOT-TO-COMPETE. Buyer acknowledges and agrees that the value to CNC of the transactions provided for herein would be substantially diminished if Buyer were to enter into certain business activities in CNC's Territory and Buyer has agreed to the covenant in this Section 6.2 as an inducement to CNC to enter into this Agreement. Buyer specifically acknowledges and agrees that the covenants in this Section 6.2 are commercially reasonable and reasonably necessary to protect the interests of CNC. If any court of competent jurisdiction shall in any proceedings refuse to enforce such covenant, in whole or in part, because the time limit or geographical extent applicable thereto is deemed unreasonable in the jurisdiction, it is expressly understood and agreed that such covenant shall not be void. Instead, for the purpose of such proceedings, such temporal or geographic limitations shall be deemed to be reduced to the extent necessary to permit the enforcement of such covenant in the particular jurisdiction. Buyer agrees that, for five years after the Closing Date, it shall not, directly or indirectly through franchisees or otherwise, engage in the ownership, operation or management of retail stores offering eyecare products in CNC's Territory other than through the participation by HAL or Newco in CNC or any of its Affiliates. Section 6.3 INJUNCTIVE RELIEF. CNC and Buyer agree that money damages would be an inadequate remedy for a violation 15 19 of the covenant set forth in this Article 6. Accordingly, Buyer and CNC shall each be entitled, in addition to any other rights and remedies that it may have, to injunctive relief to enjoin any such breach. Section 6.4 HIRING OF EMPLOYEES. Each party agrees that, for a period of two (2) years following the Closing Date, neither party shall solicit the employment of any person, it knows to be an employee of the other (other than any hourly worker or any Employee who serves in clerical function) without the prior written consent of the other party; PROVIDED, HOWEVER, that (i) general solicitations of employment published in a journal, newspaper or other publication of general circulation and not specifically directed towards such employees shall not be deemed to constitute solicitation for purposes of this Section 6.4 and (ii) each party and their respective representatives shall not be prohibited from employing any such person who contacts them on his or her own initiative and without any solicitation by the other party. ARTICLE 7 CONDITIONS TO CLOSING --------------------- Section 7.1 CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver 16 20 by Buyer in writing on or prior to the Closing Date of the following condition: (a) CNC shall have executed and delivered to Buyer a Trademark Assignment Agreement. Section 7.2 CONDITIONS TO OBLIGATIONS OF BUYER AND CNC. The obligations of the parties to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver by both parties on or prior to the Closing Date of the following conditions: (a) The Subsequent Sale under the Master Agreement shall have occurred. (b) No court or governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, or non-appealable judgment, decree, injunction or other order which is in effect on the Closing Date and prohibits the consummation of the Closing. ARTICLE 8 TERMINATION ----------- This Agreement shall terminate automatically upon the termination of the Master Agreement and otherwise may be terminated at any time prior to the Closing only by agreement of Buyer and CNC. 17 21 ARTICLE 9 MISCELLANEOUS ------------- Section 9.1 AMENDMENT AND MODIFICATION; WAIVER. This Agreement may only be amended or modified in writing, signed by CNC and Buyer, at any time prior to the Closing with respect to any of the terms contained herein. At any time prior to the Closing either CNC or Buyer may (a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions of the other party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party granting such extension or waiver. Section 9.2 EXPENSES. Except as otherwise expressly provided in this Agreement, whether or not the transactions contemplated by this Agreement are consummated, the parties shall bear their own respective expenses (including, but not limited to, all compensation and expenses of their respective employees and all fees and expenses of financial advisors and financing sources, consultants and other advisors, incurred in connection with this Agreement and the transactions contemplated hereby. Notwithstanding the foregoing, CNC shall bear all fees and expenses of Jones, Day, Reavis & Pogue and Arthur Andersen LLP 18 22 (U.S.) and Buyer shall bear all fees and expenses of Nauta Dutilh, Stibbe Simont Monahan Duhot and Arthur Andersen (Europe). Section 9.3 PUBLIC DISCLOSURE. Each of the parties to this Agreement hereby agrees with the other parties hereto that, except as may be required to comply with the requirements of applicable law or the rules and regulations of each stock exchange upon which the securities of either of the parties or its Affiliates is listed, no press release or similar public announcement or communication shall be made or caused to be made concerning the execution or performance of this Agreement unless specifically approved in advance by all parties hereto; PROVIDED, HOWEVER, that to the extent that either party to this Agreement is required by law or the rules and regulations of any stock exchange upon which the securities of either of the parties or its Affiliates is listed to make such a public disclosure, such public disclosure shall only be made after prior consultation with the other party to this Agreement. Section 9.4 ASSIGNMENT. No party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other party hereto; PROVIDED, that CNC may assign this Agreement to a wholly-owned subsidiary, PROVIDED, HOWEVER, that such assignment shall not be permitted if it would subject Buyer to any additional obligations and PROVIDED FURTHER that HAL may assign this Agreement to Newco. 19 23 Section 9.5 ENTIRE AGREEMENT. This Agreement (including all Schedules hereto) contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, except for the Confidentiality Agreement which shall remain in full force and effect for the term provided for therein. Section 9.6 FULFILLMENT OF OBLIGATIONS. Any obligation of any party to any other party under this Agreement, which obligation is performed, satisfied or fulfilled by an Affiliate of such party, shall be deemed to have been performed, satisfied or fulfilled by such party. Section 9.7 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than Buyer, CNC, or their successors or respective permitted assigns, any rights or remedies under or by reason of this Agreement. Section 9.8 COUNTERPARTS. This Agreement and any amendments hereto may be executed in one or more counterparts, each of which shall be deemed to be an original by the parties executing such counterpart, but all of which shall be considered one and the same instrument. 20 24 Section 9.9 SECTION HEADINGS. The section and paragraph headings and table of contents contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. Section 9.10 NOTICES. All notices hereunder shall be deemed given if in writing and delivered personally or sent by telecopy, telex or telegram or by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other addresses as shall be specified by like notice): (a) if to CNC, to: Cole National Corporation 5915 Landerbrook Drive Mayfield Heights, Ohio 44124 Attention: Treasurer Fax: 216-461-3489 With a copy to: Jones, Day, Reavis & Pogue North Point 401 Lakeside Avenue Cleveland, Ohio 44114 United States Attention: David P. Porter Fax: 216-579-0212 (b) if to Buyer, to: HAL Investments B.V. "Plaza", Weena 674 3012 CN Rotterdam The Netherlands Attention: Mel Groot Fax: 31-10-281-6528 21 25 With a copy to: Nauta Dutilh Weena 750 3014 DA Rotterdam The Netherlands Attention: Peter Goes Fax: 31-10-414-8444 Any notice given by mail or telegram shall be effective when received. Any notice given by telex shall be effective when the appropriate telex or telecopy answer back is received. Section 9.11 MEDIATION. All disputes arising under this Agreement shall be governed under the laws of the Netherlands and shall be submitted to a mediation panel to be conducted in accordance with the rules of the Netherlands Mediation Institute in the English language prior to the commencement of arbitration; PROVIDED, HOWEVER, that either party may seek a preliminary injunction or other preliminary judicial relief regardless of the provisions of this Section, if, in its judgment, such action is necessary to avoid irreparable damage. The mediation panel shall consist of three persons. One shall be Arthur Andersen L.L.P. One shall be an internationally recognized firm of independent public accountants of Buyer's choice. The third member of the mediation panel shall be chosen by the other two members of the mediation panel. The party desiring to submit any matter to mediation shall do so by written notice to the other party, which notice shall set forth the items to be mediated. The mediation panel shall be required to conduct 22 26 a mediation session within fifteen (15) days after the receiving party receives such notification. All parties shall send high level representatives with the ability to resolve the dispute but no outside lawyers shall participate. The parties shall work with the mediation panel in good faith for at least a period of three (3) days if necessary to resolve the dispute. If the parties are unable to resolve the dispute, arbitration may then be initiated by either party. Any such arbitration will be in accordance with the rules of the Netherlands Arbitration Institute. The arbitration proceedings and all documents delivered to or by the arbitrators shall be in English and the arbitrators shall make their award in accordance with the rules of law. The venue for the proceedings shall be Rotterdam. The fees and expenses of the mediation panel shall be paid equally by Buyer and CNC. Section 9.12 SEVERABILITY. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement 23 27 and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. 24 28 IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of the parties hereto as of the date first written above. COLE NATIONAL CORPORATION By /S/ JEFFREY A. COLE ----------------------------- Name: Jeffrey A. Cole Title: Chairman and Chief Executive Officer HAL INVESTMENTS B.V. By /S/ MEL GROOT ----------------------------- Name: Mel Groot Title: Director EX-2.3 4 EXHIBIT 2.3 1 Exhibit 2.3 ---------------------------------------- PURCHASE AGREEMENT among COLE NATIONAL CORPORATION and COLE NATIONAL GROUP, INC. Dated as of 15 November, 1996 ---------------------------------------- 2 TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE I. DEFINITIONS................................................... 2 Section 1.1 Specific Definitions............................... 2 Section 1.2 Other Terms........................................ 3 Section 1.3 Other Definitional Provisions...................... 3 ARTICLE II. PURCHASE AND SALE OF THE SHARES.............................. 4 Section 2.1 Purchase and Sale of the Shares.................... 4 Section 2.2 Closing; Delivery and Payment...................... 4 Section 2.3 Retention of Certain Rights and Obligations Under the Pillsbury Purchase Agreement................................. 4 Section 2.4 Assumption of Certain Rights and Obligations Under the Pillsbury Purchase Agreement................................. 5 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER.................... 5 Section 3.1 Organization and Authority of Seller............... 5 Section 3.2 Capital Stock of Pearle and PSC.................... 6 Section 3.3 No Other Representations or Warranties............. 6 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER...................... 6 Section 4.1 Organization and Authority of Buyer................ 6 Section 4.2 Securities Act..................................... 7 Section 4.3 No Other Representations or Warranties............. 7 ARTICLE V. CONDITIONS TO CLOSING......................................... 7 ARTICLE VI. TERMINATION.................................................. 8 ARTICLE VII. MISCELLANEOUS............................................... 8 Section 7.1 Amendment and Modification; Waiver................. 8 Section 7.2 Assignment......................................... 9 Section 7.3 Entire Agreement................................... 9 Section 7.4 Parties in Interest; No Third Party Beneficiaries.. 9 Section 7.5 Counterparts....................................... 9 Section 7.6 Section Headings................................... 10 Section 7.7 Notices............................................ 10 Section 7.8 Severability....................................... 11 Section 7.9 Cooperation........................................ 11 Section 7.10 Expenses........................................... 11
i 3 PURCHASE AGREEMENT This Purchase Agreement (this "Agreement") is made as of the 15th day of November, 1996 by and between Cole National Corporation, a Delaware Corporation ("Seller") and Cole National Group, Inc., a Delaware corporation ("Buyer"). W I T N E S S E T H: WHEREAS, Seller is purchasing (i) all of the issued and outstanding shares (the "PSC Shares") of capital stock of Pearle Service Corporation, a Delaware corporation ("PSC") and (ii) all of the issued and outstanding shares (the "Pearle Shares", and together with the PSC Shares, the "Shares") of capital stock of Pearle, Inc., a Delaware corporation ("Pearle") pursuant to that certain Stock Purchase Agreement among The Pillsbury Company ("Pillsbury"), Pearle and Seller dated as of September 24, 1996 (the "Pillsbury Purchase Agreement"); WHEREAS, Seller is causing the sale of all of the issued and outstanding shares of Pearle Holdings B.V., a company organized under the laws of the Netherlands and a wholly owned indirect subsidiary of Pearle, along with certain assets, pursuant to that certain Purchase Agreement among Seller and HAL Investments B.V. dated as of September 24, 1996 (the "BV Purchase Agreement"); WHEREAS, Seller desires to sell and transfer to Buyer, and Buyer desires to purchase from Seller, (a) the Shares and (b) all of the Seller's rights and obligations of Seller under the Pillsbury Purchase Agreement except for (i) those rights and 4 obligations that are necessary for the Seller to fulfill its obligations under the BV Purchase Agreement, (ii) Seller's right to receive payment under Section 5.2(a) of the Pillsbury Purchase Agreement (iii) Seller's right to receive payment under Section 4 of the Side Agreement (the "Side Agreement") dated September 24, 1996 by and among Seller and Pillsbury and (iv) the right to receive the consideration to be paid to Seller pursuant to the BV Purchase Agreement (collectively (i), (ii), (iii) and (iv) above hereinafter referred to as the "Excluded Rights" and (a) and (b) above hereinafter referred to as the "Agreement Rights"); and WHEREAS, the transactions contemplated by this Agreement (the "Transfer") are to be consummated immediately following the consummation of the Pillsbury Purchase Agreement and the BV Purchase Agreement. NOW THEREFORE, in consideration of the premises, representations, warranties and agreements contained herein, the parties agree as follows: ARTICLE I. DEFINITIONS ----------- Section 1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the following terms have the meanings set forth or as referenced below: "AGREEMENT" means this Agreement. "AGREEMENT RIGHTS" has the meaning set forth in the Preamble. "BUYER" has the meaning set forth in the Preamble. "CLOSING" has the meaning set forth in Section 2.2(a). 2 5 "CLOSING DATE" has the meaning set forth in Section 2.2(a). "EXCLUDED RIGHTS" has the meaning set forth in the preamble. "PERSON" means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, governmental or regulatory body or other entity. "PILLSBURY" has the meaning set forth in the Preamble. "PURCHASE PRICE" has the meaning set forth in Section 2.1. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLER" has the meaning set forth in the Preamble. "SHARES" has the meaning set forth in the Preamble. Section 1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of this Agreement and, unless otherwise indicated, have such meaning indicated throughout this Agreement. Capitalized terms used and not defined herein have the meanings ascribed to such terms in the Pillsbury Purchase Agreement. Section 1.3 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof", "herein", and "hereunder" and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement. (b) The terms defined in the singular have a comparable meaning when used in the plural, and vice versa. 3 6 ARTICLE II. PURCHASE AND SALE OF THE SHARES ------------------------------- Section 2.1 PURCHASE AND SALE OF THE SHARES. Upon the terms and subject to the conditions set forth herein, Buyer shall purchase from Seller and Seller shall sell to Buyer the Shares for an aggregate purchase price of One Hundred Fifty-Four Million Dollars ($154,000,000) (the "Purchase Price") Section 2.2 CLOSING; DELIVERY AND PAYMENT. (a) The closing (the "Closing") shall take place immediately following the closing of the Pillsbury Purchase Agreement, the BV Purchase Agreement and the transfer to Seller of the proceeds of the BV Purchase Agreement. The date on which the closing occurs is called the "Closing Date," and the Closing shall be deemed effective at 11:59:30 P.M. (local time) on the Closing Date. (b) On the Closing Date, (i) Seller shall cause the Shares to be transferred to Buyer pursuant to a Stock Power, (ii) shall execute any and all documents and to do such other acts as are necessary to assign the Agreement Rights to Buyer, and (iii) Buyer shall pay to Seller the Purchase Price in immediately available funds to an account to be designated by Seller or through a credit in the intercompany account between Seller and Buyer. Section 2.3 RETENTION OF CERTAIN RIGHTS AND OBLIGATIONS UNDER THE PILLSBURY PURCHASE AGREEMENT. Notwithstanding anything contained in this Agreement to the 4 7 contrary, the Seller will retain and will not transfer to Buyer the Excluded Rights. Section 2.4 ASSUMPTION OF CERTAIN RIGHTS AND OBLIGATIONS UNDER THE PILLSBURY PURCHASE AGREEMENT. The Buyer will assume and Seller shall assign those rights and obligations under the Pillsbury Purchase Agreement that not are Excluded Rights. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER ---------------------------------------- Seller represents and warrants to Buyer as of the date hereof and as of the Closing Date (except that representations and warranties that are made as of a specific date need be true only as of such date) as follows: Section 3.1 ORGANIZATION AND AUTHORITY OF SELLER. Seller has been duly incorporated, is validly existing and is in good standing under the laws of the State of Delaware, with full power and authority to enter into this Agreement and to perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by Seller and constitutes a legal, valid and binding obligation of Seller, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles, and no other proceedings on the part of Seller, are necessary to authorize this Agreement and the consummation of the transactions contemplated hereby. 5 8 Section 3.2 CAPITAL STOCK OF PEARLE AND PSC. As of the Closing, Seller will have good and valid title to the Shares and, upon consummation of the transactions contemplated in this Agreement, will have transferred such title to the Shares to Buyer pursuant to the terms of this Agreement. Section 3.3 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and warranties contained in this Article 3, neither Seller nor any other Person makes any other express or implied representation or warranty on behalf of Seller. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER --------------------------------------- Buyer represents and warrants to Seller as of the date hereof and as of the Closing Date (except that representations and warranties that are made as of a specific date need be true only as of such date) as follows: Section 4.1 ORGANIZATION AND AUTHORITY OF BUYER. Buyer is duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with full power and authority to enter into this Agreement and to perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by Buyer and constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to 6 9 general equity principles, and no other proceedings on the part of Buyer are necessary to authorize this Agreement and the consummation of transactions contemplated hereby. Section 4.2 SECURITIES ACT. Buyer is acquiring the Shares solely for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act. Buyer acknowledges that the Shares are not registered under the Securities Act or any applicable state securities law, and that such Shares may not be transferred or sold except pursuant to the registration provisions of such Securities Act or pursuant to an applicable exemption therefrom and pursuant to state securities laws and regulations as applicable. Section 4.3 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and warranties contained in this Article IV, neither Buyer nor any other Person makes any other express or implied representation or warranty on behalf of Buyer. ARTICLE V. CONDITIONS TO CLOSING --------------------- The obligations of the parties to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver by both parties on or prior to the Closing Date of the following conditions: (a) The closing of the Pillsbury Purchase Agreement must have occurred; 7 10 (b) The closing of the BV Purchase Agreement must have occurred; and (c) No court or governmental authority of competent jurisdiction has enacted, issued, promulgated, enforced or entered any statute, rule, regulation, or non-appealable judgment, decree, injunction or other order that is in effect on the Closing Date and prohibits the consummation of the Closing. ARTICLE VI. TERMINATION ----------- This Agreement will terminate automatically upon the termination of the Pillsbury Purchase Agreement and otherwise may be terminated at any time prior to the Closing only by agreement of Buyer and Seller. ARTICLE VII. MISCELLANEOUS ------------- Section 7.1 AMENDMENT AND MODIFICATION; WAIVER. This Agreement may only be amended or modified in writing, signed by Seller and Buyer, at any time prior to the Closing with respect to any of the terms contained herein. At any time prior to the Closing either Seller or Buyer may (a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties of the other party contained 8 11 herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions of the other party contained herein. Any agreement on the part of a party hereto to any such extension or waiver will be valid if set forth in an instrument in writing signed by the party granting such extension or waiver. Section 7.2 ASSIGNMENT. No party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other party hereto. Section 7.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters. Section 7.4 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. This Agreement inures to the benefit of and will be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than Buyer, Seller, or their successors or respective permitted assigns, any rights or remedies under or by reason of this Agreement. Section 7.5 COUNTERPARTS. This Agreement and any amendments hereto may be executed in one or more counterparts, each of which will be deemed to be an original by the parties executing such counterpart, but all of which will be considered one and the same instrument. 9 12 Section 7.6 SECTION HEADINGS. The section and paragraph headings and table of contents contained in this Agreement are for reference purposes only and will not in any way affect the meaning or interpretation of this Agreement. Section 7.7 NOTICES. All notices hereunder will be deemed given if in writing and delivered personally or sent by telecopy, telex or telegram or by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other addresses as may be specified by like notice): (a) if to Seller, to: Cole National Corporation 5915 Landerbrook Drive Mayfield Heights, Ohio 44124 Attention: Treasurer Fax: 216-461-3489 With a copy to: Jones, Day, Reavis & Pogue North Point 401 Lakeside Avenue Cleveland, Ohio 44114 United States Attention: David P. Porter Fax: 216-579-0212 (b) if to Buyer, to: Cole National Group, Inc. 5915 Landerbrook Drive Mayfield Heights, Ohio 44124 Attention: Treasurer Fax: 216-461-3489 With a copy to: Jones, Day, Reavis & Pogue North Point 401 Lakeside Avenue Cleveland, Ohio 44114 United States Attention: David P. Porter 10 13 Fax: 216-579-0212 Any notice given by mail or telegram will be effective when received. Any notice given by telex will be effective when the appropriate telex or telecopy answer back is received. Section 7.8 SEVERABILITY. The provisions of this Agreement are severable and the invalidity or unenforceability of any provision will not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision will be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons, entities or circumstances will not be affected by such invalidity or unenforceability, nor will such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 7.9 COOPERATION. Buyer and Seller shall cooperate and use their respective reasonable best efforts to (i) enforce the other party's rights under the Pillsbury Purchase Agreement and (ii) fulfill the other party's obligations under the Pillsbury Purchase Agreement. Section 7.10 EXPENSES. Buyer shall be responsible for the payment of all expenses in connection with the transactions contemplated by this Agreement. 11 14 IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of the parties hereto as of the date first written above. COLE NATIONAL CORPORATION By /s/Joseph Gaglioti ---------------------------- Name: Joseph Gaglioti Title: Vice President and Treasurer COLE NATIONAL GROUP, INC. By /s/Joseph Gaglioti ---------------------------- Name: Joseph Gaglioti Title: Vice President and Treasurer 12 EX-4.1 5 EXHIBIT 4.1 1 Exhibit 4.1 ================================================================================ COLE NATIONAL GROUP, INC., as Issuer, and NORWEST BANK MINNESOTA, National Association, as Trustee -------------------- INDENTURE Dated as of November 15, 1996 -------------------- $150,000,000 9 7/8% Senior Subordinated Notes due 2006 ================================================================================ 2 CROSS-REFERENCE TABLE
TIA Indenture Section Section - ------- ------- 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)..................................................................................... 11.02; 7.06 (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 N.A. means Not Applicable - -------------------- NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture.
3 TABLE OF CONTENTS -----------------
Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions.................................................................. 1 Section 1.02. Other Definitions............................................................ 21 Section 1.03. Incorporation by Reference of Trust Indenture Act............................................................. 22 Section 1.04. Rules of Construction........................................................ 22 ARTICLE 2 THE NOTES Section 2.01. Dating; Incorporation of Form in Indenture................................................................. 23 Section 2.02. Execution and Authentication................................................. 24 Section 2.03. Registrar and Paying Agent................................................... 24 Section 2.04. Paying Agent to Hold Money in Trust.......................................... 25 Section 2.05. Noteholder Lists............................................................. 25 Section 2.06. Transfer and Exchange........................................................ 25 Section 2.07. Replacement Notes............................................................ 26 Section 2.08. Outstanding Notes............................................................ 27 Section 2.09. Temporary Notes.............................................................. 27 Section 2.10. Cancellation................................................................. 27 Section 2.11. Defaulted Interest........................................................... 28 Section 2.12. Deposit of Moneys............................................................ 28 Section 2.13. CUSIP Number................................................................. 28 Section 2.14. Book-Entry Provisions for Global Notes....................................... 29 Section 2.15. Special Transfer Provisions.................................................. 30 ARTICLE 3 REDEMPTION Section 3.01. Notices to Trustee........................................................... 32 Section 3.02. Selection by Trustee of Notes to Be Redeemed.................................................................. 32 Section 3.03. Notice of Redemption......................................................... 33 Section 3.04. Effect of Notice of Redemption............................................... 34 Section 3.05. Deposit of Redemption Price.................................................. 34 Section 3.06. Notes Redeemed in Part....................................................... 35 Section 3.07. Optional Redemption.......................................................... 35 ARTICLE 4 COVENANTS Section 4.01. Payment of Notes............................................................. 36 Section 4.02. SEC Reports.................................................................. 36
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Page ---- Section 4.03. Waiver of Stay, Extension or Usury Laws...................................... 37 Section 4.04. Compliance Certificate....................................................... 37 Section 4.05. Taxes........................................................................ 38 Section 4.06. Limitation on Additional Indebtedness........................................ 38 Section 4.07. Limitation on Capital Stock Subsidiaries..................................... 40 Section 4.08. Limitation on Restricted Payments............................................ 40 Section 4.09. Limitation on Certain Asset Sales............................................ 42 Section 4.10. Limitation on Transactions with Affiliates................................................................ 45 Section 4.11. Limitations on Liens......................................................... 46 Section 4.12. Limitation on Other Senior Subordinated Debt...................................................................... 46 Section 4.13. Limitation on Sale and Lease-Back Transactions.............................................................. 46 Section 4.14. Payments for Consent......................................................... 46 Section 4.15. Corporate Existence.......................................................... 47 Section 4.16. Change of Control............................................................ 47 Section 4.17. Maintenance of Office or Agency.............................................. 50 Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.............................................................. 50 ARTICLE 5 SUCCESSOR CORPORATION Section 5.01. Limitation on Consolidation, Merger and Sale of Assets............................................................ 51 Section 5.02. Successor Person Substituted................................................. 52 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default............................................................ 53 Section 6.02. Acceleration................................................................. 54 Section 6.03. Other Remedies............................................................... 55 Section 6.04. Waiver of Past Defaults and Events of Default................................................................... 56 Section 6.05. Control by Majority.......................................................... 56 Section 6.06. Limitation on Suits.......................................................... 56 Section 6.07. Rights of Holders to Receive Payment......................................... 57 Section 6.08. Collection Suit by Trustee................................................... 57 Section 6.09. Trustee May File Proofs of Claim............................................. 57 Section 6.10. Priorities................................................................... 58 Section 6.11. Undertaking for Costs........................................................ 58 ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee............................................................ 59
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Page ---- Section 7.02. Rights of Trustee............................................................ 60 Section 7.03. Individual Rights of Trustee................................................. 61 Section 7.04. Trustee's Disclaimer......................................................... 61 Section 7.05. Notice of Defaults........................................................... 61 Section 7.06. Reports by Trustee to Holders................................................ 61 Section 7.07. Compensation and Indemnity................................................... 62 Section 7.08. Replacement of Trustee....................................................... 63 Section 7.09. Successor Trustee by Consolidation, Merger or Conversion...................................................... 64 Section 7.10. Eligibility; Disqualification................................................ 64 Section 7.11. Preferential Collection of Claims Against Company................................................................... 64 Section 7.12. Paying Agents................................................................ 64 ARTICLE 8 AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 8.01. Without Consent of Holders................................................... 65 Section 8.02. With Consent of Holders...................................................... 66 Section 8.03. Compliance with Trust Indenture Act.......................................... 67 Section 8.04. Revocation and Effect of Consents............................................ 67 Section 8.05. Notation on or Exchange of Notes............................................. 68 Section 8.06. Trustee to Sign Amendments, etc.............................................. 68 ARTICLE 9 DISCHARGE OF INDENTURE; DEFEASANCE Section 9.01. Discharge of Indenture....................................................... 69 Section 9.02. Legal Defeasance............................................................. 69 Section 9.03. Covenant Defeasance.......................................................... 70 Section 9.04. Conditions to Legal Defeasance or Covenant Defeasance....................................................... 70 Section 9.05. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions............................................ 72 Section 9.06. Reinstatement................................................................ 73 Section 9.07. Moneys Held by Paying Agent.................................................. 73 Section 9.08. Moneys Held by Trustee....................................................... 73 ARTICLE 10 SUBORDINATION OF NOTES Section 10.01. Notes Subordinate to Senior Indebtedness.............................................................. 74 Section 10.02. Payment Over of Proceeds upon Dissolution, etc.......................................................... 75 Section 10.03. Suspension of Payment When Senior Indebtedness in Default................................................... 76 Section 10.04. Trustee's Relation to Senior
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Page ---- Indebtedness.............................................................. 78 Section 10.05. Subrogation to Rights of Holders of Senior Indebtedness....................................................... 78 Section 10.06. Provisions Solely to Define Relative Rights.................................................................... 79 Section 10.07. Trustee to Effectuate Subordination.......................................... 80 Section 10.08. No Waiver of Subordination Provisions........................................ 80 Section 10.09. Notice to Trustee............................................................ 81 Section 10.10. Reliance on Judicial Order or Certificate of Liquidating Agent.......................................... 82 Section 10.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights.......................................................... 82 Section 10.12. Article Applicable to Paying Agents.......................................... 83 Section 10.13. No Suspension of Remedies.................................................... 83 ARTICLE 12 MISCELLANEOUS Section 11.01. Trust Indenture Act Controls................................................. 83 Section 11.02. Notices...................................................................... 83 Section 11.03. Communications by Holders with Other Holders................................................................... 84 Section 11.04. Certificate and Opinion as to Conditions Precedent................................................................. 85 Section 11.05. Statements Required in Certificate and Opinion................................................................... 85 Section 11.06. When Treasury Notes Disregarded.............................................. 85 Section 11.07. Rules by Trustee and Agents.................................................. 86 Section 11.08. Business Days; Legal Holidays................................................ 86 Section 11.09. Governing Law................................................................ 86 Section 11.10. No Adverse Interpretation of Other Agreements................................................................ 86 Section 11.11. No Recourse Against Others................................................... 86 Section 11.12. Successors................................................................... 87 Section 11.13. Multiple Counterparts........................................................ 87 Section 11.14. Table of Contents, Headings, etc............................................. 87 Section 11.15. Separability................................................................. 87 EXHIBITS Exhibit A. Form of Note....................................................................... A-1 Exhibit B. Form of Legend for Global Notes.................................................... B-1 Exhibit C. Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors........................................................... C-1
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Page ---- Exhibit D. Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S................................................................... D-1
-v- 8 INDENTURE, dated as of November 15, 1996, 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 9 7/8% Senior Subordinated Notes due 2006 (the "Notes"). ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. 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. "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 9 -2- 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 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) or (iii)(b) of Section 4.09(a) and which have not been the basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of such Section 4.09(a). 10 -3- "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 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 11 -4- 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. "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 12 -5- 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 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 13 -6- 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. "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 New 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 14 -7- 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. "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 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. "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. 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 16 -9- 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. "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 17 -10- 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 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 December 31, 2006. "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). 18 -11- "Net Sales" means Net Sales as shown on the Company's audited consolidated statement of income for the applicable fiscal year. "New 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 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. "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. "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 November 13, 1996 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. 19 -12- "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. "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 New 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; (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; 20 -13- (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; (viii) Indebtedness incurred in connection with the financing of a new warehouse facility relating to the Company's Gifts business in an amount not to exceed $7,500,000 in the aggregate; (ix) additional Indebtedness of the Company not to exceed $15,000,000 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, 21 -14- 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 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 $10,000,000 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', 22 -15- 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 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. 23 -16- "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. "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 24 -17- 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 November 15, 1996 among the Company and CIBC Wood Gundy Securities Corp., CS First Boston Corporation, NationsBanc Capital Markets, Inc., and Smith Barney Inc., as Initial Purchasers. "Regulation S" means Regulation S promulgated under the Securities Act. "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 25 -18- 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. "Revolving Credit Facility" means the Loan and Security Agreement dated Septmeber 30, 1993, by and among Barclays Business Credit (currently Fleet Capital Corporation), Cole Vision Corporation, Things Remembered, Inc. and Cole Key Corporation (currently Cole Gift Centers), as borrowers. "Rule 144A" means Rule 144A promulgated under the Securities Act. "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 26 -19- 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 allowed 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 New 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, (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. "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 27 -20- 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, 1995, 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 S&P or at least "A-2" by Moody's, or (b) that is a party to the New 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 28 -21- 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 ss.ss. 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 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. 29 -22- Section 1.02. Other Definitions. ------------------ The definitions of the following terms may be found in the sections indicated as follows:
Term Defined in Section - ---- ------------------ "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 "Offshore Physical Notes".......................................................... 2.01 "Paying Agent"..................................................................... 2.03 "Payment Blockage Period".......................................................... 10.03 "Physical Notes"................................................................... 2.01 "Purchase Date".................................................................... 4.09 "Registrar"........................................................................ 2.03 "Reinvestment Date"................................................................ 4.09 "Required Filing Dates"............................................................ 4.02 "U.S. Physical Notes".............................................................. 2.01
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. 30 -23- "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. 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. Each Note shall be dated the date of its authentication. 31 -24- The Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent Global Notes in registered form, substantially in the form set forth in Exhibit A ("Global Notes"), deposited with the Trustee, as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth on Exhibit B. The aggregate principal amount of any Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. Notes offered and sold in offshore transactions in reliance on Regulation S shall be issued in the form of certificated Notes in registered form set forth in Exhibit A (the "Offshore Physical Notes"). Notes offered and sold in reliance on any other exemption from registration under the Securities Act other than as described in the preceding paragraph shall be issued, and Notes offered and sold in reliance on Rule 144A may be issued, in the form of certificated Notes in registered form in substantially the form set forth in Exhibit A (the "U.S. Physical Notes"). The Offshore Physical Notes and the U.S. Physical Notes are sometimes collectively herein referred to as the "Physical Notes." 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. 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 $150,000,000 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 32 -25- series of Notes in an aggregate principal amount not to exceed $150,000,000 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 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. 33 -26- 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. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each December 15 and June 15 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. ---------------------- 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 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 34 -27- 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. 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 35 -28- 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 (which shall be not less than five nor more than ten days after the special record date), and the 36 -29- 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) The Global Notes initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit B. Members of, or 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 Note, 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 37 -30- 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 in accordance with the rules and procedures of the Depository and the provisions of Section 2.15. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Notes if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for any Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depository to issue Physical Notes. (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 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. 38 -31- (f) 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 November 15, 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 C 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 D 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. (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): 39 -32- (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 pursuant to an effective registration statement under the Securities Act. 40 -33- (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, the principal amount thereof to be redeemed. The Trustee may select for redemption 41 -34- 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. 42 -35- 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. ----------------------- 43 -36- Upon surrender of a Note that is redeemed in part, the Trustee shall authenticate for a Holder a new Note equal in 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 December 31, 2001 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 December 31 of each year listed below:
Year Percentage ---- ---------- 2001................................................ 104.9375% 2002................................................ 102.4688% 2003................................................ 101.2343% 2004................................................ 100.6172% 2005 and thereafter................................. 100.0000%
(b) Notwithstanding the foregoing, the Company may redeem in the aggregate up to 35% of the original principal amount of Notes at any time and from time to time prior to December 31, 1999 at a redemption price equal to 109.875% 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 $97,500,000 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 44 -37- 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. 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. ---------------------------------------- 45 -38- 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 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 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 46 -39- 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. (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 if the Indebtedness is incurred prior to December 31, 2000 and 2.25 to 1 thereafter, 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 47 -40- 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 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 New 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. ------------------------------ 48 -41- The Company will not (i) sell, pledge, hypothecate or otherwise convey or dispose of any Capital Stock of a Subsidiary (other than under the New 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: (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) 50% of the Cumulative Consolidated Net Income of the Company (or minus 100% of any cumulative deficit in Consolidated Net Income during such period); (2) 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; (3) 100% of the capital contributions made by the Parent to the Company after the Issue Date (other than capital contributions which constitute Indebtedness); and (4) 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 49 -42- 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 subordinated Indebtedness 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 subordinated Indebtedness 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, 50 -43- 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, 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; 51 -44- (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"); and (c) third, 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, 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 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; 52 -45- (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 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 53 -46- 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 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 New 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 54 -47- 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 subordinated to the Lien granted to the Holders of the Notes to the same extent as such subordinated 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 55 -48- 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 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 New 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 New Credit Facility and the Senior Notes or offer to repay in full all obligations under or in respect of the New Credit Facility and the Senior Notes and repay the obligations under or in respect of the New Credit Facility and the Senior Notes of each lender or holder, as the case may be, who 56 -49- has accepted such offer or (ii) obtain the requisite consent under the New 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 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; 57 -50- (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 (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 58 -51- 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. -------------------------------- 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 59 -52- 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 Revolving Credit Facility as in effect as of the date hereof, or as replaced by the New Credit Facilty having terms no more restrictive than those contained in the Revolving Credit Facility as in effect on the date hereof, (iii) the Senior Note Indenture, the Senior 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 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 Revolving Credit Facility on the date hereof and the New Credit Facility (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 60 -53- 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 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. 61 -54- 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 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 62 -55- 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, 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. ------------- 63 -56- 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 New 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 New 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. --------------- 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 64 -57- 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. -------------------- 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; 65 -58- (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 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 66 -59- 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. 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 67 -60- 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: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. 68 -61- (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. 69 -62- (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. ------------------------------ 70 -63- 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. 71 -64- 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. 72 -65- 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 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 73 -66- resigned or been removed shall be subject to TIA section 311(a) to the extent indicated therein. Section 7.12. Paying Agents. -------------- 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; 74 -67- (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. 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 75 -68- 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); (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 76 -69- 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 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, 77 -70- 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 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 78 -71- 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. 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 79 -72- 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; (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 80 -73- 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 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. -------------------------------------- 81 -74- 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 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. 82 -75- 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, 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 83 -76- 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 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 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 84 -77- 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 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. 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 85 -78- 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, 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 NonPayment 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 86 -79- (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. 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, 87 -80- 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. ------------------------------------ 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, 88 -81- 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. 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 89 -82- 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 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, 90 -83- 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-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, 91 -84- 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 92 -85- 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. 93 -86- 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. 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: 94 -87- (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 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 95 -88- 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 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. --------------------------------- 96 -89- 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 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. 97 -90- 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: -------------------------------- Name: Title: ATTEST: - ------------------------- Name: Title: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By: -------------------------------- Name: Title: 98 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 THREE 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 THREE 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. A-1 99 CUSIP 193292 AB 5 Number 1 COLE NATIONAL GROUP, INC. 9 7/8% SENIOR SUBORDINATED NOTE DUE 2006 Cole National Group, Inc., a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to CEDE & CO. or registered assigns the principal sum of $150,000,000 Dollars, on December 31, 2006. Interest Payment Dates: December 31 and June 30, commencing June 30, 1997 Record Dates: December 15 and June 15 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. A-2 100 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 9 7/8% Senior Subordinated Notes due 2006 referred to in the within-mentioned Indenture Dated: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By: ---------------------------------- Authorized Signatory A-3 101 (REVERSE SIDE) COLE NATIONAL GROUP, INC. 9 7/8% SENIOR SUBORDINATED NOTE DUE 2006 1. INTEREST. Cole National Group, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note semiannually on December 31 and June 30 of each year (each an "Interest Payment Date"), commencing on June 30, 1997, at the rate of 9 7/8% 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 December 15 or June 15 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. A-4 102 The Company issued this Note under an Indenture dated as of November 15, 1996 (the "Indenture") between the Company and the 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 ss.ss. 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 $150,000,000 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 December 31, 2001 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. A-5 103 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., CS First Boston Corporation, NationsBanc Capital Markets, Inc. and Smith Barney 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 A-6 104 redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. 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 A-7 105 acceleration; PROVIDED, HOWEVER, that after such acceleration but before judgement 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 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. A-8 106 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 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-9 107 ASSIGNMENT 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) 108 Signature Guarantee: -------------------------------------------- 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 109 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 110 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) ("DTC") 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 DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), 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-1 111 EXHIBIT C --------- 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") 9 7/8% Senior Subordinated Notes due 2006 (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 November 15, 1996 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 three 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 C-1 112 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 (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 C-2 113 EXHIBIT D --------- 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") 9 7/8% Senior Subordinated Notes due 2006 (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 D-1 114 (5) we have advised the transferee of the transfer restrictions applicable to the Notes. 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 D-2 EX-4.2 6 EXHIBIT 4.2 1 EXHIBIT 4.2 - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated as of November 15, 1996 by and among COLE NATIONAL GROUP, INC., and CIBC WOOD GUNDY SECURITIES CORP., CS FIRST BOSTON CORPORATION, NATIONSBANC CAPITAL MARKETS, INC., and SMITH BARNEY INC. as Initial Purchasers - -------------------------------------------------------------------------------- 2
TABLE OF CONTENTS ----------------- Page ---- 1. Definitions.................................................................................. 1 2. Exchange Offer............................................................................... 5 3. Shelf Registration........................................................................... 8 4. Additional Interest.......................................................................... 10 5. Registration Procedures...................................................................... 11 6. Registration Expenses........................................................................ 21 7. Indemnification.............................................................................. 22 8. Rules 144 and 144A........................................................................... 26 9. Underwritten Registrations................................................................... 26 10. Miscellaneous................................................................................ 27 a. Remedies............................................................................ 27 b. Enforcement......................................................................... 27 c. No Inconsistent Agreements.......................................................... 27 d. Adjustments Affecting Registrable Notes............................................. 27 e. Amendments and Waivers.............................................................. 27 f. Notices............................................................................. 28 g. Successors and Assigns.............................................................. 28 h. Counterparts........................................................................ 28 i. Headings............................................................................ 28 j. Governing Law....................................................................... 28 k. Severability........................................................................ 29 l. Entire Agreement.................................................................... 29 m. Notes Held by the Company or Its Affiliates......................................... 29
i 3 REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of November 15, 1996, by and among COLE NATIONAL GROUP, INC., a Delaware corporation (the "Company"), and CIBC WOOD GUNDY SECURITIES CORP., CS FIRST BOSTON CORPORATION, NATIONSBANC CAPITAL MARKETS, INC., and SMITH BARNEY INC., as initial purchasers (the "Initial Purchasers"). This Agreement is entered into in connection with the Securities Purchase Agreement, dated as of November 13, 1996, among the Company and the Initial Purchasers (the "Purchase Agreement") relating to the sale by the Company to the Initial Purchasers of $150,000,000 aggregate principal amount of the Company's 9 7/8% Senior Subordinated Notes due 2006 (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). 4 -2- 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). 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 November 15, 1996, 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). 5 -3- 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). 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 6 -4- 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 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. 7 -5- 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 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), 8 -6- 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 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 9 -7- 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; (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. 10 -8- (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 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. 11 -9- 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 appropriate 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 12 -10- 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 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; 13 -11- (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), (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 December 31 and June 30 (to the Holders of record on the December 15 and June 15 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 14 -12- 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 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 15 -13- sold by a Participating Broker-Dealer 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 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 Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any 16 -14- 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 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 17 -15- 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 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 18 -16- 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-Dealer, 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. (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 19 -17- 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 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 20 -18- 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 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 21 -19- 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 Participating 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 22 -20- 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 security- holders 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 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 23 -21- 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 until 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 24 -22- 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 incident 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 25 -23- 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 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 26 -24- 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 jurisdiction, 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 27 -25- 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 Company on the one hand and the Participants on the other shall be determined by reference to, among other things, 28 -26- 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) 29 -27- under the Securities Act in order to permit resales of such Registrable 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. 30 -28- (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., 5915 Landerbrook Drive, Suite 300, Mayfield Heights, Ohio 44124, Attention: Chief Financial Officer, with a copy to Jones, Day, Reavis & Pogue, 901 Lakeside Avenue, Cleveland, 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. 31 -29- Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the 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 32 -30- 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 determining whether such consent or approval was given by the Holders of such required percentage. 33 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. COLE NATIONAL GROUP, INC. (a Delaware corporation) By: ------------------------------ Name: Title: CIBC WOOD GUNDY SECURITIES CORP. By: ----------------------------- Name: Title: CS FIRST BOSTON CORPORATION By: ----------------------------- Name: Title: NATIONSBANC CAPITAL MARKETS, INC. By: ----------------------------- Name: Title: SMITH BARNEY INC. By: ----------------------------- Name: Title: EX-99.1 7 EXHIBIT 99.1 1 Exhibit 99.1 ================================================================================ CREDIT AGREEMENT among COLE VISION CORPORATION, THINGS REMEMBERED, INC., COLE GIFT CENTERS, INC., PEARLE, INC. and PEARLE SERVICE CORPORATION, The Several Lenders from Time to Time Parties Hereto, and CANADIAN IMPERIAL BANK OF COMMERCE, as Administrative Agent Dated as of November 15, 1996 ================================================================================ 2 TABLE OF CONTENTS -----------------
Page ---- SECTION 1. DEFINITIONS..................................................... 2 1.1 Defined Terms................................................. 2 1.2 Other Definitional Provisions................................. 26 SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS........................................................ 26 2.1 Revolving Credit Commitments.................................. 27 2.2 Revolving Credit Notes........................................ 27 2.3 Procedure for Revolving Credit Borrowing...................... 27 2.4 Commitment Fees; Other Fees................................... 28 2.5 Termination or Reduction of Revolving Credit Commitments...... 28 2.6 Repayment of Revolving Credit Loans........................... 29 SECTION 3. LETTERS OF CREDIT............................................... 30 3.1 L/C Commitment................................................ 30 3.2 Procedure for Issuance of Letters of Credit................... 30 3.3 Fees, Commissions and Other Charges........................... 31 3.4 L/C Participations............................................ 31 3.5 Reimbursement Obligation of the Borrowers..................... 32 3.6 Obligations Absolute.......................................... 33 3.7 Letter of Credit Payments..................................... 33 3.8 Application................................................... 33 SECTION 4. GENERAL PROVISIONS.............................................. 34 4.1 Interest Rates and Payment Dates.............................. 34 4.2 Optional Prepayments.......................................... 34 4.3 Mandatory Prepayments and Reduction of Revolving Credit Commitments............................................... 34 4.4 Conversion and Continuation Options........................... 36 4.5 Minimum Amounts and Maximum Number of Tranches................ 37 4.6 Computation of Interest and Fees.............................. 37 4.7 Inability to Determine Interest Rate.......................... 38 4.8 Pro Rata Treatment and Payments............................... 38 4.9 Illegality.................................................... 39 4.10 Requirements of Law.......................................... 39 4.11 Taxes........................................................ 40 4.12 Indemnity.................................................... 42 4.13 Change of Lending Office; Replacement of Lenders............. 43 SECTION 5. REPRESENTATIONS AND WARRANTIES.................................. 44 5.1 Financial Condition........................................... 44 5.2 No Change; Solvency........................................... 45 5.3 Corporate Existence; Compliance with Law...................... 46 5.4 Corporate Power; Authorization; Enforceable Obligations....... 46
- i - 3 5.5 No Legal Bar.................................................. 47 5.6 No Material Litigation........................................ 47 5.7 No Default.................................................... 47 5.8 Ownership of Property; Liens.................................. 47 5.9 Intellectual Property......................................... 47 5.10 No Burdensome Restrictions................................... 48 5.11 Taxes........................................................ 48 5.12 Federal Reserve Regulations.................................. 48 5.13 ERISA........................................................ 48 5.14 Collateral................................................... 48 5.15 Investment Company Act; Other Regulations.................... 49 5.16 Subsidiaries and Joint Ventures.............................. 49 5.17 Purpose of Revolving Credit Loans............................ 49 5.18 Environmental Matters........................................ 49 5.19 Regulation H................................................. 50 5.20 No Material Misstatements.................................... 51 SECTION 6. CONDITIONS PRECEDENT............................................ 51 6.1 Conditions to Initial Extension of Credit..................... 51 6.2 Conditions to Each Extension of Credit........................ 55 SECTION 7. AFFIRMATIVE COVENANTS........................................... 56 7.1 Financial Statements.......................................... 56 7.2 Certificates; Other Information............................... 57 7.3 Payment of Obligations........................................ 58 7.4 Conduct of Business and Maintenance of Existence.............. 58 7.5 Maintenance of Property; Insurance............................ 59 7.6 Inspection of Property; Books and Records; Discussions........ 59 7.7 Notices....................................................... 60 7.8 Environmental Laws............................................ 61 7.9 Further Assurances............................................ 62 7.10 Mortgages; Additional Collateral............................. 62 7.11 September 30, 1996 Financial Statements of Pearle............ 63 SECTION 8. NEGATIVE COVENANTS.............................................. 64 8.1 Financial Condition Covenants................................. 64 8.2 Limitation on Indebtedness.................................... 66 8.3 Limitation on Liens........................................... 67 8.4 Limitation on Guarantee Obligations........................... 68 8.5 Limitation on Fundamental Changes............................. 69 8.6 Limitation on Sale of Assets.................................. 69 8.7 Limitation on Dividends....................................... 69 8.8 Limitation on Capital Expenditures............................ 70 8.9 Limitation on Investments, Loans and Advances................. 71 8.10 Limitation on Transactions with Affiliates................... 71 8.11 Limitation on Changes in Fiscal Year......................... 71
- ii - 4
Page ---- 8.12 Limitation on Negative Pledge Clauses........................ 71 8.13 Limitation on Lines of Business.............................. 72 8.14 Limitations on Currency and Commodity Hedging Transactions... 72 8.16 Changes to Cash Management Collection System................. 72 SECTION 9. EVENTS OF DEFAULT............................................... 72 SECTION 10. THE ADMINISTRATIVE AGENT....................................... 76 10.1 Appointment.................................................. 76 10.2 Delegation of Duties......................................... 77 10.3 Exculpatory Provisions....................................... 77 10.4 Reliance by Administrative Agent............................. 77 10.5 Notice of Default............................................ 77 10.6 Non-Reliance on Administrative Agent and Other Lenders....... 78 10.7 Indemnification.............................................. 78 10.8 Administrative Agent in Its Individual Capacity.............. 79 10.9 Successor Administrative Agent............................... 79 10.10 Issuing Lender.............................................. 79 10.11 Releases of Guarantees and Collateral....................... 79 SECTION 11. MISCELLANEOUS.................................................. 80 11.1 Amendments and Waivers....................................... 80 11.2 Notices...................................................... 81 11.3 No Waiver; Cumulative Remedies............................... 81 11.4 Survival of Representations and Warranties................... 82 11.5 Payment of Expenses and Taxes................................ 82 11.6 Successors and Assigns; Participations and Assignments....... 83 11.7 Adjustments; Set-off......................................... 85 11.8 Counterparts................................................. 86 11.9 Severability................................................. 86 11.10 Integration................................................. 86 11.11 GOVERNING LAW............................................... 86 11.12 Submission To Jurisdiction; Waivers......................... 86 11.13 Acknowledgements............................................ 87 11.14 WAIVERS OF JURY TRIAL....................................... 87 11.15 Confidentiality............................................. 87
- iii - 5 SCHEDULES I Revolving Credit Commitments and Addresses II Applicable Margin Calculation for Revolving Credit Loans 5.4 Consents 5.5 Material Contracts; Court Orders and Decrees 5.8 Owned Real Properties 5.14 Equipment and Inventory of Borrowers and Subsidiaries 5.16 Subsidiaries and Joint Ventures 8.2(d) Permitted Indebtedness 8.3(h) Permitted Liens 8.4(a) Permitted Guarantee Obligations EXHIBITS A Form of Revolving Credit Note B-1 Form of Guarantee and Collateral Agreement B-2 Form of Copyright, Patent and Trademark Security Agreement B-3 Form of CNG Guarantee and Cash Collateral Agreement C Form of Borrowing Certificate D Form of Opinion of Counsel to Borrowers E Form of U.S. Tax Compliance Certificate F Form of Assignment and Acceptance G Form of Borrowing Base Certificate H Form of Compliance Package I Form of Borrowing Notice J Form of Continuation/Conversion Notice - iv - 6 CREDIT AGREEMENT, dated as of November 15, 1996, 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 to this Agreement (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 hereunder (in such capacity, the "ADMINISTRATIVE AGENT"). W I T N E S S E T H : --------------------- WHEREAS, Cole National Corporation, a Delaware corporation ("CNC"), intends to acquire all of the capital stock of Pearle and PSC for an aggregate purchase price in cash of $220,000,000 (such transaction hereinafter called the "ACQUISITION"); and WHEREAS, simultaneously with the closing of the Acquisition, (i) CNC will sell Pearle's European business (the "EUROPEAN BUSINESS"), operated through Pearle B.V., to HAL Investments B.V. and certain members of Pearle B.V.'s management for a purchase price in cash of approximately 96,477,350 Netherlands Guilders and a promissory note in the principal amount of 6,442,650 Netherlands Guilders in a transaction or transactions pursuant to which CNC will retain a minority interest in the European Business and (ii) CNC will sell all of the capital stock of Pearle and PSC to its wholly-owned subsidiary, Cole National Group, Inc., a Delaware corporation ("CNG"; such transactions, collectively with the Acquisition, the "TRANSACTION"); and WHEREAS, in connection with the Transaction, the Borrowers have requested the Lenders to establish a revolving credit facility in the amount of $75,000,000 (the "REVOLVING CREDIT FACILITY"), pursuant to which revolving credit loans may be made, jointly and severally, to the Borrowers and Letters of Credit (as hereinafter defined) may be issued for the joint and several account of the Borrowers; and WHEREAS, the proceeds of the Revolving Credit Facility will be used by the Borrowers for the general corporate purposes of the Borrowers and their Subsidiaries (as hereinafter defined) in the ordinary course of business; and WHEREAS, the Administrative Agent and the Lenders are willing to provide the Revolving Credit Facilities to the Borrowers upon the terms and subject to the conditions set forth herein; NOW THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: 7 2 SECTION 1. DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such terms to be equally applicable to the singular and plural forms thereof): "ABR LOANS": Revolving Credit Loans the rate of interest applicable to which is based upon the CIBC Alternate Base Rate. "ACCOUNT": as defined in the Uniform Commercial Code as in effect in the State of New York; and, with respect to the Borrowers and their Subsidiaries, all such Accounts of such Persons, whether now existing or existing in the future, including, without limitation (i) all accounts receivable of such Person including, without limitation, all accounts created by or arising from all of such Person's sales of goods or rendition of services made under any of its trade names, or through any of its divisions, (ii) all unpaid rights of such Person (including rescission, replevin, reclamation and stopping in transit) relating to the foregoing or arising therefrom, (iii) all rights to any goods represented by any of the foregoing, including returned or repossessed goods and (iv) all reserves and credit balances held by such Person with respect to any such accounts receivable or any Obligors. "ACQUISITION": as defined in the recitals hereto. "ADJUSTED INTEREST COVERAGE RATIO": as of the end of each fiscal quarter of CNG, with respect to CNG and its Subsidiaries on a Consolidated basis, the ratio of (a) EBITDAR for the twelve month period ending on such date to (b) the sum of (i) the aggregate amount paid in cash during the twelve month period ending on such date in respect of items of Interest Expense and (ii) Rental Expense for the twelve month period ending on such date (in each case, after giving effect to the relevant Interim Adjustment). "ADJUSTMENT DATE": each date on or after the first anniversary of the Closing Date that is the second Business Day following receipt by the Lenders of both (i) the financial statements required to be delivered pursuant to subsection 7.1(a) or 7.1(b), as applicable, for the most recently completed fiscal period and (ii) the related Compliance Certificate required to be delivered pursuant to subsection 7.2(b) with respect to such fiscal period. "ADMINISTRATIVE AGENT": CIBC, together with its affiliates, as the arranger of the Revolving Credit Commitments and as the administrative agent for the Lenders under this Agreement and the other Loan Documents. "AFFILIATE": as to any Person, any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common 8 3 control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "AGGREGATE OUTSTANDING REVOLVING CREDIT": as to any Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Credit Loans made by such Lender then outstanding and (b) such Lender's Revolving Credit Commitment Percentage of the L/C Obligations then outstanding. "AGREEMENT": this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "APPLICABLE MARGIN": as applied to a given Type of Revolving Credit Loan, the rate per annum determined as follows: during the period from the Closing Date until the first Adjustment Date, the Applicable Margin in respect of Revolving Credit Loans shall equal (i) with respect to ABR Loans, .25% per annum and (ii) with respect to Eurodollar Loans, 1.25% per annum; PROVIDED such Applicable Margin will be adjusted on each Adjustment Date to the applicable rate per annum set forth under the heading "ABR Loans Applicable Margin" or "Eurodollar Loans Applicable Margin" on Schedule II which corresponds to the Adjusted Interest Coverage Ratio determined from the financial statements and Compliance Certificate relating to the end of the fiscal quarter immediately preceding such Adjustment Date; PROVIDED, FURTHER that in the event that the financial statements required to be delivered pursuant to subsection 7.1(a) or 7.1(b), as applicable, and the related Compliance Certificate required to be delivered pursuant to subsection 7.2(b), are not delivered when due, then (a) if such financial statements and Compliance Certificate are delivered after the date such financial statements and Compliance Certificate were required to be delivered (without giving effect to any applicable cure period) and the Applicable Margin increases from that previously in effect as a result of the delivery of such financial statements and Compliance Certificate, then the Applicable Margin in respect of Revolving Credit Loans during the period from the date upon which such financial statements and Compliance Certificate were required to be delivered (without giving effect to any applicable cure period) until the date upon which they actually are delivered shall, except as otherwise provided in clause (c) below, be the Applicable Margin as so increased; (b) if such financial statements and Compliance Certificate are delivered after the date such financial statements and Compliance 9 4 Certificate were required to be delivered and the Applicable Margin decreases from that previously in effect as a result of the delivery of such financial statements and Compliance Certificate, then such decrease in the Applicable Margin shall not become applicable until the date upon which such financial statements and Compliance Certificate actually are delivered; and (c) if such financial statements and Compliance Certificate are not delivered prior to the expiration of the applicable cure period, then, effective upon such expiration, for the period from the date upon which such financial statements and Compliance Certificate were required to be delivered (after the expiration of the applicable cure period) until two Business Days following the date upon which such financial statements and Compliance Certificate actually are delivered, the Applicable Margin in respect of Revolving Credit Loans shall be .25% per annum, in the case of ABR Loans, and 1.25% per annum, in the case of Eurodollar Loans. "ASSIGNEE": as defined in subsection 11.6(c). "AVAILABLE REVOLVING CREDIT COMMITMENT": as to any Lender at any time, an amount equal to the excess, if any, of (a) the amount of such Lender's Revolving Credit Commitment at such time OVER (b) the sum of (i) the aggregate unpaid principal amount at such time of all Revolving Credit Loans made by such Lender and (ii) an amount equal to such Lender's Revolving Credit Commitment Percentage of the outstanding L/C Obligations at such time; collectively, as to all the Lenders, the "AVAILABLE REVOLVING CREDIT COMMITMENTS". "BORROWER" and "BORROWERS": as defined in the preamble hereto. "BORROWING BASE CERTIFICATE": as defined in subsection 7.2(e). "BORROWING BASE": an amount, calculated on a monthly basis based upon the most recent Borrowing Base Certificate delivered pursuant to subsection 7.2(e), equal to the sum (without duplication) of (a) 80% of Eligible Accounts, (b) 50% of Eligible Inventory and (c) 25% of Eligible Property. All determinations in connection with the Borrowing Base shall be made by the Borrowers and certified to the Administrative Agent by a Responsible Officer of the Borrowers; PROVIDED, HOWEVER, that the Administrative Agent shall have the final right to review and adjust, in its reasonable judgment after consultation with the Borrowers, any such determination to the extent such determination is not in accordance with this Agreement. The Borrowing Base determined on the basis of any Borrowing Base Certificate shall remain in effect from and including the date on which such Borrowing Base Certificate is delivered, to but excluding the date on which the next Borrowing Base Certificate is delivered. 10 5 "BORROWING BASE DEFICIENCY": a condition wherein the sum of (a) the aggregate principal amount of all Revolving Credit Loans outstanding at such time and (b) the aggregate amount of L/C Obligations outstanding at such time exceeds the Borrowing Base then in effect. "BORROWING DATE": any Business Day specified in a notice pursuant to subsection 2.3 or 3.2 as a date on which a Borrower requests the Lenders to make Revolving Credit Loans hereunder or the Issuing Lender to issue Letters of Credit hereunder. "BUSINESS DAY": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close, except that, when used in connection with a Eurodollar Loan, "Business Day" shall mean any Business Day on which dealings in Dollars between banks may be carried on in London, England and New York, New York. "CAPITAL EXPENDITURE": as defined in subsection 8.8. "CAPITAL STOCK": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "CASH EQUIVALENTS": (i) 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) Dollar-denominated time deposits and 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, a division of McGraw-Hill, Inc. ("S&P"), or at least "A-2" by Moody's Investors Service Inc. ("MOODY'S"), or (b) that is a Lender, (iii) commercial paper maturing within 270 days after the issuance thereof that has the highest credit rating of either of S&P or Moody's, (iv) 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 S&P or Moody's, (v) 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 S&P or Moody's or a long-term debt rating of AAA from S&P, as applicable, (vi) repurchase agreements and reverse repurchase agreements with institutions 11 6 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). "CASH MANAGEMENT COLLECTION SYSTEM": as defined in subsection 6.1(j). "C/D PUBLISHED MOVING RATE": on any particular date, the latest three-week moving average of daily secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market lenders, such three-week moving average (adjusted to the basis of a year of 360 days) being determined weekly for the three-week period ending on the previous Friday by the Administrative Agent on the basis of: (a) such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York (as adjusted for reserves and assessments in the same manner as the C/D Quoted Rate); or (b) if such publication shall be suspended or terminated, the C/D Quoted Rate determined by the Administrative Agent on the basis of quotations for such rates by the Administrative Agent. "C/D QUOTED RATE": relative to any determination of the C/D Published Moving Rate in circumstances when publication of the rates referred to in clause (a) of the definition thereof has been suspended or terminated, the rate of interest per annum determined by the Administrative Agent to be the sum (rounded upward to the nearest 1/16th of 1%) of: (a) the rate obtained by dividing (i) the average (rounded upward to the nearest 1/16th of 1%) of the bid rates quoted to the Administrative Agent, in CIBC's secondary market at approximately 10:00 A.M., New York City time (or as soon thereafter as practicable), from time to time by three certificate of deposit dealers of recognized standing selected by the Administrative Agent in its reasonable discretion for the purchase at face value of three-month certificates of deposit of CIBC in an amount approximately equal or comparable to the amount of CIBC's portion of the Revolving Credit Loans outstanding hereunder with respect to which the C/D Quoted Rate is being determined by (ii) a percentage equal to 100% MINUS the average of the daily percentages specified during such period by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any marginal reserve requirement) for a member bank of the Federal Reserve System in respect of liabilities consisting of or including (among other liabilities) three-month Dollar nonpersonal time deposits in the United States; and 12 7 (b) the daily average during such period of the net annual assessment rates estimated by the Administrative Agent for determining the then current annual assessment payable by CIBC to the Federal Deposit Insurance Corporation for insuring Dollar deposits of CIBC in the United States. "CHANGE OF CONTROL": (i) any Person (including such 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 Capital Stock of CNC and/or warrants or options to acquire such Capital Stock on a fully diluted basis, (ii) CNC 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, CNC, in any such event pursuant to a transaction in which the outstanding Capital Stock of CNC is converted into or exchanged for cash, securities or other property, other than any such transaction where (a) (1) the outstanding common stock of CNC 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 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 Capital Stock of the Surviving Entity, or (b) the holders of the Capital Stock of CNC outstanding immediately prior to the consolidation or merger hold, directly or indirectly, at least a majority of the Capital Stock of the surviving corporation immediately after such consolidation or merger, (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of CNC (together with any new directors whose election by such board of directors or whose nomination for election by the shareholders of CNC 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 CNC, (iv) CNC shall cease to own and control, beneficially, all of the issued and outstanding Capital Stock of CNG or (v) CNG shall cease to own and control all of the issued and outstanding capital stock of each Borrower. "CIBC": Canadian Imperial Bank of Commerce, a Canadian-chartered bank, acting through its New York Agency. 13 8 "CIBC ALTERNATE BASE RATE": on any particular date, a rate of interest per annum equal to the highest of: (a) the rate of interest most recently announced by CIBC as its base rate in effect at its principal office in New York City (the "CIBC PRIME RATE"); (b) the Federal Funds Rate for such date plus 1/2 of 1%; and (c) the CD Published Moving Rate most recently determined by CIBC plus 1%. The CIBC Alternate Base Rate is not necessarily intended to be the lowest rate of interest charged by CIBC in connection with extensions of credit. "CLEAN-DOWN AMOUNT": $10,000,000. "CLOSING DATE": the date on which the conditions precedent set forth in subsection 6.1 shall be satisfied. "CNC": as defined in the recitals hereto. "CNG": as defined in the recitals hereto. "CNG GUARANTEE AND CASH COLLATERAL AGREEMENT": the CNG Guarantee and Cash Collateral Agreement to be executed and delivered by CNG, substantially in the form of Exhibit B-3, as the same may be amended, supplemented or otherwise modified from time to time. "CNG NOTES": the 11-1/4% Senior Notes due 2001, in an original aggregate principal amount of $190,000,000, of CNG, as the same have been amended, supplemented or otherwise modified from time to time, and, following the Closing Date, as the same may be amended, supplemented or otherwise modified from time to time without violating Section 9(m). "CODE": the Internal Revenue Code of 1986, as amended from time to time. "COLE GIFTS:" as defined in the preamble hereto. "COLE VISION": as defined in the preamble hereto. "COLLATERAL": all assets (including assets constituting shares of Capital Stock) of the Loan Parties, now owned or hereinafter acquired, upon which a Lien is purported to be created by any Security Document. 14 9 "COMMITMENT LETTER": the Commitment Letter dated October 11, 1996 among CIBC, CIBC Wood Gundy Securities Corp. and CNG, as the same may be amended, supplemented or otherwise modified from time to time. "COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated, which is under common control with any Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes any Borrower and which is treated as a single employer under Section 414 of the Code. "COMPLIANCE CERTIFICATE": as defined in subsection 7.2(b). "COMPLIANCE PACKAGE": the Cole National Group, Inc. and Subsidiaries Consolidated Financial Statements and Supplementary Data, in substantially the form of Exhibit H. "CONSOLIDATED": when used in connection with any financial statements required to be delivered pursuant to subsection 7.1 or 7.11 or computation of the financial covenants set forth in subsections 8.1 and 8.8, means such term as it applies to CNG and its Subsidiaries on a consolidated basis, after eliminating all intercompany items. "CONSOLIDATED NET WORTH": of any Person, as of the date of determination, all items which in conformity with GAAP would be included under shareholders' equity on a consolidated balance sheet of such Person at such date; PROVIDED that, with respect to CNG, the following items shall be added back to Consolidated Net Worth (i) non-cash restructuring charges incurred during the fiscal years ending February 1, 1997 and January 31, 1998, to the extent deducted from the determination of Consolidated Net Worth and (ii) cash dividends paid by CNG to CNC, in an aggregate amount not to exceed $14,000,000, during the period from the Closing Date to January 31, 1998. "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "COPYRIGHT, PATENT AND TRADEMARK SECURITY AGREEMENT": the Copyright, Patent and Trademark Security Agreement to be executed and delivered by the Borrowers and certain Subsidiaries, substantially in the form of Exhibit B-2, as the same may be amended, supplemented or otherwise modified from time to time. "CORESTATES" as defined in subsection 6.1(a). "DEFAULT": any of the events specified in Section 9, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. 15 10 "DEFAULTED ACCOUNT": any Account which has been or should have been charged-off as not collectable in conformity with the accounting policies of the Borrowers and their Subsidiaries as in effect from time to time. "DEFAULTING LENDER": at any time, any Lender that has defaulted, and at the time of determination continues to default, in its obligation to make available its Revolving Credit Commitment with respect to any Revolving Credit Loan. "DOLLARS" and "$": dollars in lawful currency of the United States of America. "EBITDA": for any period, with respect to CNG and its Subsidiaries on a consolidated basis, determined in accordance with GAAP, an amount equal to the sum of (a) Net Income for such period, plus (b) income taxes, excluding income taxes (either positive or negative) attributable to extraordinary and non-recurring gains or losses or sales or other dispositions of assets permitted under subsection 8.6, plus (c) Interest Expense for such period, plus (d) depreciation for such period, plus (e) amortization for such period, plus (f) any other non-cash items (including minority interests) reducing Net Income for such period, plus (g) amortization of deferred financing costs and expenses for such period, minus (h) all non-cash items increasing Net Income for such period, minus (i) all cash payments made in such period in respect of restructuring charges deducted in calculating Net Income for such period or any prior period, PROVIDED that the first $10,000,000 of such cash payments made after the Closing Date shall not be required to be subtracted pursuant to this clause (i). "EBITDAR": for any period, with respect to CNG and its Subsidiaries on a consolidated basis, determined in accordance with GAAP, an amount equal to the sum of EBITDA and Rental Expense for such period. "ELIGIBLE ACCOUNTS": at any time, an amount equal to the aggregate outstanding balance of all Accounts of the Borrowers and their Subsidiaries (other than Accounts consisting of payment obligations with respect to which the Obligor is a franchisee of any Borrower or any Subsidiary arising from Investments made pursuant to subsection 8.9(e)) payable in the United States of America in Dollars as set forth in the aging reports of billed Accounts for the Borrowers and their Subsidiaries as of such time, PROVIDED that, unless otherwise approved in writing by the Administrative Agent, no amount owing in respect of any Account shall be deemed to be included in any calculation of Eligible Accounts if: (a) such Account was, at the date of the original issuance of the respective invoice therefor, payable more than 60 days after such date; (b) such Account is not a bona fide, valid and legally enforceable obligation of the account debtor in respect thereof arising from the actual 16 11 sale and delivery of goods or rendition and acceptance of services in the ordinary course of business to such account debtor; (c) such Account remains unpaid for more than 60 days after the date set forth for payment in the invoice originally issued therefor; (d) the Obligor is any Borrower or any Subsidiary or Affiliate thereof; (e) the sale giving rise thereto is to an Obligor in any jurisdiction outside the United States unless the obligation thereunder is backed by a letter of credit acceptable to the Administrative Agent; (f) such Account is a Defaulted Account; (g) such Account is the result of a charge-back or a reinvoice of a disputed Account or Defaulted Account; (h) the Obligor thereon has been the obligor in respect of Defaulted Accounts at any time during the immediately preceding 12-month period; (i) it is an Account which may be set off or charged against (i) any adverse security deposit or other similar deposit made by or for the benefit of the applicable Obligor or (ii) any trade payable, rebate obligation or other similar liability owing to the applicable Obligor; PROVIDED that any Account deemed ineligible pursuant to this clause (i) shall only be ineligible to the extent of such set-off or charge against such adverse security deposit, trade payable, rebate obligation or other similar deposit or liability; (j) it arises from the sale to the Obligor on a bill-and-hold, guarantied sale, sale-and-return, sale on approval or consignment basis or made pursuant to any other written agreement providing for repurchase or return; PROVIDED, HOWEVER, that no Account shall be excluded pursuant to this clause (j) solely as a result of customary quality warranties or the general right to return goods provided by the Borrower or its Subsidiaries; (k) the Obligor thereon has disputed its liability on, or the Obligor thereon has made any claim or defense with respect to, such Account or any other Account due from such Obligor to any Loan Party, which has not been resolved; PROVIDED that any Account deemed ineligible pursuant to this clause (k) shall only be ineligible to the extent of the amount owed by such Loan Party to the Obligor thereon or the amount of such dispute, claim or defense; 17 12 (l) a proceeding under bankruptcy or similar laws has occurred and is continuing with respect to the Obligor thereon; (m) the Obligor thereon is any Governmental Authority unless all Requirements of Law relating to the creation and perfection of a Lien thereon in favor of the Lenders shall have been satisfied; (n) the goods giving rise to such Account have not been shipped and delivered to the Obligor thereon or the services giving rise to such Account have not been performed or such Account otherwise does not represent a final sale or transfer of title to such Obligor; (o) such Account does not comply in all material respects with all applicable legal requirements; (p) if the Accounts due from any Obligor exceed an amount equal to 20% of the aggregate of all Accounts at said time, an amount of such Accounts equal to such excess; (q) such Account is not owned solely by such Person free and clear of all Liens or other rights or claims of any other Person (except in favor of the Administrative Agent); (r) such Account is subject to any material restrictions on the transfer, assignability or sale thereof, enforceable against the assignee, except pursuant to any Loan Document; or (s) the Administrative Agent does not have a valid and perfected first priority security interest in such Account for the benefit of the Lenders or such Account does not otherwise conform in all material respects to the representations and warranties contained in this Agreement or any of the Security Documents. "ELIGIBLE INVENTORY": at any time, an amount equal to the aggregate value (determined in accordance with the immediately succeeding sentence) of all Inventory of (i) Cole Vision, located at distribution centers and laboratories owned or operated by Cole Vision, (ii) Pearle, located at stores owned by Pearle and distribution centers and laboratories owned or operated by Pearle, (iii) Things Remembered, located at stores owned by Things Remembered and distribution centers owned or operated by Things Remembered, (iv) Cole Gifts, located at distribution centers owned or operated by Cole Gifts and (v) PSC, located at distribution centers and laboratories owned or operated by PSC, in each case that consists of finished goods available for sales to customers, excluding all Inventory located at a distribution center received from a third-party customer in exchange for the initial stocking of Inventory of such third-party customer in any changeover 18 13 or conversion. In determining the amount to be so included, the amount of such Inventory shall be valued at the lower of cost or market on a basis consistent with such Borrower's or such Subsidiary's current and historical accounting practice LESS reserves taken, if any, (i) on account of physical inventory adjustments, (ii) for warranty and price changes as recorded in such Borrower's or such Subsidiary's accounting records, (iii) for any goods returned or rejected by such Borrower's or such Subsidiary's customers as damaged or defective, scrap, obsolete or otherwise non-salable, return to vendor goods, miscellaneous non-perpetual inventory, cores, rental tools, supplies, (iv) for goods in transit to third parties that are not excluded pursuant to clause (a), (b), (c), (d) or (e) below, (v) for Liens referred to in clause (c)(i) below and (vi) for Liens referred to in clause (c)(ii) below as established by the Administrative Agent in its reasonable judgment. Unless otherwise approved in writing by the Administrative Agent, no Inventory shall be deemed Eligible Inventory of the Borrowers or its Subsidiaries if: (a) the Inventory is not owned solely by such Borrower or such Subsidiary or is leased or on consignment or such Borrower or such Subsidiary does not have good and valid title thereto; (b) the Inventory is not located at or in transit to property that is owned or leased by such Borrower or such Subsidiary; (c) the Inventory is not subject to a perfected Lien in favor of the Administrative Agent prior to all other Liens except for (i) Liens arising by operation of law with respect to which either a Landlord Consent has been obtained or a Rent Reserve has been established and (ii) with respect to Eligible Inventory located at or in transit to sites described in clause (b) above, for Liens for normal and customary warehousing and transportation charges (appropriate reserves for which have been reasonably established for borrowing base purposes by such Borrower or such Subsidiary); (d) the Inventory is not located in the United States; or (e) the Inventory does not conform in all material respects to the representations and warranties contained in this Agreement or any of the Security Documents. "ELIGIBLE PROPERTY": at any time, an amount equal to the aggregate book value of all tangible assets (other than Inventory) of (i) Cole Vision, located at distribution centers, stores and laboratories owned or operated by Cole Vision, (ii) Pearle, located at stores owned by Pearle and offices, distribution centers, laboratories and other facilities owned or operated by Pearle, (iii) Things Remembered, located at stores owned by Things Remembered and distribution centers owned or operated by Things Remembered, (iv) Cole Gifts, located at distribution centers or stores owned or operated by Cole Gifts and (v) PSC, 19 14 located at distribution centers and laboratories owned or operated by PSC, in each case less the amount of any Indebtedness (other than Indebtedness under any Loan Document) secured by a Lien on such assets, PROVIDED that no amount shall be included in any calculation of Eligible Property with respect to an asset (i) which is subject to any material restrictions on the transfer, assignability or sale thereof, enforceable against the assignee (except pursuant to any Loan Document), (ii) upon which the Administrative Agent does not have a valid and perfected first priority security interest for the benefit of the Lenders or (iii) which does not otherwise conform in all material respects to the representations and warranties contained in this Agreement or any of the Security Documents. "ENVIRONMENTAL COSTS": any and all costs or expenses (including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, fines, penalties, damages, settlement payments, judgments and awards), of whatever kind or nature, contingent or otherwise, arising out of, or in any way relating to, any violation of, noncompliance with or liability under any Environmental Laws or any orders, requirements, demands, or investigations of any person related to any Environmental Laws. Environmental Costs include any and all of the foregoing, without regard to whether they arise out of or are related to any past, pending or threatened proceeding of any kind. "ENVIRONMENTAL LAWS": any and all laws, rules, orders, regulations, statutes, ordinances, codes, decrees, or other legally enforceable requirements (including, without limitation, common law) of any foreign government, the United States, or any state, local, municipal or other Governmental Authority, regulating, relating to or imposing liability or standards of conduct concerning protection of the environment or of human health, or employee health and safety, as has been, is now, or may at any time hereafter be, in effect. "ENVIRONMENTAL PERMITS": any and all permits, licenses, registrations, notifications, exemptions and any other authorization required under any Environmental Law. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as 20 15 "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. "EURODOLLAR BASE RATE": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined by the Administrative Agent to be the arithmetic mean of the offered rates for deposits in Dollars with a term comparable to such Interest Period that appears on the Telerate British Bankers Assoc. Interest Settlement Rates Page (as defined below) at approximately 11:00 A.M., London time, on the second full Business Day preceding the first day of such Interest Period; PROVIDED, HOWEVER, that if there shall at any time no longer exist a Telerate British Bankers Assoc. Interest Settlement Rates Page, "Eurodollar Base Rate" shall mean, with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate at which CIBC is offered Dollar deposits at or about 10:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its Eurodollar Loans are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its Eurodollar Loan to be outstanding during such Interest Period. "TELERATE BRITISH BANKERS ASSOC. INTEREST SETTLEMENT RATES PAGE" shall mean the display designated as Page 3750 on the Telerate System Incorporated Service (or such other page as may replace such page on such service for the purpose of displaying the rates at which Dollar deposits are offered by leading banks in the London interbank deposit market). "EURODOLLAR LOANS": Revolving Credit Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "EURODOLLAR RATE": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "EUROPEAN BUSINESS": as defined in the recitals hereto. "EVENT OF DEFAULT": any of the events specified in Section 9, PROVIDED that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EXCHANGE ACT": the Securities Exchange Act of 1934, as amended. 21 16 "EXISTING CREDIT AGREEMENT": the Loan and Security Agreement, dated as of September 30, 1993, among Fleet Financial Corporation, successor in interest to Barclays Business Credit, Inc., Cole Vision, Things Remembered and Cole Key Corporation, as the same may have been amended, restated or otherwise modified. "FEDERAL FUNDS RATE": for any particular date, an interest rate per annum equal to the interest rate (rounded upwards, if necessary, to the nearest 1/16th of 1%) offered in the interbank market to the Administrative Agent as the overnight Federal Funds Rate at or about 10:00 A.M. New York City time, on such day (or if such day is not a Business Day, for the next preceding Business Day). "FINANCING LEASE": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "GAAP": generally accepted accounting principles in the United States set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statement by such other entity as may be in general use by significant segments of the U.S. accounting profession; PROVIDED, that, with respect to the calculation of the financial ratios and the terms used in the covenants contained in this Agreement and the definitions related thereto, "GAAP" means generally accepted accounting principles in effect in the United States on the dates of the financial statements referred to in subsection 5.1, it being understood that, upon any change in GAAP as at such dates that in the reasonable opinion of the Administrative Agent affects in any material respect the financial ratios and covenants contained in this Agreement, the Borrowers and the Administrative Agent, on behalf of the Lenders, will negotiate in good faith to adapt or conform any such financial ratios and covenants and the definitions related thereto to any such changes in GAAP to the extent necessary to maintain the original economic terms of such financial ratios and covenants as in effect under this Agreement on the date hereof, the Administrative Agent shall promptly notify the Lenders in writing of the negotiated changes to such financial ratios, covenants and definitions, and if, by the 30th day after the date such notice is given (i) the Majority Lenders shall not have objected in writing to such changes, such changes shall be deemed to be effective, and this Agreement shall be deemed to be amended accordingly, as of such 30th day, without further action on the part of any party hereto or (ii) the Majority Lenders shall have objected to such changes, then, until this Agreement shall be amended in accordance with the terms of Section 11.1 to reflect such changes as may be necessary to maintain the original economic terms of such financial ratios and covenants, the financial ratios 22 17 and covenants immediately in effect prior to such amendment shall remain in effect. "GOVERNMENTAL AUTHORITY": any nation or government, any state or other political subdivision thereof and any entity (including, without limitation, any central bank) exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. For purposes of subsections 4.9, 4.10 and 11.15, the term "Governmental Authority" shall be deemed to include, without limitation, the National Association of Insurance Commissioners. "GUARANTEE": as defined in the definition of "Guarantor." "GUARANTEE AND COLLATERAL AGREEMENT": the Guarantee and Collateral Agreement to be executed and delivered by each Borrower and each Subsidiary, substantially in the form of Exhibit B-1, as the same may be amended, supplemented or otherwise modified from time to time. "GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably 23 18 anticipated liability in respect thereof as determined by the Borrowers in good faith. "GUARANTOR": any Person which is now or hereafter a party to (a) the Guarantee and Collateral Agreement or (b) any other guarantee (a "GUARANTEE") hereafter delivered to the Administrative Agent guaranteeing the obligations and liabilities of each of the Loan Parties hereunder or under any other Loan Documents, including, without limitations, any guarantee delivered pursuant to subsection 7.10. "INDEBTEDNESS" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of such Person's business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all obligations of such Person under Financing Leases, (h) for purposes of subsection 8.2 and Section 9(e), all obligations of such Person in respect of interest rate protection agreements, interest rate futures, interest rate options, interest rate caps and any other interest rate, currency, commodity or other hedging arrangement, (i) all Guarantee Obligations of such Person with respect to Indebtedness of others, (j) all obligations of such Person under Financing Leases, (k) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (l) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "INSOLVENCY": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "INSOLVENT": pertaining to a condition of Insolvency. "INTEREST EXPENSE": for any period and without duplication, with respect to CNG and its Subsidiaries on a consolidated basis, (a) the aggregate amount of interest which would be set forth opposite the caption "interest expense" or any 24 19 like caption on an income statement for CNG and its Subsidiaries on a consolidated basis, determined in accordance with GAAP, for such period plus, to the extent not included in such interest, (i) imputed interest included in Financing Leases for such period, (ii) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing permitted by subsection 8.2 for such period; (iii) the net payments made in connection with Interest Rate Protection Agreements for such period, (iv) the interest portion of any deferred payment obligation for such period, (v) amortization of discount or premium, if any, for such period, (vi) all other non-cash interest expense (other than interest amortized to cost of sales) for such period, (vii) all net capitalized interest for such period and (viii) all interest paid under any Guarantee Obligation, minus (b) net payments received in connection with Interest Rate Protection Agreements for such period, minus (c) amortization of deferred financing costs and expenses for such period. "INTEREST PAYMENT DATE": (a) as to any ABR Loan, the last day of each fiscal quarter of CNG, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period. "INTEREST PERIOD": with respect to any Eurodollar Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the respective Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by such Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; PROVIDED that, all of the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period pertaining to a Eurodollar Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar 25 20 month in which event such Interest Period shall end on the immediately preceding Business Day; (2) any Interest Period that would otherwise extend beyond the Revolving Credit Commitment Termination Date shall end on the Revolving Credit Commitment Termination Date; (3) any Interest Period pertaining to a Eurodollar Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (4) the Borrowers shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Revolving Credit Loan. "INTEREST RATE PROTECTION AGREEMENT": any interest rate protection agreement, interest rate future, interest rate option, interest rate cap or collar or other interest rate hedge arrangement, to or under which any Borrower or any of its Subsidiaries is a party or a beneficiary on the Closing Date or becomes a party or a beneficiary after the Closing Date. "INTERIM ADJUSTMENTS": for the period from the Closing Date to the end of the second fiscal quarter of the 1997 fiscal year of CNG, the Adjusted Interest Coverage Ratio and the Leverage Ratio shall be calculated using the adjustments and assumptions set forth below: (a) EBITDA and Rental Expense for the twelve month period for which the Adjusted Interest Coverage Ratio and the Leverage Ratio are being calculated shall be deemed to be the actual EBITDA and Rental Expense, respectively, of CNG on a PRO FORMA basis as if the Transaction had been consummated on the first day of such period and, in the case of the calculations as at the end of the fourth quarter of the 1996 fiscal year of CNG and the first and second fiscal quarters of the 1997 fiscal year of CNG, such amounts shall be calculated by combining the results of operations of CNG and its Subsidiaries (other than Pearle and PSC) for the four fiscal quarters then ending with the results of operations of Pearle (after giving effect to the sale of the European Business) and PSC for the corresponding fiscal quarters of Pearle's and PSC's fiscal year; and (b) Interest Expense for the twelve month period ending on the date for which the Adjusted Interest Coverage Ratio is being calculated (but only in cases where such date is prior to the date which is the first anniversary of the Closing Date) shall be deemed to be the result obtained 26 21 by multiplying (i) the actual Interest Expense for the period from the Closing Date through such date times (ii) a ratio equal to (x) 365 divided by (y) the number of days elapsed from the Closing Date until such date. "INVENTORY": as defined in the Uniform Commercial Code as in effect in the State of New York; and, with respect to the Borrowers and their Subsidiaries, all such Inventory of such Borrower or such Subsidiary including, without limitation, all finished goods, wares and merchandise, finished or unfinished parts, components, assemblies held for sale to third party customers by such Borrower or such Subsidiary. "INVESTMENT": as defined in subsection 8.9. "ISSUING LENDER": CIBC or any of its affiliates. "LANDLORD CONSENT": a written agreement reasonably acceptable to the Administrative Agent, pursuant to which a Person shall waive or subordinate its rights and claims as landlord in any Inventory of the Borrowers or their Subsidiaries for unpaid rents, grant access to the Administrative Agent for the repossession and sale of such inventory and make other agreements relative thereto. "L/C FEE PAYMENT DATE": the last day of each fiscal quarter of CNG. "L/C OBLIGATIONS": at any date, the sum of (a) the aggregate amount then available to be drawn under all outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed by the Borrowers pursuant to subsection 3.5. "L/C PARTICIPANTS": the collective reference to all the Lenders other than the Issuing Lender. "L/C SUBLIMIT": $30,000,000. "LENDERS": as defined in the preamble hereto and including, without limitation, the Issuing Lender. "LETTERS OF CREDIT": as defined in subsection 3.1. "LETTER OF CREDIT APPLICATION": an application in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to issue a Letter of Credit. "LEVERAGE RATIO": as of the end of each fiscal quarter of CNG, with respect to CNG and its Subsidiaries on a consolidated basis, the ratio of (a) Total 27 22 Indebtedness on such date to (b) EBITDA for the twelve month period ending on such date (after giving effect to the Interim Adjustment). "LIEN": any mortgage, pledge, hypothecation, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Financing Lease having substantially the same economic effect as any of the foregoing). "LOAN DOCUMENTS": this Agreement, any Revolving Credit Notes, any Letter of Credit Applications, any Letters of Credit, the Security Documents and any Guarantees. "LOAN PARTIES": CNG, the Borrowers and each Subsidiary of a Borrower which is a party to a Loan Document, individually, a "LOAN PARTY". "MAJORITY LENDERS": at any time, Non-Defaulting Lenders the Revolving Credit Commitment Percentages of which aggregate more than 50% of the aggregate Revolving Credit Commitment Percentages of all Non-Defaulting Lenders. "MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Borrowers and their Subsidiaries taken as a whole or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos or asbestos-containing materials, pollutants, contaminants, radioactivity, and any other substances of any kind, whether or not any such substance is defined as hazardous or toxic under any Environmental Law, that is regulated pursuant to or could give rise to liability under any Environmental Law. "MOODY'S": as defined in the definition of "Cash Equivalents." "MORTGAGES": the mortgages and deeds of trust to be executed and delivered by the Borrowers and certain Subsidiaries, in a form reasonably satisfactory to the Administrative Agent, as the same may be amended, supplemented or otherwise modified from time to time. "MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. 28 23 "NET CASH PROCEEDS": with respect to any sale or other disposition of assets by CNG, any Borrower or any of their Subsidiaries, the net amount equal to the aggregate amount received in cash (including any cash received by way of deferred payment pursuant to a note receivable, other non-cash consideration or otherwise, but only as and when such cash is so received) MINUS the sum of (i) the reasonable fees, commissions and other out-of-pocket expenses incurred by CNG, such Borrower or such Subsidiary in connection with such sale or other disposition, (ii) federal, state and local taxes incurred in connection with such sale or other disposition, whether payable at such time or thereafter, (iii) in the case of any such sale or other disposition of assets subject to a Lien securing any Indebtedness (which Lien and Indebtedness are permitted by this Agreement), any amounts required to be repaid by CNG, such Borrower or such Subsidiary in respect of such Indebtedness (other than Indebtedness under this Agreement and any Revolving Credit Notes) in connection with such sale or other disposition and (iv) any amounts deposited in escrow or on deposit as collateral in respect of environmental or other liabilities not assumed by the purchaser in connection with a sale or other disposition of assets, but only so long as such amounts remain on deposit or in escrow. "NET INCOME": for any period, the aggregate of the net income of the Borrower and its Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP, for such period; PROVIDED, HOWEVER, that there shall be excluded from Net Income (a) the net income of a Person whose net income is not consolidated with the Borrower's under GAAP (other than the amount of dividends and other distributions paid or made by such Person to CNG or any of its Subsidiaries during such period), (b) the net income of any Person for such period acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (c) any net gain or loss for such period (net of the related tax effect thereof) resulting from any sale or other disposition of assets or any sale or other disposition of any Capital Stock of any Person by CNG or any of its Subsidiaries, in each case, other than in the ordinary course of business and permitted by subsection 8.6, (d) extraordinary gains and losses for such period (net of the related tax effect thereof), and (e) non-recurring gains and losses for such period (net of the related tax effect thereof); PROVIDED that there shall be added back to Net Income non-cash restructuring charges deducted in calculating Net Income for such period. "NON-DEFAULTING LENDER": each Lender other than a Defaulting Lender. "NON-EXCLUDED TAXES": as defined in subsection 4.11. "OBLIGOR": any purchaser of goods or services or other Person obligated to make payment to any Borrower or any Subsidiary in respect of a purchase of such goods or services. 29 24 "PARTICIPANT": as defined in subsection 11.6(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "PEARLE": as defined in the preamble hereto. "PERMITTED HEDGING ARRANGEMENT": as defined in subsection 8.14. "PERMITTED HOLDERS": (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 CNC or its Subsidiaries beneficially own at least 25% of the capital stock of CNC owned by such group and (iii) any Person that is controlled by any one or more of the Persons set forth in (i) or (ii) above. "PERSON": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PLAN": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which any Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PSC": as defined in the preamble hereto. "REGISTER": as defined in subsection 11.6(d). "REGULATION U": Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "REIMBURSEMENT OBLIGATIONS": the obligation of the Borrowers to reimburse the Issuing Lender pursuant to subsection 3.5 for amounts drawn under Letters of Credit. "RENT RESERVE": with respect to any store, distribution center or depot where any Inventory subject to Liens arising by operation of law is located, a reserve equal to three (3) months' rent at such store, distribution center or depot. "RENTAL EXPENSE": for any period, the excess, if any, of (i) the aggregate amount of fixed rentals payable by CNG, the Borrowers and their Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, with respect to leases (other than Financing Leases) of real and personal property over (ii) the aggregate amount of fixed rental sublease income received by CNG, the 30 25 Borrowers and their Subsidiaries from subleases during such period with respect to such real and personal property. "REORGANIZATION": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "REPORTABLE EVENT": any of the events set forth in Section 4043 of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. sec. 2615. "REQUIREMENT OF LAW": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESPONSIBLE OFFICER": the chief executive officer, the president, any vice president and the treasurer of CNG. "REVOLVING CREDIT COMMITMENT": as to any Lender, its obligation to make Revolving Credit Loans to, and/or issue or participate in Letters of Credit issued on behalf of, the Borrowers in an aggregate amount not to exceed at any one time outstanding the amount set forth under such Lender's name in Schedule I opposite the heading "Revolving Credit Commitment" or, in the case of any Lender that is an Assignee, the amount of the assigning Lender's Revolving Credit Commitment assigned to such Assignee pursuant to subsection 11.6 (in each case as such amount may be adjusted from time to time as provided herein). "REVOLVING CREDIT COMMITMENT PERCENTAGE": as to any Lender, the percentage of the aggregate Revolving Credit Commitments constituted by such Lender's Revolving Credit Commitment, or following the Closing Date, the percentage representing a fraction the numerator of which is the Revolving Credit Commitment of such Lender (or, following the termination or expiration of the Revolving Credit Commitments, the sum of (x) the aggregate principal amount of such Lender's Revolving Credit Loans then outstanding PLUS (y) such Lender's Revolving Commitment Percentage of all L/C Obligations then outstanding), and the denominator of which is the aggregate Revolving Credit Commitments of all Lenders (or, following the termination or expiration of the Revolving Credit Commitments, the sum of (x) the aggregate principal amount of all Revolving Credit Loans then outstanding PLUS (y) the aggregate principal amount of all L/C Obligations then outstanding). 31 26 "REVOLVING CREDIT COMMITMENT PERIOD": the period from and including the Closing Date to but not including the Revolving Credit Commitment Termination Date. "REVOLVING CREDIT COMMITMENT TERMINATION DATE": the earlier of (a) November 15, 2000 or, if such date is not a Business Day, the Business Day next preceding such date and (b) the date upon which the Revolving Credit Commitments shall be terminated pursuant hereto. "REVOLVING CREDIT FACILITY": as defined in the recitals hereto. "REVOLVING CREDIT LOANS": as defined in subsection 2.1. "REVOLVING CREDIT NOTE": as defined in subsection 2.2. "SECURITY DOCUMENTS": the collective reference to the Guarantee and Collateral Agreement, the CNG Guarantee and Cash Collateral Agreement, the Copyright, Patent and Trademark Security Agreement, the Mortgages and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any asset or assets of any Person to secure the obligations and liabilities of the Borrowers hereunder or under any of the other Loan Documents or to secure any guarantee of any such obligations and liabilities, including, without limitation, any security document delivered pursuant to subsection 7.10. "SENIOR SUBORDINATED NOTES": the 9.875% Senior Subordinated Notes due 2006 of CNG issued pursuant to the Senior Subordinated Notes Indenture, as the same may be amended, supplemented or otherwise modified from time to time without violating Section 9(m). "SENIOR SUBORDINATED NOTES INDENTURE": the Indenture to be dated as of the Closing Date between CNG and Norwest Bank Minnesota, N.A., as trustee, as the same may be amended, supplemented or otherwise modified from time to time without violating Section 9(m). "SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "S&P": as defined in the definition of "Cash Equivalents." "STOCK PURCHASE AGREEMENT": the Stock Purchase Agreement, dated as of September 24, 1996, among The Pillsbury Company, a Delaware corporation, Pearle and CNC. "SUBSIDIARY": as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests 32 27 having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity ("VOTING STOCK") are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrowers. "TAX SHARING AGREEMENT": the Agreement for the Allocation of Federal Income Tax Liability and Benefits among Members of the CNC Holding Corporation Group dated as of August 23, 1985, as amended, supplemented or otherwise modified from time to time. "THINGS REMEMBERED": as defined in the preamble hereto. "TOTAL INDEBTEDNESS": on any date, with respect to CNG and its Subsidiaries, all Indebtedness of CNG and its Subsidiaries on such date on a Consolidated basis. "TRANCHE": the collective reference to Eurodollar Loans the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Revolving Credit Loans shall originally have been made on the same day). "TRANSACTION": as defined in the recitals hereto. "TRANSACTION DOCUMENTS": the collective reference to the Stock Purchase Agreement, the Senior Subordinated Notes Indenture and any other documents entered into in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time without violating Section 9(m) and (n). "TRANSFEREE": as defined in subsection 11.6(f). "TYPE": as to any Revolving Credit Loan, its nature as an ABR Loan or a Eurodollar Loan. "UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "WHOLLY OWNED SUBSIDIARY": means any Subsidiary, all of the outstanding voting securities of which are owned, directly or indirectly, by a Borrower. 33 28 1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any Revolving Credit Notes, any other Loan Documents or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in any Revolving Credit Notes, any other Loan Documents and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Borrowers and their Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. Fiscal years referred to in this Agreement are identified according to the calendar year in which they begin. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS 2.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans (each a "REVOLVING CREDIT LOAN", collectively, "REVOLVING CREDIT LOANS") to the Borrowers, jointly and severally, from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding which, when added to such Lender's Revolving Credit Commitment Percentage of the then outstanding L/C Obligations, does not exceed the amount of such Lender's Revolving Credit Commitment. Notwithstanding the foregoing, in no event shall any Revolving Credit Loans be made or Letters of Credit be issued pursuant to subsection 3.1 (i) if the aggregate amount of the Revolving Credit Loans to be made and Letters of Credit to be issued would, after giving effect to the use of proceeds, if any, thereof, exceed the aggregate Available Revolving Credit Commitments or (ii) if, after giving effect to such Revolving Credit Loan or Letter of Credit, a Borrowing Base Deficiency would exist. During the Revolving Credit Commitment Period, the Borrowers may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof, PROVIDED, HOWEVER, that the Aggregate Outstanding Revolving Credit (other than in respect of the undrawn portion of any Letters of Credit) with respect to all Lenders at any time during any consecutive thirty day period during each fiscal year of the Borrowers (such thirty day period during each fiscal year to be selected by the Borrowers) may in no event exceed the Clean-Down Amount. 34 29 (b) The Revolving Credit Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the Borrowers and notified to the Administrative Agent in accordance with subsections 2.3 and 4.4, PROVIDED that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Revolving Credit Commitment Termination Date. 2.2 REVOLVING CREDIT NOTES. The Borrowers agree that, upon the request to the Administrative Agent by any Lender or in connection with any assignment pursuant to subsection 11.6, to evidence such Lender's Revolving Credit Loans each Borrower will execute and deliver to such Lender a promissory note substantially in the form of Exhibit A, with appropriate insertions as to payee, date and principal amount (each, as amended, supplemented, replaced or otherwise modified from time to time, a "REVOLVING CREDIT NOTE"), payable to the order of such Lender and in a principal amount equal to the lesser of (a) the amount set forth under such Lender's name in Schedule I opposite the heading "Revolving Credit Commitment" and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by such Lender to such Borrower. Each Revolving Credit Note shall (x) be dated the Closing Date, (y) be stated to mature on the Revolving Credit Commitment Termination Date and (z) provide for the payment of interest in accordance with subsection 4.1. 2.3 PROCEDURE FOR REVOLVING CREDIT BORROWING. Any Borrower may borrow under the Revolving Credit Commitments during the Revolving Credit Commitment Period on any Business Day, PROVIDED that such Borrower shall give the Administrative Agent irrevocable notice, in substantially the form of Exhibit I (which notice must be received by the Administrative Agent prior to 11:00 A.M., New York City time, (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially Eurodollar Loans or (b) on the requested Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the respective amount of such Type of Revolving Credit Loan and the respective length of the initial Interest Period therefor. Each borrowing under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of ABR Loans, $500,000 or a whole multiple of $100,000 in excess thereof (or, if the aggregate Available Revolving Credit Commitments then in effect are less than $500,000, such lesser amount) and (y) in the case of Eurodollar Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof. Upon receipt of any such notice from such Borrower, the Administrative Agent shall promptly notify each such Lender thereof. Each Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of such Borrower at the office of the Administrative Agent specified in subsection 11.2 prior to 1:00 P.M., New York City time, on the Borrowing Date requested by such Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to such Borrower by the Administrative Agent crediting the account of such Borrower on the books of such office with the 35 30 aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.4 COMMITMENT FEES; OTHER FEES. (a) The Borrowers agree, jointly and severally, to pay to the Administrative Agent for the account of each Lender, a commitment fee for the period from and including the first day of the Revolving Credit Commitment Period to the Revolving Credit Commitment Termination Date, computed at the rate of 3/8 of 1% per annum (as adjusted on each Adjustment Date to the applicable rate per annum set forth under the heading "Commitment Fees" on Schedule II which corresponds to the Adjusted Interest Coverage Ratio determined from the financial statements and Compliance Certificate relating to the end of the fiscal quarter immediately preceding such Adjustment Date and subject to the additional adjustment provisions set forth in the definition of "Applicable Margin") on the average daily amount of the Available Revolving Credit Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each fiscal quarter of CNG and on the Revolving Credit Commitment Termination Date, commencing on the first of such days to occur after the Closing Date. (b) The Borrowers, jointly and severally, shall pay to CIBC the amounts set forth in the Fee Letter dated October 11, 1996 among CIBC, CIBC Wood Gundy Securities Corp. and CNG on the dates set forth therein. 2.5 TERMINATION OR REDUCTION OF REVOLVING CREDIT COMMITMENTS. (a) The Borrowers shall have the right, upon not less than three Business Days' notice to the Administrative Agent (which will promptly notify the Lenders thereof), to terminate the Revolving Credit Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments; PROVIDED that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans made on the effective date thereof, the aggregate principal amount of the Revolving Credit Loans then outstanding when added to the sum of the then outstanding L/C Obligations, would exceed the Revolving Credit Commitments then in effect. Any such reduction shall be in an amount equal to $1,000,000 or a whole multiple of $500,000 in excess thereof and shall reduce permanently the Revolving Credit Commitments then in effect. (b) The Revolving Credit Commitments shall be automatically reduced in connection with any reductions of the Revolving Credit Commitments in accordance with subsection 4.3. Any such reduction shall reduce permanently the Revolving Credit Commitments then in effect. 2.6 REPAYMENT OF REVOLVING CREDIT LOANS. (a) The Borrowers hereby unconditionally promise, jointly and severally, to pay to the Administrative Agent for the account of each Lender, the then unpaid principal amount of each Revolving Credit Loan of such Lender made to each Borrower, on the Revolving Credit Commitment Termination Date (or such earlier date on which the Revolving Credit Loans become 36 31 due and payable pursuant to Section 9). The Borrowers hereby further agree, jointly and severally, to pay interest on the unpaid principal amount of the Revolving Credit Loans from time to time outstanding from the date of the making of the Revolving Credit Loans until payment in full thereof at the rates per annum, and on the dates, set forth in subsection 4.1. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrowers to such Lender resulting from each Revolving Credit Loan of such Lender from time to time, including, without limitation, the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to subsection 11.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Revolving Credit Loan made hereunder, the Type thereof and each Interest Period, if any, applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrowers and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to subsection 2.6(c) shall, to the extent permitted by applicable law, be PRIMA FACIE evidence of the existence and amounts of the obligations of the Borrowers therein recorded; PROVIDED, HOWEVER, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrowers to repay, jointly and severally (with applicable interest), the Revolving Credit Loans made to any Borrower by such Lender in accordance with the terms of this Agreement. SECTION 3. LETTERS OF CREDIT 3.1 L/C COMMITMENT. (a) Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agreements of the other Lenders set forth in subsection 3.4(a), agrees to issue standby letters of credit ("LETTERS OF CREDIT") for the account of any Borrower on any Business Day during the Revolving Credit Commitment Period in such form as may be approved from time to time by the Issuing Lender; PROVIDED that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Sublimit (ii) the Available Revolving Credit Commitment of all Lenders would be less than zero or (iii) a Borrowing Base Deficiency would exist. (b) Each Letter of Credit shall (i) be denominated in Dollars, (ii) be a standby letter of credit issued to support obligations of such Borrower or any of its Subsidiaries, contingent or otherwise, to finance the working capital and business needs of 37 32 such Borrower or any of its Subsidiaries in the ordinary course of business and (iii) expire no later than the earlier of (x) the date that is 12 months after the date of its issuance and (y) the fifth Business Day prior to the Revolving Credit Commitment Termination Date, PROVIDED that any Letter of Credit with an expiration date of 12 months after the date of its issuance may provide for the renewal thereof for additional 12 month periods, but in no event shall the expiration date as extended be later than the fifth Business Day prior to the Revolving Credit Termination Date. (c) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (d) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 3.2 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. A Borrower may request that the Issuing Lender issue a Letter of Credit at any time prior to the fifth Business Day prior to the Revolving Credit Commitment Termination Date by delivering to the Issuing Lender at its address for notices specified herein a Letter of Credit Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Letter of Credit Application, the Issuing Lender will process such Letter of Credit Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Letter of Credit Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender and such Borrower. The Issuing Lender shall furnish a copy of such Letter of Credit to such Borrower promptly following the issuance thereof. 3.3 FEES, COMMISSIONS AND OTHER CHARGES. (a) The Borrowers shall pay, jointly and severally, to the Administrative Agent, for the account of the Issuing Lender and the L/C Participants, a letter of credit fee with respect to each Letter of Credit, computed for the period from and including the date of issuance of such Letter of Credit to the expiration date of such Letter of Credit, computed at a rate per annum equal to the Applicable Margin then in effect for Eurodollar Loans calculated on the basis of the actual number of days elapsed over a 360-day year, of the aggregate face amount of Letters of Credit outstanding, payable in arrears on each L/C Fee Payment Date and on the Revolving Credit Commitment Termination Date. Such fee shall be payable to the Administrative Agent to be shared ratably among the Lenders in accordance with their respective Revolving Credit Commitment Percentages. In addition, the Borrowers shall pay, jointly and severally, to the Issuing Lender, for its own account a fee equal to 0.25% 38 33 per annum of the aggregate face amount of outstanding Letters of Credit, payable quarterly in arrears on each L/C Fee Payment Date and on the Revolving Credit Commitment Termination Date and calculated on the basis of the actual number of days elapsed over a 360-day year. (b) In addition to the foregoing fees and commissions, the Borrowers shall pay or reimburse, jointly and severally, the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, effecting payment under, amending or otherwise administering any Letter of Credit. (c) The Administrative Agent shall, promptly following its receipt thereof, distribute to the Issuing Lender and the L/C Participants all fees and commissions received by the Administrative Agent for their respective accounts pursuant to this subsection. 3.4 L/C PARTICIPATIONS. (a) The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Revolving Credit Commitment Percentage from time to time in effect in the Issuing Lender's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrowers in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at the Issuing Lender's address for notices specified herein an amount equal to such L/C Participant's then Revolving Credit Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed; PROVIDED that, if such demand is made prior to 12:00 Noon, New York City time, on a Business Day, such L/C Participant shall make such payment to the Issuing Lender prior to the end of such Business Day and otherwise such L/C Participant shall make such payment on the next succeeding Business Day. (b) If any amount required to be paid by any L/C Participant to the Issuing Lender pursuant to paragraph 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit is paid to the Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average federal funds rate, as quoted by the Issuing Lender, during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by 39 34 any L/C Participant pursuant to paragraph 3.4(a) is not in fact made available to the Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to ABR Loans hereunder. A certificate of the Issuing Lender submitted to any L/C Participant with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. (c) Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with subsection 3.4(a), the Issuing Lender receives any payment related to such Letter of Credit (whether directly from a Borrower or otherwise, including proceeds of collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof, the Issuing Lender will, if such payment is received prior to 12:00 Noon, New York City time, on a Business Day, distribute to such L/C Participant its pro rata share thereof prior to the end of such Business Day and otherwise the Issuing Lender will distribute such payment on the next succeeding Business Day; PROVIDED, HOWEVER, that in the event that any such payment received by the Issuing Lender shall be required to be returned by the Issuing Lender, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it. 3.5 REIMBURSEMENT OBLIGATION OF THE BORROWERS. (a) The Borrowers agree to reimburse, jointly and severally, the Issuing Lender on the same Business Day on which a draft is presented under any Letter of Credit and paid by the Issuing Lender, PROVIDED that the Issuing Lender provides notice to the Borrowers prior to 12:00 Noon, New York City time, on such Business Day and otherwise the Borrowers will reimburse the Issuing Lender on the next succeeding Business Day; PROVIDED, FURTHER, that the failure to provide such notice shall not affect the Borrowers' absolute and unconditional obligation to reimburse the Issuing Lender for any draft paid under any Letter of Credit. The Issuing Lender shall provide notice to the Borrowers on such Business Day as a draft is presented and paid by the Issuing Lender indicating the amount of (i) such draft so paid and (ii) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified herein in lawful money of the United States of America and in immediately available funds. (b) Interest shall be payable on any and all amounts remaining unpaid by the Borrowers under this subsection from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate which would be payable on any outstanding Revolving Credit Loans that are ABR Loans which were then overdue. (c) Each drawing under any Letter of Credit shall constitute a request by the Borrowers to the Administrative Agent for a borrowing pursuant to subsection 2.3 of 40 35 ABR Loans in the amount of such drawing. The Borrowing Date with respect to such borrowing shall be the date of such drawing. 3.6 OBLIGATIONS ABSOLUTE. (a) The Borrowers' obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrowers may have or have had against the Issuing Lender, any L/C Participant or any beneficiary of a Letter of Credit. (b) The Borrowers also agree with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Borrowers' Reimbursement Obligations under subsection 3.5(a) shall not be affected by, among other things, (i) the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or (ii) any dispute between or among any Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or (iii) any claims whatsoever of any Borrower against any beneficiary of such Letter of Credit or any such transferee. (c) Neither the Issuing Lender nor any L/C Participant shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Lender's gross negligence or willful misconduct. (d) The Borrowers agree that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Borrowers and shall not result in any liability of the Issuing Lender or any L/C Participant to any Borrower. 3.7 LETTER OF CREDIT PAYMENTS. If any draft shall be presented for payment under any Letter of Credit, the responsibility of the Issuing Lender to the Borrowers in connection with such draft shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. 3.8 APPLICATION. To the extent that any provision of any Letter of Credit Application related to any Letter of Credit is inconsistent with the provisions of this Agreement or any other Loan Document, the provisions of this Agreement or such Loan Document shall apply. SECTION 4. GENERAL PROVISIONS 41 36 4.1 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) Each ABR Loan shall bear interest at a rate per annum equal to the CIBC Alternate Base Rate plus the Applicable Margin. (c) If all or a portion of (i) any principal of any Revolving Credit Loan, (ii) any interest payable thereon, (iii) any commitment fee or (iv) any other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), the principal of the Revolving Credit Loans and any such overdue interest, commitment fee or other amount shall bear interest at a rate per annum which is (x) in the case of principal, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) in the case of any such overdue interest, commitment fee or other amount, the rate described in paragraph (b) of this subsection plus 2%, in each case from the date of such non-payment until such overdue principal, interest, commitment fee or other amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, PROVIDED that interest accruing pursuant to paragraph (c) of this subsection shall be payable from time to time on demand. 4.2 OPTIONAL PREPAYMENTS. Any Borrower may at any time and from time to time prepay the Revolving Credit Loans made to it in whole or in part, without premium or penalty, on any Business Day, PROVIDED that (i) such Borrower shall have given (x) at least three Business Days' irrevocable notice to the Administrative Agent (in the case of Eurodollar Loans) or (y) same-day irrevocable notice to the Administrative Agent (in the case of ABR Loans), (ii) such notice specifies the date and amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR Loans or a combination thereof, and, in each case if a combination thereof, the principal amount allocable to each and (iii) each prepayment is in a minimum principal amount of $100,000 and a multiple of $100,000 in excess thereof. Upon the receipt of any such notice the Administrative Agent shall promptly notify each of the Lenders thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to subsection 4.12. 4.3 MANDATORY PREPAYMENTS AND REDUCTION OF REVOLVING CREDIT COMMITMENTS. (a) If, subsequent to the Closing Date, CNG, any Borrower or any of their Subsidiaries shall receive Net Cash Proceeds from any sale or other disposition of assets (other than the sale of inventory in the ordinary course of business and sales or other dispositions of assets permitted by subsections 8.6(c), (d) or (e)), then 100% of such Net Cash Proceeds shall on the first Business Day after receipt thereof, be applied 42 37 toward the prepayment of the Revolving Credit Loans and the cash collateralization of outstanding L/C Obligations and the permanent reduction of the Revolving Credit Commitments in accordance with subsection 4.3(c); PROVIDED that the first $10,000,000 of such Net Cash Proceeds received by CNG, the Borrowers and their Subsidiaries, in the aggregate, shall not be required to be applied to make mandatory prepayments and permanent reductions of the Revolving Credit Commitments hereunder; and PROVIDED FURTHER, the Borrowers and their Subsidiaries may use or commit to use any or all of such Net Cash Proceeds to acquire fixed or capital assets within 180 days of receipt of such Net Cash Proceeds and any such Net Cash Proceeds so used within 180 days of receipt or within 180 days of being committed to be used shall not be required to be applied to make mandatory prepayments, cash collaterizations and permanent reductions of the Revolving Credit Commitments hereunder, but any such Net Cash Proceeds not so used shall be applied toward the repayment of the Revolving Credit Loans, cash collateralization of outstanding L/C Obligations and the permanent reduction of the Revolving Credit Commitments on the earlier of (x) the later of (I) 180th day after receipt of such Net Cash Proceeds and (II) the 180th day after such Net Cash Proceeds were committed to be used, as the case may be, and (y) the date on which the Borrowers have reasonably determined that such Net Cash Proceeds shall not be so used. (b) If, subsequent to the Closing Date, CNG, any Borrower or any of their Subsidiaries shall receive any cash proceeds of any casualty or condemnation, then 100% of such proceeds shall on the first Business Day after receipt thereof be deposited with the Administrative Agent, which shall hold such proceeds in a cash collateral account upon terms reasonably satisfactory to it. From time to time upon the request of a Borrower, the Administrative Agent shall release such proceeds to CNG, such Borrower or such Subsidiary, as necessary, to pay for replacement or rebuilding of the property lost or condemned. If such property is not replaced or rebuilt within one year (subject to reasonable extension for force majeure or weather delays) following the condemnation or casualty or if a Borrower fails to notify the Administrative Agent in writing on or before 180 days after such casualty or condemnation that CNG, the respective Borrower or the respective subsidiary shall commence the replacement or rebuilding of such property, then, in either case, the Administrative Agent shall apply any amounts in the cash collateral account toward the prepayment of the Revolving Credit Loans and the permanent reduction of the Revolving Credit Commitments. (c) If, at any time during the Revolving Credit Commitment Period, the Aggregate Outstanding Revolving Credit with respect to all Lenders exceeds the aggregate Revolving Credit Commitments then in effect, the Borrowers shall, without notice or demand, immediately repay the Revolving Credit Loans in an aggregate principal amount equal to such excess, together with interest accrued to the date of such payment or prepayment and any amounts payable under subsection 4.12. To the extent that after giving effect to any prepayment of the Revolving Credit Loans required by the preceding sentence, the Aggregate Outstanding Revolving Credit with respect to all Lenders exceeds the aggregate Revolving Credit Commitments then in effect, the Borrowers shall, without notice or demand, immediately cash collateralize the then 43 38 outstanding L/C Obligations in an amount equal to such excess upon terms reasonably satisfactory to the Administrative Agent. On the Business Day next succeeding the date on which a payment has caused the Aggregate Outstanding Revolving Credit with respect to all Lenders to be equal to or less than the Revolving Credit Commitments then in effect, the Administrative Agent shall return to the Borrowers the cash used to cash collateralize the then outstanding L/C Obligations pursuant to the preceding sentence. (d) If, at any time during the Revolving Credit Commitment Period, the Aggregate Outstanding Revolving Credit (other than in respect of the undrawn portion of any Letters of Credit) with respect to all Lenders is not less than the Clean-Down Amount for at least a consecutive thirty day period during each fiscal year of the Borrowers, the Borrowers shall, without notice or demand, immediately repay the Revolving Credit Loans in an aggregate principal amount equal to such excess, together with interest accrued to the date of such payment or prepayment and any amounts payable under subsection 4.12, and any borrowings of Revolving Credit Loans during such thirty day period shall be subject to the proviso to subsection 2.1(a). To the extent that after giving effect to any prepayment of the Revolving Credit Loans required by the preceding sentence, such Aggregate Outstanding Revolving Credit with respect to all Lenders exceeds the Clean-Down Amount, the Borrowers shall, without notice or demand, immediately cash collateralize the then outstanding L/C Obligations in an amount equal to such excess upon terms reasonably satisfactory to the Administrative Agent. On the Business Day next succeeding the date on which the thirty day period described above has expired, the Administrative Agent shall return to the Borrowers the cash, if any, used to cash collateralize the then outstanding L/C Obligations pursuant to the preceding sentence. (e) If, at any time during the Revolving Credit Commitment Period, a Borrowing Base Deficiency shall exist, the Borrowers shall, without notice or demand, immediately prepay the Revolving Credit Loans in an aggregate principal amount equal to such Borrowing Base Deficiency, together with interest accrued to the date of such payment or prepayment and any amounts payable under subsection 4.12. To the extent that after giving effect to any prepayment of the Revolving Credit Loans required by the preceding sentence, a Borrowing Base Deficiency shall continue to exist, the Borrowers shall, without notice or demand, immediately cash collateralize the then outstanding L/C Obligations in an amount equal to such Borrowing Base Deficiency upon terms reasonably satisfactory to the Administrative Agent. On the Business Day next succeeding the date on which a payment has cured such Borrowing Base Deficiency, the Administrative Agent shall return to the Borrowers the cash used to cash collateralize the then outstanding L/C Obligations pursuant to the preceding sentence. (f) Prepayments of the Revolving Credit Loans and permanent reductions of the Revolving Credit Commitments pursuant to subsections 4.3(a) and (b) shall be applied to permanent reduction of the Revolving Credit Commitments then in effect. 44 39 4.4 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrowers may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election, in substantially the form of Exhibit J, PROVIDED that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Borrowers may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election. Any such notice of conversion to Eurodollar Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Loans and ABR Loans may be converted as provided herein, PROVIDED that (i) unless the Majority Lenders otherwise consent, no Revolving Credit Loan may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing and (ii) no Revolving Credit Loan may be converted into a Eurodollar Loan after the date that is one month prior to the Revolving Credit Commitment Termination Date. (b) Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the respective Borrower giving notice to the Administrative Agent, in substantially the form of Exhibit J, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such Revolving Credit Loans, PROVIDED that no Eurodollar Loan may be continued as such (i) unless the Majority Lenders otherwise consent, when any Event of Default has occurred and is continuing or (ii) after the date that is one month prior to the Revolving Credit Commitment Termination Date and PROVIDED, FURTHER, that if such Borrower shall fail to give such notice or if such continuation is not permitted such Revolving Credit Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. 4.5 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF TRANCHES. All borrowings, conversions and continuations of Revolving Credit Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Revolving Credit Loans comprising each Tranche shall be equal to $1,000,000 or a whole multiple of $500,000 in excess thereof. In no event shall there be more than 15 Tranches outstanding at any time. 4.6 COMPUTATION OF INTEREST AND FEES. (a) Interest (other than interest based on the CIBC Prime Rate) on all Revolving Credit Loans and commitment fees payable pursuant hereto shall be calculated on the basis of a year of 360 days for the actual days elapsed; interest based on the CIBC Prime Rate shall be calculated on the basis of a 365-(or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrowers and the Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on the 45 40 Revolving Credit Loans resulting from a change in the CIBC Alternate Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change shall become effective, PROVIDED that such change becomes effective prior to 5:00 P.M., New York City time, on such day. The Administrative Agent shall as soon as practicable notify the Borrowers and each Lender of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrowers, deliver to the Borrowers a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to subsection 4.1. 4.7 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Majority Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or any affiliate of any such Lender from which such Lender customarily obtains funds) (as conclusively certified by such Lenders) of making or maintaining their affected Revolving Credit Loans during such Interest Period, then the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrowers and the Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any ABR Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be converted to or continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the first day of such Interest Period, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrowers have the right to convert ABR Loans to Eurodollar Loans. 4.8 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing of Revolving Credit Loans by any Borrower from the Lenders hereunder shall be made, each payment by any Borrower on account of any commitment fee in respect of the Revolving Credit Commitments hereunder shall be allocated by the Administrative Agent, and any reduction of the Revolving Credit Commitments of the Lenders shall be allocated by the Administrative Agent, PRO RATA according to the Revolving Credit Commitment Percentages of the Lenders. Each payment (including each prepayment) by any Borrower on account of principal of and interest on any Revolving Credit Loan shall be allocated by the Administrative Agent PRO RATA according to the respective outstanding principal amounts of such Revolving Credit Loans then held by the Lenders. All payments (including prepayments) to be made by the Borrowers hereunder and under 46 41 any Revolving Credit Notes, whether on account of principal, interest, fees, Reimbursement Obligations or otherwise, shall be made without set-off or counterclaim and shall be made prior to 2:30 p.m., New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders holding the relevant Revolving Credit Loans or the L/C Participants, as the case may be, at the Administrative Agent's office specified in subsection 11.2, in Dollars and in immediately available funds. Payments received by the Administrative Agent after such time shall be deemed to have been received on the next Business Day. If any payment hereunder (other than payments on Eurodollar Loans) becomes due and payable on a day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day (and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension) unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. (b) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its Revolving Credit Commitment Percentage of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrowers a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. If such Lender's Revolving Credit Commitment Percentage of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Loans hereunder, on demand, from the Borrowers. 4.9 ILLEGALITY. Notwithstanding any other provision herein, if the adoption after the date of this Agreement of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender (or any affiliate of such Lender from which such Lender customarily obtains funds) to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b) such 47 42 Lender's Revolving Credit Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective last days of the then current Interest Periods with respect to such Revolving Credit Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrowers shall pay to such Lender such amounts, if any, as may be required pursuant to subsection 4.12. 4.10 REQUIREMENTS OF LAW. (a) If the adoption after the date of this Agreement of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note, any Letter of Credit, any Letter of Credit Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by subsection 4.11 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender (or any affiliate of such Lender from which such Lender customarily obtains funds) which is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender (or such affiliate) any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrowers shall promptly pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduced amount receivable. (b) If any Lender shall have determined that the adoption after the date of this Agreement of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under any Letter of Credit to a level below that which such Lender or such 48 43 corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, the Borrowers shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction. (c) If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, such Lender shall promptly notify the Borrowers (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender to the Borrowers (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Revolving Credit Loans and all other amounts payable hereunder. 4.11 TAXES. (a) All payments made by the Borrowers under this Agreement, any Revolving Credit Notes, any Letters of Credit or any Letter of Credit Applications shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any Revolving Credit Note). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("NON-EXCLUDED TAXES") are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder or under any Revolving Credit Note, any Letters of Credit or any Letter of Credit Applications, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, PROVIDED, HOWEVER, that the Borrowers shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this subsection. Whenever any Non-Excluded Taxes are payable by any Borrower, as promptly as possible thereafter such Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by such Borrower showing payment thereof. If any Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence after 49 44 receiving appropriate notification of such tax liability from the affected Lender(s), the Borrowers shall indemnify, jointly and severally, the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Revolving Credit Loans and all other amounts payable hereunder. (b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof shall: (X)(i) deliver to the Borrowers and the Administrative Agent (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be; (ii) deliver to the Borrowers and the Administrative Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrowers; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Borrowers or the Administrative Agent; or (Y) in the case of any such Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) represent to the Borrowers (for the benefit of the Borrowers and the Administrative Agent) that it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (ii) agree to furnish to the Borrowers on or before the date of any payment by the Borrowers, with a copy to the Administrative Agent, (A) a certificate substantially in the form of Exhibit E (any such certificate a "U.S. TAX COMPLIANCE CERTIFICATE") and (B) two accurate and complete original signed copies of Internal Revenue Service Form W-8, or successor applicable form certifying to such Lender's legal entitlement at the date of such certificate to an exemption from U.S. withholding tax under the provisions of Section 881(c) of the Code with respect to payments to be made under this Agreement and any Revolving Credit Notes (and to deliver to the Borrowers and the Administrative Agent two further copies of such form on or before the date it expires or becomes obsolete and after the occurrence of any event requiring a change in the most recently provided form and, if necessary, obtain any extensions of time reasonably requested by the Borrowers or the Administrative Agent for filing and completing such forms), and (iii) agree, to the extent legally entitled to do so, upon reasonable request by the Borrowers, to provide to the Borrowers (for the benefit of the Borrowers and the Administrative Agent) such other forms as may be reasonably required in order to establish the 50 45 legal entitlement of such Lender to an exemption from withholding with respect to payments under this Agreement and any Revolving Credit Notes, PROVIDED that in determining the reasonableness of a request under this clause (iii) such Lender shall be entitled to consider the cost (to the extent unreimbursed by the Borrowers) which would be imposed on such Lender of complying with such request; unless in any such case any change in treaty, law or regulation has occurred after the date such Person becomes a Lender hereunder which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Borrowers and the Administrative Agent. Each Person that shall become a Lender or a Participant pursuant to subsection 11.6 shall, upon the effectiveness of the related transfer, be required to provide all of the forms, certifications and statements required pursuant to this subsection, PROVIDED that in the case of a Participant the obligations of such Participant pursuant to this paragraph (b) shall be determined as if such Participant were a Lender except that such Participant shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased. 4.12 INDEMNITY. The Borrowers agree to indemnify, jointly and severally, each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by any Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after such Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by any Borrower in making any prepayment of Eurodollar Loans after such Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Revolving Credit Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. This covenant shall survive the termination of this Agreement and the payment of the Revolving Credit Loans and all other amounts payable hereunder. 4.13 CHANGE OF LENDING OFFICE; REPLACEMENT OF LENDERS. (a) Each Lender agrees that if it makes any demand for payment under subsection 4.10 or 4.11(a), or if any adoption or change of the type described in subsection 4.9 shall occur with respect to it, it shall use reasonable efforts (consistent with its internal policy and legal 51 46 and regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its sole discretion) to designate a different lending office if the making of such a designation would reduce or obviate the need for the Borrowers to make payments under subsection 4.10 or 4.11(a), or would eliminate or reduce the effect of any adoption or change described in subsection 4.9. (b) If at any time any Lender (i) makes any demand for payment under subsection 4.10 or 4.11(a) as a result of any condition described in any such subsection or (ii) becomes a Defaulting Lender, then the Borrowers may, if such condition continues to exist after such Lender shall have used reasonable efforts pursuant to paragraph (a) of this subsection 4.13 (in the circumstances described in the preceding clause (i)) or such Lender continues to be a Defaulting Lender (in the circumstances described in the preceding clause (ii)) and on ten Business Days' prior written notice to the Administrative Agent and such Lender, replace such Lender by causing such Lender to (and such Lender shall) assign pursuant to subsection 11.6(c) all of its rights and obligations under this Agreement to another Lender or other bank or financial institution selected by the Borrowers and acceptable to the Administrative Agent for a purchase price equal to the outstanding principal amount of all Revolving Credit Loans and all Reimbursement Obligations, accrued interest, fees and other amounts owing to such Lender; PROVIDED that (i) the Borrowers shall have no right to replace the Administrative Agent, (ii) neither the Administrative Agent nor any Lender shall have any obligation to the Borrowers to find a replacement Lender or other bank or financial institution, (iii) such replacement must take place no later than 180 days after such Lender shall have made any such demand for payment or shall have become a Defaulting Lender, as the case may be, (iv) in no event shall any Lender hereby replaced be required to pay or surrender to such replacement Lender or other bank or financial institution any of the fees received by such Lender pursuant to this Agreement, (v) the Borrowers shall pay such amounts demanded under subsection 4.10 or 4.11(a) to such Lender, together with any amounts as may be required pursuant to subsection 4.12, prior to such Lender being replaced and the payment of such amounts shall be a condition to the replacement of such Lender and (vi) such Lender shall not be required to pay any fees required by subsection 11.6(e) in connection with such replacement. SECTION 5. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Revolving Credit Loans and issue or participate in the Letters of Credit, each Borrower hereby represents and warrants, on the Closing Date (after giving effect to the consummation of the Transactions) and on any date thereafter on which any Revolving Credit Loan or any other extension of credit is requested to be made by any Lender or on which any Letter of Credit is requested to be issued by the Issuing Lender to the Administrative Agent and each Lender that: 52 47 5.1 FINANCIAL CONDITION. (a) The consolidated balance sheets of CNG and its Subsidiaries as of January 29, 1994, January 28, 1995 and February 3, 1996 and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, reported on by Arthur Andersen LLP, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of CNG and its Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the fiscal years then ended. The unaudited consolidated balance sheet of CNG and its Subsidiaries as at August 31, 1996 and the related unaudited consolidated statements of income and of cash flows for the six-month period ended on such date, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of CNG and its Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the six-month period then ended (subject to normal year-end audit adjustments). The unaudited consolidated balance sheet of CNG and its Subsidiaries as at September 30, 1996, the related unaudited consolidated income statement for the one-month period ended on such date and the related unaudited consolidated statement of cash flows for the portion of the fiscal year through such date, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of CNG and its Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the respective periods covered by such statements then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Neither CNG nor any of its Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or other material agreement or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. During the period from February 3, 1996 to and including the Closing Date there has been no sale, transfer or other disposition by CNG or any of its Subsidiaries of any material part of its business or property and, except as contemplated by the Transactions, no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the consolidated financial condition of CNG and its Subsidiaries at February 3, 1996. (b) The consolidated balance sheets of Pearle and its Subsidiaries as of September 30, 1994 and September 30, 1995 and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, reported on by KPMG Peat Marwick LLP, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of Pearle and its Subsidiaries as at such date, and the consolidated results of their operations and 53 48 their consolidated cash flows for the fiscal years then ended. The unaudited consolidated balance sheet of Pearle and its Subsidiaries as at June 30, 1996 and the related unaudited consolidated statements of income and of cash flows for the nine-month period ended on such date, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of Pearle and its Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the nine-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or responsible officer, as the case may be, and as disclosed therein). Neither Pearle nor any of its Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or other material agreement or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. During the period from June 30, 1996 to and including the Closing Date, except as contemplated by the Transactions, there has been no sale, transfer or other disposition by Pearle or any of its Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the consolidated financial condition of Pearle and its consolidated Subsidiaries at June 30, 1996. (c) The PRO FORMA balance sheet of CNG and its Subsidiaries (the "PRO FORMA BALANCE SHEET"), copies of which have heretofore been furnished to each Lender, is the balance sheet of CNG and its Subsidiaries as of August 3, 1996 (the "PRO FORMA DATE"), adjusted to give effect (as if such events had occurred on such date) to (i) the consummation of the Transactions, (ii) the making of the Revolving Credit Loans and other extensions of credit hereunder to be made on the Closing Date and the application of the proceeds thereof as contemplated hereby and (iii) the payment of the fees and expenses paid in connection with the consummation of the Transactions and the other transactions contemplated by the Loan Documents and the Transaction Documents (which fees and expenses shall not exceed $14,000,000). 5.2 NO CHANGE; SOLVENCY. Since February 3, 1996, there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. As of the Closing Date, after giving effect to the transactions contemplated by the Loan Documents and the Transaction Documents, the Borrowers and their Subsidiaries are solvent, on a consolidated basis and on an individual basis. 5.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrowers and the other Loan Parties (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it 54 49 operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except for jurisdictions in which the failure to so qualify, in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each of the Borrowers and the other Loan Parties has the corporate power and authority, and the legal right, to execute, deliver and perform the Loan Documents to which it is a party and the Transaction Documents to which it is a party and, in the case of each Borrower, to borrow hereunder and each of the Borrowers and the other Loan Parties has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and any Revolving Credit Notes and to authorize the execution, delivery and performance of the Loan Documents to which it is a party and the Transaction Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required to be received, made, given or completed by any of the Loan Parties in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of the Loan Documents to which any Borrower or any of the other Loan Parties is a party or the Transaction Documents to which any Borrower or any of the other Loan Parties is a party other than filings and recordings to perfect the security interest of the Lenders created by the Security Documents and other than those set forth on Schedule 5.4. All of such consents, authorizations, filings, notices and other acts set forth on Schedule 5.4 have been heretofore received, made, given or completed except for such consents, authorizations, filings, notices and other acts that a Borrower's or other Loan Party's failure to failure to receive, make, give or complete could not reasonably be expected to have a Material Adverse Effect. This Agreement has been duly executed and delivered by each Borrower, and each of the other Loan Documents to which each Borrower or any of the other Loan Parties is a party and each of the Transaction Documents to which each Borrower or any of the other Loan Parties is a party will be duly executed and delivered by such Borrower or such other Loan Party. This Agreement constitutes a legal, valid and binding obligation of each Borrower, and each other Loan Document to which each Borrower or any of the other Loan Parties is a party and each of the Transaction Documents to which any Borrower or any of the other Loan Parties is a party when executed and delivered by such Borrower or such other Loan Party will constitute a legal, valid and binding obligation of such Borrower or such other Loan Party, enforceable against such Borrower or such other Loan Party in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 55 50 5.5 NO LEGAL BAR. The execution, delivery and performance of the Loan Documents to which any Borrower or any of the other Loan Parties is a party or the Transaction Documents to which any Borrower or any of the other Loan Parties is a party, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of any Borrower or of any of the other Loan Parties and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation (other than the Loan Documents). Schedule 5.5 constitutes a complete list of all material Contractual Obligations to which any Loan Party is a party and all orders and decrees of courts which are applicable to or binding on any Loan Party or to which any Loan Party or any of its property is subject. 5.6 NO MATERIAL LITIGATION. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of any Borrower, threatened by or against any Borrower or any of the other Loan Parties or against any of its or their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, (b) on the Closing Date, with respect to any of the Transaction Documents or (c) which could reasonably be expected to have a Material Adverse Effect. 5.7 NO DEFAULT. No Borrower nor any of the other Loan Parties is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 5.8 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrowers and the other Loan Parties has good record and marketable title in fee simple to, or a valid leasehold interest in, all its material real property, and good title to, or a valid leasehold interest in, all its other material property, and none of such property is subject to any Lien except as permitted by subsection 8.3. Except as set forth on Schedule 5.8, the properties to be encumbered by the Mortgages pursuant to subsection 7.10(a) constitute all of the material real properties owned in fee by the Borrowers and the other Loan Parties. 5.9 INTELLECTUAL PROPERTY. Each Borrower and each of the other Loan Parties owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect (the "INTELLECTUAL PROPERTY"). No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, except for such claims which, in the aggregate, could not reasonably be expected to have a Material Adverse Effect, nor does any Borrower know of any valid basis for any such claim. The use of such Intellectual Property by each Borrower and the other Loan Parties does not infringe on the rights of any Person, except for such infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 56 51 5.10 NO BURDENSOME RESTRICTIONS. No Requirement of Law or Contractual Obligation of any Borrower or any of the other Loan Parties could reasonably be expected to have a Material Adverse Effect. 5.11 TAXES. Each of the Borrowers and the other Loan Parties has filed or caused to be filed all United States federal income tax returns and all other material tax returns which, to the knowledge of the Borrowers, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any taxes, fees or other charges (i) with respect to which the failure to pay, in the aggregate, could not reasonably be expected to have a Material Adverse Effect or (ii) the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the relevant Borrower or any of the other Loan Parties, as the case may be); no tax Lien has been filed, and, to the knowledge of any Borrower, no claim is being asserted, with respect to any such tax, fee or other charge. 5.12 FEDERAL RESERVE REGULATIONS. No part of the proceeds of any Revolving Credit Loans or other extensions of credit hereunder have been or will be used for any purpose which violates the provisions of the Regulations of the Board of Governors of the Federal Reserve System, including, without limitation, Regulation G or Regulation U thereunder. If requested by any Lender or the Administrative Agent, each Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-1 or FR Form U-1 referred to in said Regulation G or Regulation U, as the case may be. 5.13 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of an insufficiently funded Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five year period. The present value of all accrued benefits under all Single Employer Plans taken as a whole does not exceed the value of the assets of such Single Employer Plans by more than $75,000,000. Neither any Borrower nor any Commonly Controlled Entity has incurred or is expected to incur any liability for a complete or partial withdrawal from any Multiemployer Plan, and neither any Borrower nor any Commonly Controlled Entity would become subject to any liability under ERISA which could reasonably be expected to have a Material Adverse Effect if such Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. As of the Closing Date, and to the knowledge of any Borrower on any Borrowing Date thereafter, no such Multiemployer Plan is in Reorganization or Insolvent. 57 52 5.14 COLLATERAL. The provisions of each of the Security Documents, when executed and delivered, will constitute in favor of the Administrative Agent for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in all right, title, and interest of each Borrower or any of the other Loan Parties which is a party to such Security Document, as the case may be, in the Collateral described in such Security Document. As of the Closing Date, all Equipment and Inventory (as each of such terms is defined in the Guarantee and Collateral Agreement) of the Borrowers and each of its Subsidiaries will be kept at, or will be in transit to, the locations listed on Schedule 5.14, and when financing statements have been filed in the offices in the jurisdictions listed in Schedule 3 to the Guarantee and Collateral Agreement, when appropriate filings have been made in the U.S. Patent and Trademark Office and the U.S. Copyright Office, and when such other actions as are described in each of the Security Documents have been taken in accordance with the Security Documents, the security interest created by each of the Security Documents shall constitute a perfected security interest in all right, title and interest of each Borrower or such other Loan Parties, as the case may be, in the Collateral described therein, and except for Liens existing on the Closing Date which are permitted by subsection 8.3 and whose priority cannot be superseded by the provisions hereof or of any Security Document and the filings hereunder or thereunder, a perfected first lien on, and security interest in, all right, title and interest of such Borrower or such other Loan Parties, as the case may be, in the Collateral described in each Security Document. 5.15 INVESTMENT COMPANY ACT; OTHER REGULATIONS. No Borrower is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Borrower is subject to regulation under any Federal or State statute or regulation (other than Regulation X of the Board of Governors of the Federal Reserve System) which limits its ability to incur Indebtedness. 5.16 SUBSIDIARIES AND JOINT VENTURES. Schedule 5.16 hereto sets forth all of the Subsidiaries of each Borrower, and all of the joint ventures in which each Borrower or any of its Subsidiaries has an interest, at the Closing Date, after giving effect to the Transaction, the jurisdiction of their incorporation and the direct or indirect ownership interest of each Borrower therein. 5.17 PURPOSE OF REVOLVING CREDIT LOANS. The proceeds of the Revolving Credit Loans shall be used for the general corporate purposes of the Borrowers and their Subsidiaries in the ordinary course of business. 5.18 ENVIRONMENTAL MATTERS. Other than exceptions to any of the following that would not, individually or in the aggregate, reasonably be expected to give rise to a Material Adverse Effect: (i) The Borrowers and the other Loan Parties: (A) are, and within the period of all applicable statutes of limitation have been, in compliance with all ap- 58 53 plicable Environmental Laws; (B) hold all Environmental Permits (each of which is in full force and effect) required for any of their current operations or for any property owned, leased, or otherwise operated by any of them and have no reason to believe that they will not be able to timely obtain without material expense all such Environmental Permits required for planned operations; (C) are, and within the period of all applicable statutes of limitation have been, in compliance with all of their Environmental Permits; and (D) have no reason to believe that: any of their Environmental Permits will not be, or will entail material expense to be, timely renewed or complied with; any additional Environmental Permits that may be required of any of them will not be, or will entail material expense to be, timely granted or complied with; or that compliance with any Environmental Law that is applicable to any of them will not be, or will entail material expense to be, timely attained and maintained. (ii) Materials of Environmental Concern have not been generated, transported, disposed of, emitted, discharged, or otherwise released or threatened to be released, to or at any real property presently or formerly owned, leased or operated by any Borrower or any of the other Loan Parties or, to the best knowledge of any Borrower, at any other location, which could reasonably be expected to (A) give rise to liability of any Borrower or any of the other Loan Parties under any applicable Environmental Law, or (B) interfere with any Borrower's or any other Loan Party's planned or continued operations, or (C) impair the fair saleable value of any real property owned or leased by any Borrower or any other Loan Parties. (iii) There is no judicial, administrative, or arbitral proceeding (including any notice of violation or alleged violation) under any Environmental Law to which any Borrower or any of the other Loan Parties is named as a party that is pending or, to the knowledge of any Borrower, threatened. (iv) No Borrower nor any of the other Loan Parties has received any written request for information, or been notified that it is a potentially responsible party, under the federal Comprehensive Environmental Response, Compensation, and Liability Act or any similar Environmental Law, or received any other written request for information with respect to any actual or potential liability for, or violation caused by any, Materials of Environmental Concern. (v) No Borrower nor any of the other Loan Parties has entered into or agreed to any consent decree, order, or settlement or other agreement, nor is subject to any judgment, decree, or order or other agreement, in any judicial, administrative, arbitral, or other forum, relating to compliance with or liability under any Environmental Law, as to which any obligation has not been fully and finally resolved. (vi) No Borrower nor any of its Subsidiaries has assumed or retained, by contract or, to the best knowledge of any Borrower, by operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any applicable Environmental Law or with respect to any Material of Environmental Concern. 59 54 5.19 REGULATION H. Except as otherwise disclosed in writing to the Administrative Agent, no Mortgage to be delivered pursuant to subsection 7.10(a) encumbers improved real property which is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968. 5.20 NO MATERIAL MISSTATEMENTS. The written information (including, without limitation, the Confidential Information Memorandum dated November 1996 relating to the Revolving Credit Facilities), reports, financial statements, exhibits and schedules furnished by or on behalf of the Borrowers and each other Loan Party to the Administrative Agent and the Lenders in connection with the negotiation of any Loan Document or any Transaction Document or included therein or delivered pursuant thereto do not contain, and will not contain as of the Closing Date, any material misstatement of fact and do not, taken as a whole, omit, and will not, taken as a whole, omit as of the Closing Date, to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading. It is understood that no representation or warranty is made concerning the forecasts, estimates, PRO FORMA information, projections and statements as to anticipated future performance or conditions, and the assumptions on which they were based, contained in any such information, reports, financial statements, exhibits or schedules, except that as of the date such forecasts, estimates, PRO FORMA information, projections and statements were generated, (a) such forecasts, estimates, PRO FORMA information, projections and statements were based on the good faith assumptions of the management of the Borrowers and (b) such assumptions were believed by such management to be reasonable. SECTION 6. CONDITIONS PRECEDENT 6.1 CONDITIONS TO INITIAL EXTENSION OF CREDIT. The agreement of each Lender to make the initial Revolving Credit Loans or other extensions of credit requested to be made by it hereunder is subject to the satisfaction, immediately prior to or concurrently with the making of such Revolving Credit Loans or other extensions of credit on the Closing Date, of the following conditions precedent: (a) LOAN DOCUMENTS. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of each Borrower, with a counterpart for each Lender, (ii) for the account of each of the Lenders which has requested a Note pursuant to subsection 2.2, a Revolving Credit Note conforming to the requirements hereof and executed and delivered by a duly authorized officer of each Borrower, (iii) the Guarantee and Collateral Agreement, executed and delivered by a duly authorized officer of each party thereto, with a counterpart or a conformed copy for each Lender, (iv) the Copyright, Patent and Trademark Security Agreement, executed and delivered by 60 55 a duly authorized officer of each Borrower, and the other signatories thereto, with a counterpart or a conformed copy for each Lender, (v) the CNG Guarantee and Cash Collateral Agreement, executed and delivered by a duly authorized officer of CNG, with a counterpart or conformed copy for each Lender and (vi) an agreement with CoreStates Bank N.A. ("CORESTATES") whereby CoreStates acknowledges the security interest of the Administrative Agent in all amounts deposited in the operating account maintained by CNG with CoreStates, in substantially the form of Exhibit A to the CNG Guarantee and Cash Collateral Agreement or such other form as is reasonably acceptable to the Administrative Agent. (b) CONSUMMATION OF THE TRANSACTION. (i) The Acquisition shall have been consummated for an aggregate purchase price not exceeding $220,000,000 (subject to adjustment), (ii) CNC shall have received approximately 96,477,350 Netherlands Guilders in cash and a promissory note in the principal amount of 6,442,650 Netherlands Guilders from the sale of the European Business, (iii) CNC shall have sold all of the capital stock of Pearle and PSC to CNG (iv) and all other transactions in connection with the Transaction shall have been consummated and the Lenders shall be reasonably satisfied with the terms and conditions of the Transaction Documents, including, without limitation, any amendment or modification thereto (or any other change to the structure of the Transaction from that set forth in the Commitment Letter), and the Lenders shall be reasonably satisfied that such terms and conditions shall have been complied with and satisfied in all material respects and that the Transaction shall have been consummated in accordance with such terms and conditions in all material respects. (c) PROCEEDS OF ISSUANCE OF SENIOR SUBORDINATED NOTES. CNG shall have received the net proceeds from the issuance of at least $140,000,000 of principal amount of Senior Subordinated Notes and the terms and conditions (including, without limitation, terms and conditions relating to the interest rate, fees, amortization, maturity, subordination, covenants, events of default and remedies) of the Senior Subordinated Notes and the Senior Subordinated Notes Indenture shall be reasonably satisfactory in all material respects to the Lenders. (d) TRANSACTION FEES. The aggregate amount of fees and expenses to be incurred in connection with the Transaction and the financing thereof shall not have been more than $14,000,000. (e) TRANSACTION DOCUMENTS. The Administrative Agent shall have received, with a copy for each Lender, a complete copy, certified as true and correct by a Responsible Officer of the Borrowers, of each of the executed Transaction Documents (including all exhibits, schedules and disclosure letters referred to therein or delivered pursuant thereto, if any) delivered on or prior to the Closing Date in connection with the Transaction and the financing thereof and 61 56 all amendments thereto, waivers relating thereto and other side letters or agreements affecting the terms thereof in any material respect on or prior to the Closing Date. (f) TERMINATION OF THE EXISTING CREDIT AGREEMENT. (i) All loans and other amounts outstanding under, and in respect of, the Existing Credit Agreement shall have been repaid in full, (ii) the commitments under the Existing Credit Agreement shall have been permanently terminated and all obligations under the Existing Credit Agreement and (iii) the Administrative Agent shall have received satisfactory evidence of such repayment, termination and discharge. (g) FINANCIAL INFORMATION. The Lenders shall have received copies of and shall be reasonably satisfied, in form and substance, with the financial statements referred to in subsection 5.1, including, without limitation, the Pro Forma Balance Sheet. The Pro Forma Balance Sheet shall not be materially inconsistent with the forecasts previously provided to the Lenders. (h) BUSINESS PLAN. The Administrative Agent shall have received, with copies for each of the Lenders, a satisfactory business plan for fiscal years 1997-2001 and a satisfactory written analysis of the business and prospects of the Borrowers and their Subsidiaries for the period from the Closing Date through the Revolving Credit Termination Date. (i) AGING OF ACCOUNTS RECEIVABLE. The Administrative Agent shall have received, with copies for each Lender, an aging of the accounts receivable of the Borrowers and their Subsidiaries as at September 30, 1996, in a form acceptable to the Administrative Agent. (j) CASH MANAGEMENT COLLECTION SYSTEM. The Borrowers shall have established a system of cash management collection accounts (including the operating account referred to in subsection 6.1(a)(vii)) satisfactory to the Administrative Agent (the "CASH MANAGEMENT COLLECTION SYSTEM") with certain banks into which (i) all cash and payments received by the Borrowers and their Subsidiaries are deposited and (ii) the obligors on all Accounts owed to the Borrowers and their Subsidiaries have been directed to make payments, and the Administrative Agent shall have received evidence satisfactory to it as to the existence of the Cash Management Collection System. (k) GOVERNMENT AND THIRD PARTY CONSENTS. (i) All requisite Governmental Authorities and third parties shall have approved or consented to the Transaction, the financing therefor and the other transactions contemplated by the Loan Documents and the Transaction Documents to the extent required and (ii) all applicable waiting periods shall have expired and there shall be no governmental or judicial action, actual or threatened, that has or could have a reasonable likelihood of restraining, preventing or imposing burdensome 62 57 conditions on the Transaction or the other transactions contemplated by the Transaction Documents and the Loan Documents. (l) BORROWING CERTIFICATE. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of the Borrowers, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments, satisfactory in form and substance to the Administrative Agent, executed by the President or any Vice President and the Secretary or any Assistant Secretary of the Borrowers. (m) CORPORATE PROCEEDINGS OF THE LOAN PARTIES. The Administrative Agent shall have received, with a counterpart for each Lender, a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of each of the Loan Parties authorizing (i) the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party, (ii) in the case of the Borrowers, the borrowings contemplated hereunder and (iii) the granting by it of the Liens created pursuant to the Security Documents, certified by the Secretary or an Assistant Secretary of such Loan Party as of the Closing Date, which certificate shall be in form and substance satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (n) INCUMBENCY CERTIFICATE OF THE LOAN PARTIES. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of each of the Loan Parties, dated the Closing Date, as to the incumbency and signature of the officers of such Loan Party executing any Loan Document satisfactory in form and substance to the Administrative Agent, executed by the President or any Vice President and the Secretary or any Assistant Secretary of such Loan Party. (o) CORPORATE DOCUMENTS. The Administrative Agent shall have received, with a counterpart for each Lender, true and complete copies of the certificate of incorporation and by-laws of each of the Loan Parties, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of such Loan Party. (p) CONSENTS, LICENSES AND APPROVALS. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of a Responsible Officer of the Borrowers (i) attaching copies of all consents, authorizations and filings set forth on Schedule 5.4, and (ii) stating that such consents, licenses and filings are in full force and effect, and each such consent, authorization and filing shall be in form and substance satisfactory to the Administrative Agent. (q) FEES. The Administrative Agent and the Lenders shall have received the fees and expenses to be received on the Closing Date referred to in subsection 2.4. 63 58 (r) LEGAL OPINIONS. The Administrative Agent shall have received, with a counterpart for each Lender, the following executed legal opinions: (i) the executed legal opinion of Jones, Day, Reavis & Pogue, counsel to the Borrowers and the other Loan Parties, substantially in the form of Exhibit D, with such changes thereto as may be approved by the Administrative Agent; and (ii) the executed legal opinion Amster, Rothstein & Ebenstein, special copyright, patent and trademark counsel to the Administrative Agent and the Lenders, in form and substance reasonably satisfactory to the Administrative Agent. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. In addition, the Administrative Agent shall have received, with a copy for each Lender, the legal opinions referred to in Sections 7.1 and 7.2 of the Stock Purchase Agreement and the legal opinions delivered in connection with the issuance of the Senior Subordinated Notes. (s) PLEDGED STOCK; STOCK POWERS; PLEDGED NOTES. The Administrative Agent shall have received the certificates representing the shares pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof, and the notes pledged pursuant to the Guarantee and Collateral Agreement, each endorsed in blank by a duly authorized officer of the pledgor thereof. (t) ACTIONS TO PERFECT LIENS. The Administrative Agent shall have received evidence in form and substance satisfactory to it that all filings, recordings, registrations and other actions, including, without limitation, the filing of duly executed financing statements on Form UCC-1, necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents shall have been completed or that all such financing statements and other documents with respect to such filings, recordings, registrations and other actions shall have been delivered to the Administrative Agent. (u) LIEN SEARCHES. The Administrative Agent shall have received the results of a recent search by a Person satisfactory to the Administrative Agent, of the Uniform Commercial Code, judgement and tax lien filings which may have been filed with respect to personal property of the Borrowers and their Subsidiaries, and the results of such search shall be satisfactory to the Administrative Agent. 64 59 (v) INSURANCE. The Administrative Agent shall have received evidence in form and substance satisfactory to it that all of the requirements of subsection 7.5 and Section 5.3 of the Guarantee and Collateral Agreement have been met. (w) ENVIRONMENTAL CERTIFICATION. The Administrative Agent shall have received, with a copy for each Lender, a certification from a Responsible Officer of the Borrowers with respect to the Borrowers' potential environmental liabilities in form and substance satisfactory to the Administrative Agent. 6.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each Lender to make any Revolving Credit Loan or any other extension of credit requested to be made by it on any date (including, without limitation, its initial extension of credit), and of the Issuing Lender to issue any Letter of Credit requested to be issued by it on any date, is subject to the satisfaction of the following conditions precedent: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by the Borrowers and any other Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date, except for representations and warranties stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects on and as of such earlier date. (b) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date. (c) BORROWING BASE. The Administrative Agent shall have received the most recent Borrowing Base Certificate required to be delivered pursuant to subsection 7.2(e) and, after giving effect to the Revolving Credit Loans and other extension of credit requested to be made on such date and the Letters of Credit requested to be issued on such date, no Borrowing Base Deficiency would exist. (d) ADDITIONAL MATTERS. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. Each borrowing by and Letter of Credit issued on behalf of any Borrower hereunder shall constitute a representation and warranty by the Borrowers as of the date thereof that the conditions contained in this subsection have been satisfied. 65 60 SECTION 7. AFFIRMATIVE COVENANTS Each Borrower hereby agrees that, on and after the Closing Date and so long as the Revolving Credit Commitments remain in effect or any Letter of Credit remains outstanding and unpaid or any amount is owing to any Lender or the Administrative Agent hereunder or under any other Loan Document, each Borrower shall and (except in the case of delivery of financial information, reports and notices) shall cause each of its Subsidiaries to: 7.1 FINANCIAL STATEMENTS. Furnish to each Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrowers, a copy of the Consolidated balance sheets of CNG and its consolidated Subsidiaries as at the end of such year and the related Consolidated statements of income and Consolidated statements of retained earnings and of cash flows for such year and the Compliance Package, reported on, in the case of such Consolidated financial statements, without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Arthur Andersen LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event within 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrowers, the unaudited Consolidated balance sheets of CNG and its consolidated Subsidiaries as at the end of such quarter, the related unaudited Consolidated statement of income for such quarter and the portion of the fiscal year through the end of such quarter and the related unaudited Consolidated statement of cash flows for the portion of the fiscal year through the end of such quarter and the Compliance Package, in each case, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); and (c) as soon as available, but in any event not later than 30 days (or, in the event that such 30th day is not a Business Day, the next succeeding Business Day) after the end of each fiscal month of each fiscal year of the Borrowers (or, in the event that (i) such month (x) is the first month of a fiscal year or (y) is the last month of one of the first three fiscal quarters, not later than 45 days after the end of such month or (ii) such month is the last month of a fiscal year, not more than 60 days after the end of such month), the unaudited Consolidated balance sheets of CNG and its consolidated Subsidiaries as at the end of such month, the related unaudited Consolidated statement of income for such month and the portion of the fiscal year through the end of such month and the related unaudited Consolidated statement of cash flows for the portion of the fiscal year through the end of such month and the Compliance Package, in each case, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); 66 61 all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or Responsible Officer, as the case may be, and disclosed therein). 7.2 CERTIFICATES; OTHER INFORMATION. Furnish to each Lender: (a) concurrently with the delivery of the financial statements referred to in subsection 7.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in connection with their audit nothing has come to their attention to cause them to believe that any Borrower or any of their Subsidiaries failed to comply with the covenants contained in Section 8; PROVIDED, HOWEVER, that such audit shall not have been directed primarily toward obtaining knowledge of such noncompliance, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsections 7.1(a) and (b), a certificate of a Responsible Officer ("COMPLIANCE CERTIFICATE") stating that, to the best of such Officer's knowledge, during such period (i) no Subsidiary has been formed or acquired (or, if any such Subsidiary has been formed or acquired, the relevant Borrower has complied with the requirements of subsection 7.10 with respect thereto), (ii) neither any Borrower nor any of their Subsidiaries has changed its name, its principal place of business, its chief executive office or the location of any material item of tangible Collateral without complying with the requirements of this Agreement and the Security Documents with respect thereto, (iii) each Borrower has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to be observed, performed or satisfied by it, and (iv) each Borrower has set forth in reasonable detail any and all calculations necessary to show compliance with subsection 2.1(a) and all of the financial condition covenants set forth in subsections 8.1 and 8.8, including, without limitation, calculations and reconciliations, if any, necessary to show compliance with such financial condition covenants on the basis of generally accepted accounting principles in the United States of America consistent with those utilized in preparing the audited financial statements referred to in subsection 5.1, and that such Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate; (c) not later than 45 days after the end of each fiscal year of the Borrowers, a copy of the projections by CNG of the balance sheet, statement of income and statement of cash flows on a consolidated basis of CNG and its Subsidiaries for the next succeeding fiscal year, such projections to be accompanied by a certificate of a Responsible Officer to the effect that such projections have been prepared on the basis of sound financial planning practice 67 62 and that such Officer has no reason to believe they are incorrect or misleading in any material respect; (d) within ten days after the same are sent, copies of all financial statements and reports which CNC sends to its stockholders, and within ten days after the same are filed, copies of all financial statements and reports which CNC may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (e) within 21 days after the end of each calendar month, a borrowing base certificate calculating the Borrowing Base as of the last day in such calendar month, substantially in the form of Exhibit G hereto (a "BORROWING BASE CERTIFICATE") executed by a Responsible Officer of the Borrowers; and (f) promptly, such additional financial and other information as any Lender may from time to time reasonably request as coordinated through the Administrative Agent. 7.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, including, without limitation, taxes, except where (a) the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrowers or their Subsidiaries, as the case may be, or (b) the failure to so pay, discharge or otherwise satisfy such obligations could not, in the aggregate, be reasonably be expected to have a Material Adverse Effect. 7.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business except as otherwise permitted pursuant to subsection 8.5; comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, be reasonably expected to have a Material Adverse Effect. 7.5 MAINTENANCE OF PROPERTY; INSURANCE. Keep all property useful and necessary in its business in good working order and condition, reasonable wear and tear excepted; maintain with financially sound and reputable insurance companies insurance on all the Collateral in accordance with the requirements of Section 5.3 of the Guarantee and Collateral Agreement, Section 5 of each of the Mortgages and on all its other property in at least such amounts (including as to amounts of deductibles) and against at least such risks (but including in any event commercial general liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to 68 63 each Lender, upon written request by the Administrative Agent, full information as to the insurance carried. 7.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records, including without limitation, in connection with any collateral review or appraisal described in paragraph (b) below, at any reasonable time and upon reasonable notice and as often as may reasonably be desired (PROVIDED, however, that (i) the Lenders will arrange and coordinate each such visit through and with the Administrative Agent and (ii) so long as no Event of Default has occurred and is continuing, no more than two such visits and inspections shall be made during any fiscal year) and to discuss the business, operations, properties and financial and other condition of the Borrowers and their Subsidiaries with officers and employees of the Borrowers and their Subsidiaries and with its independent certified public accountants (PROVIDED that any officers or employees of the Borrowers shall be permitted to be present at any such discussions between representatives of any Lender and the Borrowers' independent certified public accountants). (b) At any time upon the request of the Administrative Agent, permit the Administrative Agent or its professionals (including investment bankers, consultants, accountants, lawyers and appraisers) retained by the Administrative Agent to conduct evaluations and appraisals of (i) the Borrowers' practices in the computation of the Borrowing Base, (ii) the assets included in the Borrowing Base, (iii) systems and procedures relating to the Borrowing Base items, and (iv) other related procedures deemed necessary by the Administrative Agent and pay the reasonable fees and expenses in connection therewith (including, without limitation, the fees and expenses associated with services performed by the Administrative Agent's collateral monitoring department); provided, however, that the Administrative Agent shall not be entitled to conduct such evaluations and appraisals more frequently than twice per year unless (x) an Event of Default has occurred and is continuing or (y) the Administrative Agent reasonably determines in consultation with the Borrowers that any material event or material change has occurred with respect to the Loan Parties, their inventory practices or the performance of the Collateral and that as a result of such event or change more frequent evaluations or appraisals are required to effectively monitor the Borrowing Base, in which case the Borrowers will permit the Administrative Agent to conduct such evaluations and appraisals at such reasonable times and as often as may be reasonably requested, in each case so long as any Revolving Credit Loans or Letters of Credit shall be outstanding or shall have been requested by any Borrower hereunder. (c) In connection with any evaluation and appraisal relating to the computation of the Borrowing Base, agree to maintain such additional reserves (for purposes of computing the Borrowing Base) in respect of Eligible Inventory and make 69 64 such other adjustments to its parameters for including Eligible Inventory in the Borrowing Base as the Administrative Agent shall require based upon the results of such evaluation and appraisal, provided that the Administrative Agent shall specify to the Borrowers in writing the reasons for any such additional reserves or adjustments. 7.7 NOTICES. Promptly give notice to the Administrative Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (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 (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; (c) any litigation or proceeding affecting any Borrower or any Subsidiary (i) in which the amount involved is $5,000,000 or more and not covered by insurance or (ii) in which injunctive or similar relief is sought which could reasonably be expected to have a Material Adverse Effect; (d) the following events, as soon as possible and in any event within 30 days after any Borrower knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or any Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; (e) any material adverse change in the business, operations, property, condition (financial or otherwise) or prospects of any Borrower and its Subsidiaries taken as a whole; and (f) any (i) release or discharge by any Borrower or any of its Subsidiaries of any Materials of Environmental Concern required to be reported under applicable Environmental Laws to any Governmental Authority, unless Borrowers reasonably determine that the total Environmental Costs arising out of such release or discharge are unlikely to exceed $5,000,000 or to have a Material Adverse Effect; (ii) condition, circumstance, occurrence or event not previously disclosed in writing to the Administrative Agent that could result in liability under applicable Environmental Laws unless the Borrowers reasonably determine that the total Environmental Costs arising out of such condition, circumstance, 70 65 occurrence or event are unlikely to exceed $5,000,000 or to have a Material Adverse Effect, or could result in the imposition of any Lien or other restriction on the title, ownership or transferability of any facilities and properties owned, leased or operated by any Borrower or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect; and (iii) proposed action to be taken by any Borrower or any of its Subsidiaries that would reasonably be expected to subject such Borrower or any of its Subsidiaries to any material additional or different requirements or liabilities under Environmental Laws, unless the Borrowers determine that the total Environmental Costs arising out of such proposed action are unlikely to exceed $5,000,000 or to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrowers propose to take with respect thereto. 7.8 ENVIRONMENTAL LAWS. (a) (i) Comply substantially with, and undertake all reasonable efforts to ensure substantial compliance by all tenants, subtenants, and contractors with, all applicable Environmental Laws; (ii) obtain, comply substantially with and maintain any and all Environmental Permits necessary for its operations as conducted and as planned; and (iii) undertake all reasonable efforts to ensure that all tenants, subtenants, and contractors obtain, comply substantially with and maintain any and all Environmental Permits necessary for their operations as conducted and as planned, with respect to any property leased or subleased from, or operated by any Borrower or its Subsidiaries. For purposes of this subsection 7.8(a), each Borrower and its Subsidiaries shall be deemed to comply substantially, or require substantial compliance, with an Environmental Law or an Environmental Permit, PROVIDED that they comply with subsection 7.8(c) and that, upon learning of any actual or suspected noncompliance, such Borrower and any such affected Subsidiary shall promptly undertake all reasonable efforts, if any, to achieve compliance, and PROVIDED, FURTHER that in any case such noncompliance would not reasonably be expected to have a Material Adverse Effect. (b) Promptly comply with all orders and directives of all Governmental Authorities issued to any Borrower or any of its Subsidiaries regarding Environmental Laws, other than any such order or directive as to which an appeal or other appropriate contest is or has been timely and properly taken, is being diligently pursued in good faith, and the pendency of such appeal or other appropriate contest would not reasonably be expected to have a Material Adverse Effect. (c) Maintain, update as appropriate, and implement in all material respects an environmental program reasonably designed to (i) ensure that the Borrowers, their Subsidiaries, any of their respective operations (including, without limitation, disposal), and any properties owned, leased or operated by any of them, attain and remain in substantial compliance with all applicable Environmental Laws and (ii) 71 66 reasonably and prudently manage any liabilities or potential liabilities that the Borrowers, any of the other Loan Parties, any of their respective operations (including, without limitation, disposal), and any properties owned or leased by any of them, may have under all applicable Environmental Laws. 7.9 FURTHER ASSURANCES. Upon the request of the Administrative Agent, promptly perform or cause to be performed any and all acts and execute or cause to be executed any and all documents (including, without limitation, financing statements and continuation statements) for filing under the provisions of the Uniform Commercial Code or any other Requirement of Law which are necessary or advisable to maintain in favor of the Administrative Agent, for the benefit of the Lenders, Liens on the Collateral that are duly perfected in accordance with all applicable Requirements of Law. 7.10 MORTGAGES; ADDITIONAL COLLATERAL. (a) Within 45 days after the Closing Date, deliver to the Administrative Agent (i) each of the Mortgages, each executed and delivered by a duly authorized officer of the party thereto, with a counterpart or a conformed copy for each Lender, (ii) in respect of each parcel covered by each Mortgage a mortgagee's title policy (or policies) or marked up unconditional binder for such insurance dated the Closing Date (1) in an amount reasonably satisfactory to the Administrative Agent, (2) issued at ordinary rates, (3) insuring that the Mortgage insured thereby creates a valid first Lien on such parcel free and clear of all defects and encumbrances, except those permitted by subsection 8.3 and such as may be approved by the Administrative Agent, (4) naming the Administrative Agent for the benefit of the Lenders as the insured thereunder, (5) in the form of ALTA Loan Policy - 1992, (6) containing such endorsements and affirmative coverage as the Administrative Agent may request and (7) issued by title companies satisfactory to the Administrative Agent (including any such title companies acting as co-insurers or reinsurers, at the option of the Administrative Agent), (iii) evidence satisfactory to the Administrative Agent that all premiums in respect of each such policy, and all charges for mortgage recording tax, if any, have been paid, (iv) if reasonably requested by the Administrative Agent, a policy of flood insurance which (1) covers any parcel of improved real property located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the Flood Insurance Act of 1968, which is encumbered by any Mortgage, (2) is written in an amount not less than the outstanding principal amount of the indebtedness secured by such Mortgage which is reasonably allocable to such real property or the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, whichever is less, and (3) has a term ending not earlier than the maturity of the indebtedness secured by such Mortgage and (v) confirmation that the relevant Loan Party has received the notice required pursuant to Section 208(e)(3) of Regulation H of the Board of Governors of the Federal Reserve System. (b) With respect to any assets (or any interest therein) acquired after the Closing Date by any Borrower or any Subsidiary that are intended to be subject to the 72 67 Lien created by any of the Security Documents but which are not so subject, promptly (and in any event within 30 days after the acquisition thereof): (i) execute and deliver to the Administrative Agent such amendments to the relevant Security Documents or such other documents as the Administrative Agent shall deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on such assets (or such interest therein), (ii) take all actions necessary or advisable to cause such Lien to be duly perfected in accordance with all applicable Requirements of Law, including, without limitation, the filing of financing statements and the recording of Mortgages in such jurisdictions as may be requested by the Administrative Agent, (iii) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i) and (ii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent, and (iv) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent surveys, title insurance and flood insurance as required by subsection 6.1. (c) With respect to any Person that, subsequent to the Closing Date, becomes a Subsidiary, promptly upon the request of the Administrative Agent: (i) execute and deliver to the Administrative Agent, for the benefit of the Lenders, a new pledge agreement or such amendments to the Guarantee and Collateral Agreement as the Administrative Agent shall deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is owned by any Borrower or any Subsidiary, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of such Borrower or such Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement or to a new security agreement, in each case pursuant to an annex to the Guarantee and Collateral Agreement or otherwise pursuant to documentation which is in form and substance satisfactory to the Administrative Agent, and (B) to take all actions necessary or advisable to cause the Lien created by the Guarantee and Collateral Agreement or such security agreement to be duly perfected in accordance with all applicable Requirements of Law, including, without limitation, the filing of financing statements in such jurisdictions as may be requested by the Administrative Agent and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i), (ii) and (iii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (d) Each of Borrowers and each Subsidiary shall use reasonable efforts to obtain a Landlord Consent, at its own expense, with respect to each parcel of real property subject to Liens described in clause (c)(i) of the definition of "Eligible Inventory" leased by it existing on or after the Closing Date within 120 days after the Closing Date or upon its entering into a lease therefor. 73 68 7.11 SEPTEMBER 30, 1996 FINANCIAL STATEMENTS OF PEARLE. As soon as such statements are available but in no event later than December 15, 1996, the Borrowers shall deliver to the Lenders the audited Consolidated balance sheet of Pearle and its Subsidiaries as at September 30, 1996 and the related audited Consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by KPMG Peat Marwick LLP. SECTION 8. NEGATIVE COVENANTS Each Borrower hereby agrees that on and after the Closing Date and, so long as the Revolving Credit Commitments remain in effect or any Letter of Credit remains outstanding and unpaid or any amount is owing to any Lender or the Administrative Agent hereunder or under any other Loan Document, each Borrower shall not, and (except with respect to subsection 8.1) shall not permit any of its Subsidiaries to, directly or indirectly, and (with respect to subsection 8.1) shall not permit CNG to: 8.1 FINANCIAL CONDITION COVENANTS. (a) LEVERAGE RATIO. Permit the Leverage Ratio as of the end of each fiscal quarter of CNG ending on or about any of the dates set forth below to be greater than the ratio set forth opposite such date below:
FISCAL QUARTER ENDING LEVERAGE RATIO --------------------- -------------- January 31, 1997 3.85 to 1.00 April 30, 1997 3.75 to 1.00 July 31, 1997 3.60 to 1.00 October 31, 1997 3.45 to 1.00 January 31, 1998 3.25 to 1.00 April 30, 1998 3.10 to 1.00 July 31, 1998 2.95 to 1.00 October 31, 1998 2.80 to 1.00 January 31, 1999 2.70 to 1.00 April 30, 1999 2.60 to 1.00 July 31, 1999 2.50 to 1.00 October 31, 1999 2.40 to 1.00 January 31, 2000 2.30 to 1.00 Thereafter 2.20 to 1.00
74 69 (b) ADJUSTED INTEREST COVERAGE RATIO. Permit the Adjusted Interest Coverage Ratio as of the end of each fiscal quarter of CNG ending on or about any of the dates set forth below to be less than the ratio set forth opposite such date below:
Adjusted Fiscal Quarter Ending Interest Coverage Ratio --------------------- ----------------------- January 31, 1997 1.40 to 1.00 April 30, 1997 1.50 to 1.00 July 31, 1997 1.55 to 1.00 October 31, 1997 1.60 to 1.00 January 31, 1998 1.65 to 1.00 April 30, 1998 1.70 to 1.00 July 31, 1998 1.75 to 1.00 October 31, 1998 1.80 to 1.00 January 31, 1999 1.85 to 1.00 April 30, 1999 1.85 to 1.00 July 31, 1999 1.90 to 1.00 October 31, 1999 1.90 to 1.00 January 31, 2000 1.95 to 1.00 Thereafter 2.00 to 1.00
(c) MINIMUM CONSOLIDATED NET WORTH. Permit the Consolidated Net Worth of CNG as of the end of each fiscal quarter of CNG ending on or about any of the dates set forth below to be less than the amount set forth opposite such date below:
Fiscal Quarter Ending Consolidated Net Worth --------------------- ---------------------- January 31, 1997 $ 9,000,000 April 30, 1997 $ 9,000,000 July 31, 1997 $15,000,000 October 31, 1997 $18,000,000 January 31, 1998 $28,000,000 April 30, 1998 $30,000,000 July 31, 1998 $40,000,000 October 31, 1998 $50,000,000 January 31, 1999 $60,000,000
75 70 April 30, 1999 $ 67,000,000 July 31, 1999 $ 80,000,000 October 31, 1999 $ 90,000,000 January 31, 2000 $104,000,000 Thereafter $116,000,000
8.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness of the Borrowers under this Agreement and any Revolving Credit Notes; (b) Indebtedness of any Borrower to any Subsidiary and of any Subsidiary to any Borrower or any other Subsidiary; (c) Indebtedness of the Borrowers and their Subsidiaries under Permitted Hedging Arrangements; (d) Indebtedness outstanding on the Closing Date and listed on Schedule 8.2(d) and any refinancings, refundings, renewals or extensions thereof; PROVIDED that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension; (e) Indebtedness of a Person which becomes a Subsidiary after the Closing Date; PROVIDED that (i) such Indebtedness existed at the time such Person became a Subsidiary and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such Person by a Borrower no Default or Event of Default shall have occurred and be continuing, and any refinancings, refundings, renewals or extensions thereof; PROVIDED that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension; (f) Indebtedness of up to an aggregate outstanding face amount of $10,000,000 of documentary letters of credit issued by CoreStates for the account of any Borrower or any Subsidiary; (g) Indebtedness consisting of Guarantee Obligations permitted under subsection 8.4; (h) Indebtedness of the Borrowers and their Subsidiaries incurred to finance the acquisition of fixed or capital assets (whether pursuant to a loan, a Financing Lease or otherwise) in an aggregate principal amount not exceeding as to the Borrowers and their Subsidiaries $15,000,000 at any time outstanding, PROVIDED that an aggregate amount not to exceed $7,500,000 of such Indebtedness 76 71 may be incurred only in connection with the financing of a new warehouse facility relating to Cole Gift's business; and (i) Indebtedness of the Borrowers and their Subsidiaries in an aggregate principal amount not exceeding as to the Borrowers and their Subsidiaries $10,000,000 at any time outstanding. 8.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings; PROVIDED that adequate reserves with respect thereto are maintained on the books of a Borrower or a Subsidiary, as the case may be, in conformity with GAAP; (b) carrier's, warehousemen's, mechanic's, landlord's, materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which do not materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of such Borrower or such Subsidiary conducted at the property subject thereto; (f) Liens on the property or assets of a Person which becomes a Subsidiary after the Closing Date securing Indebtedness permitted by subsection 8.2(e); PROVIDED that (i) such Liens existed at the time such Person became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any property or assets of such Person after the time such corporation becomes a Subsidiary, and (iii) the amount of Indebtedness secured thereby is not increased; (g) Liens created pursuant to the Security Documents; 77 72 (h) Liens in existence on the Closing Date listed on Schedule 8.3(h), securing Indebtedness permitted by subsection 8.2(d); PROVIDED that no such Lien is spread to cover any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (i) Liens arising by reason of any judgment, decree or order of any court or other Governmental Authority, if appropriate legal proceedings are being diligently prosecuted and shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired, in an aggregate amount not to exceed $5,000,000 at any time outstanding; (j) leases and subleases of real property owned or leased by any Borrower or any Subsidiary not interfering with the ordinary conduct of the business of such Borrowers and their Subsidiaries; (k) renewals, extensions and replacements of the Liens permitted under clauses (f), (h) and (j) above; PROVIDED that no such Lien shall as a result thereof cover any additional assets and the principal amount of Indebtedness secured thereby is not increased; and (l) Liens securing Indebtedness of the Borrowers and their Subsidiaries permitted by subsection 8.2(h) incurred to finance the acquisition of fixed or capital assets; PROVIDED that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (iii) the principal amount of Indebtedness secured thereby is not increased. 8.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or suffer to exist any Guarantee Obligation except: (a) Guarantee Obligations in existence on the Closing Date and listed on Schedule 8.4(a), and any refinancing, refundings, renewals or extensions thereof PROVIDED that the amount of such Guarantee Obligation shall not be increased at the time of such refinancing, refunding, extension or renewal; (b) guarantees made in the ordinary course of its business by any Borrower or any of its Subsidiaries of obligations of any of the Subsidiaries, which obligations are otherwise permitted under this Agreement; (c) the Guarantee and Collateral Agreement and any of the other Guarantees; (d) Guarantee Obligations of a Person which becomes a Subsidiary after the Closing Date; PROVIDED that (i) such Guarantee Obligations existed at the time 78 73 such Person became a Subsidiary and were not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such Person by a Borrower no Default or Event of Default shall have occurred and be continuing, and any refinancings, refundings, renewals or extensions thereof; PROVIDED that the amount of such Guarantee Obligations is not increased at the time of such refinancing, refunding, renewal or extension; and (e) Guarantee Obligations of Pearle of Indebtedness of franchisees of Pearle, PROVIDED that the aggregate amount of such Guarantee Obligations outstanding at any time shall not exceed $3,000,000. 8.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, or make any material change in its present method of conducting business, except: (a) any Subsidiary of any Borrower may be merged or consolidated with or into any Borrower (PROVIDED that such Borrower shall be the continuing or surviving corporation) or with or into any one or more Wholly Owned Subsidiaries of any Borrower (PROVIDED that the Wholly Owned Subsidiary or Subsidiaries shall be the continuing or surviving corporation); (b) any Wholly Owned Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to any Borrower or any other Wholly Owned Subsidiary of any Borrower; and (c) sales and other dispositions of assets permitted by subsection 8.6(b). 8.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person other than a Borrower or any Wholly Owned Subsidiary, except: (a) the sale or other disposition of any property in the ordinary course of business; (b) the sale or other disposition of any assets at fair market value; (c) the sale or discount without recourse of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof; (d) as permitted by subsection 8.5(b); and 79 74 (e) dispositions resulting from any casualty or condemnation of any property. 8.7 LIMITATION ON DIVIDENDS. Declare or pay any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of any Borrower or any warrants or options to purchase any such Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of such Borrower or any Subsidiary, except for: (a) dividends, payments or distributions solely in common stock of a Borrower; (b) dividends to CNG in an amount sufficient to allow CNG to pay interest on the Senior Subordinated 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; (c) so long as no Default or Event of Default shall have occurred and be continuing or would occur after giving effect to such dividend, dividends to CNG in an aggregate amount not to exceed $20,000,000 solely to allow CNG to repurchase CNG Notes and/or Senior Subordinated Notes without violating Section 9(m); (d) so long as no Default or Event of Default shall have occurred and be continuing or would occur after giving effect to such dividend, dividends to CNG in an aggregate amount not to exceed $4,000,000 solely to allow CNG or CNC to repurchase, redeem, or otherwise acquire or retire for value, any Capital Stock of CNG or CNC or any current or former Subsidiary of CNG held by any of CNG's (or any of its Subsidiaries') current or former employees; (e) payments or distributions in respect of taxes, as provided in the Tax Sharing Agreement, to the extent actually used to pay taxes to a taxing authority; and (f) dividends to CNG in an aggregate amount not to exceed an amount equal to .25% of the aggregate net sales of the Borrowers and their Subsidiaries for any fiscal year solely for the purpose of enabling CNC to pay the ordinary operating and administrative expenses of CNC (including all reasonable professional fees and expenses) in connection with complying with its reporting obligations and obligations to prepare and distribute business records in the ordinary course of business and CNC's costs and expenses relating to taxes (which taxes are attributable to the operations of CNG and its Subsidiaries or to CNC's ownership thereof) for such fiscal year; and 80 75 (g) so long as no Default or Event of Default shall have occurred and be continuing or would occur after giving effect to such dividend, dividends to CNG other than dividends otherwise permitted under any of the foregoing clauses (a) through (f) in an aggregate amount not to exceed $8,000,000 in any fiscal year. 8.8 LIMITATION ON CAPITAL EXPENDITURES. Make any expenditure in respect of the purchase or other acquisition of fixed or capital assets (a "CAPITAL EXPENDITURE") except for expenditures in the ordinary course of business not exceeding, in the aggregate for the Borrowers and their Subsidiaries during any of the test periods set forth below, the amount set forth opposite such test period set forth below:
Test Period Amount ----------- ------ February 2, 1997 - January 31, 1998 $35,000,000 February 1, 1998 - January 30, 1999 $40,000,000 January 31, 1999 - January 29, 2000 $45,000,000 January 30, 2000 - Revolving Credit Termination Date $45,000,000
8.9 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment, in cash or by transfer of assets or property, in, any Person (each, an "INVESTMENT"), except: (a) extensions of trade credit in the ordinary course of business; (b) Investments in Cash Equivalents; (c) loans and advances to employees of the Borrowers or their Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business; (d) Investments by a Borrower in its Subsidiaries and Investments by such Subsidiaries in such Borrower and in other Subsidiaries of such Borrower; (e) so long as no Default or Event of Default has occurred and is continuing or would occur after giving effect to such Investment, Investments in franchises in a business related to the optical business of Pearle and Cole Vision as conducted on the Closing Date in an aggregate amount not to exceed $7,500,000 during any fiscal year; and (f) Investments, other than the purchase of CNG Notes or the Senior Subordinated Notes, in an aggregate amount not to exceed $5,000,000. 81 76 8.10 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of such Borrower's or such Subsidiary's business and (c) upon fair and reasonable terms no less favorable to such Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate. 8.11 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year of the Borrowers to end on a day other than the Saturday closest to January 31 in any year. 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 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, and (d) restrictions on granting Liens on assets under agreements to sell or otherwise dispose of such assets. 8.13 LIMITATION ON LINES OF BUSINESS. Enter into any business, either directly or through any Subsidiary or any joint venture, except for those businesses in which the Borrowers and their Subsidiaries are engaged on the Closing Date or which are related thereto. 8.14 LIMITATIONS ON CURRENCY AND COMMODITY HEDGING TRANSACTIONS. Enter into, purchase or otherwise acquire agreements or arrangements relating to currency, commodity or other hedging except, to the extent and only to the extent that, such agreements or arrangements are entered into, purchased or otherwise acquired in the ordinary course of business of any Borrower or any Subsidiary with reputable financial institutions and not for purposes of investment or speculation (any such agreement or arrangement permitted by this subsection, a "PERMITTED HEDGING ARRANGEMENT"). 8.15 LIMITATION ON SALE LEASEBACKS. Enter into any arrangement with any Person providing for the leasing by any Borrower or any Subsidiary of real or personal property which has been or is to be sold or transferred by such Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of such Borrower or such Subsidiary (such arrangement, a "SALE-LEASEBACK") except for Sale-Leasebacks in the ordinary course of such Borrower's or such Subsidiary's business, consistent with past practice and at market rates ("PERMITTED SALE-LEASEBACKS"). For the 82 77 avoidance of doubt, Sale-Leasebacks that result in a Financing Lease shall be treated as Indebtedness for all purposes of this Agreement. 8.16 CHANGES TO CASH MANAGEMENT COLLECTION SYSTEM. Without the prior written consent of the Administrative Agent, make any changes to the Cash Management Collection System as in effect on the Closing Date that would adversely affect the interests of the Administrative Agent and the Lenders. SECTION 9. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) Any Borrower shall fail to pay any principal of any Revolving Credit Loan or any Reimbursement Obligation when due in accordance with the terms thereof or hereof; or any Borrower shall fail to pay any interest on any Revolving Credit Loan, or any other amount payable hereunder, within five days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by any Borrower or any other Loan Party herein or in any other Loan Document or which is contained in any certificate, document or financial or other written statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Any Borrower or any other Loan Party shall default in the observance or performance of any agreement contained in subsection 7.7(a) or Section 8; or (d) Any Borrower or any other Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section 9), and such default shall continue unremedied for a period of 30 days; or (e) Any Borrower or any Subsidiary shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Revolving Credit Loans and the Reimbursement Obligations) in excess of $5,000,000 or in the payment of any Guarantee Obligation in excess of $5,000,000, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to 83 78 cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable; or (f) (i) CNG, any Borrower or any Subsidiary shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or CNG, any Borrower or any Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against CNG, any Borrower or any Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against CNG, any Borrower or any Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) CNG, any Borrower or any Subsidiary shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) CNG, any Borrower or any Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of any Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) any Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Majority Lenders is likely to, incur any liability in connection with a withdraw- 84 79 al from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against any Borrower or any Subsidiary involving in the aggregate a liability (not paid or fully covered by insurance) of $5,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (i) Except as, and to the extent, permitted by this Agreement, (i) any of the Security Documents or any of the other Loan Documents shall cease, for any reason, to be in full force and effect, or any Borrower or any other Loan Party which is a party to any of the Security Documents or any of the other Loan Documents shall so assert or (ii) the Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (j) The occurrence of any Change of Control; or (k) The Senior Subordinated Notes, for any reason, shall not be or shall cease to be validly subordinated, as provided therein and in the Senior Subordinated Notes Indenture, to the obligations of the Borrowers under this Agreement, any Revolving Credit Notes and the other Loan Documents; or (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 or the CNG Notes); or (m) CNG shall (i) make any optional payment or prepayment on or repurchase or redemption or purchase of the Senior Subordinated 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 (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, (ii) amend, modify or change, or consent or agree to any material 85 80 amendment, modification or change to any of the terms of the Senior Subordinated 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 (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 (n) CNC shall 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; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) of this Section with respect to any Borrower, automatically the Revolving Credit Commitments shall immediately terminate and automatically the Revolving Credit Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to the Borrowers declare the Revolving Credit Commitments to be terminated forthwith, whereupon the Revolving Credit Commitments shall immediately terminate; and (ii) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to the Borrowers, declare the Revolving Credit Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) and the Revolving Credit Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Borrowers shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. The Borrowers hereby grant to the Administrative Agent, for the benefit of the Issuing Lender and the L/C Participants, a security interest in such cash collateral to secure all obligations of the Borrowers under 86 81 this Agreement and the other Loan Documents. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrowers hereunder and under the Revolving Credit Notes. Within three days after all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrowers hereunder and under the Revolving Credit Notes shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrowers. The Borrowers shall execute and deliver to the Administrative Agent, for the account of the Issuing Lender and the L/C Participants, such further documents and instruments as the Administrative Agent may request to evidence the creation and perfection of the within security interest in such cash collateral account. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 10. THE ADMINISTRATIVE AGENT 10.1 APPOINTMENT. Each Lender hereby irrevocably designates and appoints CIBC as the Administrative Agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes CIBC as the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall have no duties or responsibilities, except those expressly set forth herein, nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against either the Administrative Agent. 10.2 DELEGATION OF DUTIES. The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 10.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such 87 82 Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrowers. 10.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrowers), independent accountants and other experts selected by it. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Majority Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Revolving Credit Loans. 10.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or a Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof, reasonably promptly thereof to the Lenders. The Administrative Agent shall take such action reasonably promptly with respect to such Default or Event of Default as shall be reasonably directed by the Majority Lenders; PROVIDED that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with 88 83 respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 10.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrowers or any other Loan Party, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of any Borrower and made its own decision to make its Revolving Credit Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of any Borrower or any of the other Loan Parties and the other Loan Parties. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Borrower or any of the other Loan Parties which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 10.7 INDEMNIFICATION. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrowers or any of the other Loan Parties and without limiting the obligation of the Borrowers or any of the other Loan Parties to do so), ratably according to their respective Revolving Credit Commitment Percentages in effect on the date on which indemnification is sought, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Revolving Credit Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Revolving Credit Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; PROVIDED that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, 89 84 judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct, as the case may be. The agreements in this subsection shall survive the payment of the Revolving Credit Loans and all other amounts payable hereunder. 10.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrowers as if the Administrative Agent was not the Administrative Agent hereunder and under the other Loan Documents. With respect to the Revolving Credit Loans made by it and with respect to any Letter of Credit issued or participated in by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 10.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Majority Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent (provided that it shall have been approved by the Borrowers), shall succeed to the rights, powers and duties of the Administrative Agent hereunder. Effective upon such appointment and approval, the term "Administrative Agent" shall mean such successor agent, such former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Revolving Credit Loans. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Administrative Agent under this Agreement and the other Loan Documents. 10.10 ISSUING LENDER. The provisions of this Section 10 shall apply to the Issuing Lender in its capacity as such to the same extent that such provisions apply to the Administrative Agent. 10.11 RELEASES OF GUARANTEES AND COLLATERAL. In connection with the sale or other disposition of all of the Capital Stock of any Guarantors (other than CNG) permitted under subsection 8.6 or the sale or other disposition of Collateral permitted under subsection 8.6, the Administrative Agent shall, and is hereby authorized by the Lenders to, promptly, upon the request of the Borrowers and at the sole expense of the Borrowers, take all actions reasonably necessary to release such Guarantor from its guarantee contained in the Guarantee and Collateral Agreement or its Guarantee or to release the Collateral subject to such sale or other disposition, as the case may be, and shall take any other actions reasonably requested by the Borrowers to effect the transactions permitted under subsection 8.6. 90 85 SECTION 11. MISCELLANEOUS 11.1 AMENDMENTS AND WAIVERS. Neither this Agreement nor any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. The Majority Lenders may, or, with the written consent of the Majority Lenders, the Administrative Agent may, from time to time, (a) enter into with the Borrowers and the other Loan Parties written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of amending, supplementing or modifying any provisions of this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Borrowers hereunder or thereunder or (b) waive, on such terms and conditions as the Majority Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment, supplement or modification shall: (i) reduce the amount or extend the scheduled date of maturity of any Revolving Credit Loan or any installment thereof or any Reimbursement Obligation or reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Revolving Credit Commitments, in each case without the consent of each Lender affected thereby; or (ii) amend, modify or waive any provision of this subsection 11.1 or reduce the percentage specified in the definition of Majority Lenders, or consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement and the other Loan Documents or release all or substantially all of the guarantee obligations contained in the Guarantee and Collateral Agreement, the CNG Guarantee and Cash Collateral Agreement and the other Guarantees or release all or substantially all of the Collateral (other than in connection with any release permitted by subsection 10.11), in each case without the written consent of all the Lenders; or (iii) amend, modify or waive any provision of Section 10 without the written consent of the then Administrative Agent; or (iv) amend, modify or waive the provisions of any Letter of Credit or any L/C Obligation without the written consent of the Issuing Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Borrowers, the Lenders, the Administrative Agent and all future holders of the Revolving Credit Loans. In the case of any waiver, the Borrowers, the Lenders and the Administrative Agent shall 91 86 be restored to their former positions and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. 11.2 NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile transmission) and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) in the case of delivery by hand or by overnight courier, when delivered, (b) in the case of delivery by mail, three days after being deposited in the mails, postage prepaid, or (c) in the case of delivery by facsimile transmission, when sent and receipt has been confirmed, addressed as follows in the case of the Borrowers and the Administrative Agent, and as set forth in Schedule I in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: The Borrowers: c/o Cole National Group, Inc. 5915 Landerbrook Drive Mayfield Heights, Ohio 44124 Attention: Joseph Gaglioti Fax: (216) 461-3489 with a copy to: Jones, Day, Reavis & Pogue North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Attention: David P. Porter, Esq. Fax: (216) 579-0212 The Administrative Agent: Canadian Imperial Bank of Commerce 425 Lexington Avenue 7th Floor New York, New York 10017 Attention: Melissa Roedel Fax: (212) 856-3763 PROVIDED that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to subsection 2.3, 2.5, 3.2, 4.2, 4.4 or 4.8 shall not be effective until received. 92 87 11.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 11.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder, in the other Loan Documents (or in any amendment, modification or supplement hereto or thereto) and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Revolving Credit Loans hereunder. 11.5 PAYMENT OF EXPENSES AND TAXES. The Borrowers agree, jointly and severally, (a) to pay or reimburse the Administrative Agent for all its out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby (including the syndication of the Revolving Credit Commitments (including the reasonable expenses of the Administrative Agent's due diligence investigation)), including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all their respective costs and expenses incurred in connection with the enforcement of any rights under this Agreement, the other Loan Documents and any such other documents, including, without limitation, the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to the respective Lenders and the Administrative Agent, (c) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent and their respective directors, trustees, officers, employees and agents harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents, the Transaction Documents or the use or proposed use of the proceeds of the Revolving Credit Loans in connection with the transactions contemplated hereby and thereby and 93 88 any such other documents regardless of whether the Administrative Agent or any Lender is a party to the litigation or other proceeding giving rise thereto, including, without limitation, any of the foregoing relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of any Borrower, any of its Subsidiaries or any of the facilities and properties owed, leased or operated by any Borrower or any of its Subsidiaries (all the foregoing in this clause (d), collectively, the "indemnified liabilities"), PROVIDED that the Borrowers shall have no obligation hereunder to the Administrative Agent or any Lender or any other Person with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the party seeking indemnification. The agreements in this subsection shall survive repayment of the Revolving Credit Loans and all other amounts payable hereunder. 11.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Lenders, the Administrative Agent and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its business or investment activities and in accordance with applicable law, at any time sell to one or more banks or other entities ("PARTICIPANTS") participating interests in any Revolving Credit Loan owing to such Lender, any Revolving Credit Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. Each Lender which sells a participating interest hereunder shall notify the Borrowers of the identity of such Participant within a reasonable time after such sale. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Revolving Credit Loan for all purposes under this Agreement and the other Loan Documents, and the Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. No Lender shall be entitled to create in favor of any Participant, in the participation agreement pursuant to which such Participant's participating interest shall be created or otherwise, any right to vote on, consent to or approve any matter relating to this Agreement or any other Loan Document except for those matters specified in clauses (i) and (ii) of the proviso to subsection 11.1. The Borrowers agree that if amounts outstanding under this Agreement are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, PROVIDED that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in subsection 11.7(a) as fully as if it were a Lender hereunder. The 94 89 Borrowers also agree that each Participant shall be entitled to the benefits of subsections 4.10, 4.11 and 4.12 with respect to its participation in the Revolving Credit Commitments and the Revolving Credit Loans outstanding from time to time as if it was a Lender; PROVIDED that, in the case of subsection 4.11, such Participant shall have complied with the requirements of said subsection and PROVIDED, FURTHER that no Participant shall be entitled to receive any greater amount pursuant to any such subsection than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its business or investment activities and in accordance with applicable law, at any time and from time to time assign to any Lender or any branch or affiliate thereof or, with the consent of the Borrowers and the Administrative Agent (which in each case shall not be unreasonably withheld or delayed), to an additional bank or financial institution (an "ASSIGNEE") all or any part of its rights and obligations under this Agreement and the other Loan Documents pursuant to an Assignment and Acceptance, substantially in the form of Exhibit F, executed by such Assignee and such assigning Lender (and, in the case of an Assignee that is not then a Lender or a branch or an affiliate thereof, by the Borrowers and the Administrative Agent) and delivered to the Administrative Agent for its acceptance and recording in the Register, PROVIDED that, in the case of any such assignment to an additional bank or financial institution, if such assignment is of less than all of the rights and obligations of the assigning Lender, the sum of the aggregate principal amount of the Revolving Credit Loans, the aggregate amount of the L/C Obligations and the aggregate amount of the Available Revolving Credit Commitment being assigned shall not be less than $5,000,000 (or such lesser amount as may be agreed to by the Borrowers and the Administrative Agent). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Revolving Credit Commitment as set forth therein, and (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto but shall nonetheless continue to be entitled to the benefits of subsections 4.10, 4.11, 4.12 and 11.5). Notwithstanding any provision of this paragraph (c) and paragraph (e) of this subsection, the consent of the Borrowers shall not be required, and, unless requested by the Assignee and/or the assigning Lender, new Revolving Credit Notes shall not be required to be executed and delivered by the Borrowers, for any assignment which occurs at any time when any of the Events of Default described in Section 9(f) shall have occurred and be continuing. (d) The Administrative Agent, on behalf of the Borrowers, shall maintain at the address of the Administrative Agent referred to in subsection 11.2 a copy of each 95 90 Assignment and Acceptance delivered to it and a register (the "REGISTER") for the recordation of the names and addresses of the Lenders and the Revolving Credit Commitments of, and principal amounts of the Revolving Credit Loans owing to, and any Revolving Credit Notes evidencing the Revolving Credit Loans owned by, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrowers, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of a Revolving Credit Loan or other obligation hereunder as the owner thereof for all purposes of this Agreement and the other Loan Documents, notwithstanding any notice to the contrary. Any assignment of any Revolving Credit Loan or other obligation hereunder shall be effective only upon appropriate entries with respect thereto being made in the Register. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Borrowers and the Administrative Agent) together with payment to the Administrative Agent of a registration and processing fee of $3,500, the Administrative Agent shall promptly accept such Assignment and Acceptance and record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrowers. Such Assignment and Acceptance and the assignment evidenced thereby shall only be effective upon appropriate entries with respect to the information contained therein being made in the Register pursuant to subsection 11.6(d). (f) The Borrowers authorize each Lender to disclose to any Participant or Assignee (each, a "TRANSFEREE") and any prospective Transferee, subject to such Person agreeing to comply with the provisions of subsection 11.15, any and all financial and other information in such Lender's possession concerning the Borrowers and their Affiliates which has been delivered to such Lender by or on behalf of the Borrowers pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrowers in connection with such Lender's credit evaluation of the Borrowers and their Affiliates prior to becoming a party to this Agreement. (g) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection concerning assignments of Revolving Credit Loans and Revolving Credit Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Revolving Credit Loan or Revolving Credit Note to any Federal Reserve Bank in accordance with applicable law. 11.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITTED LENDER") shall at any time receive any payment of all or part of its Revolving Credit Loans or the Reimbursement Obligations owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or 96 91 proceedings of the nature referred to in Section 9(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Revolving Credit Loans or the Reimbursement Obligations owing to it, or interest thereon, such benefitted Lender shall purchase for cash from the other Lenders a participating interest (or, at the option of such benefitted Lender, a direct interest) in such portion of each such other Lender's Revolving Credit Loan or the Reimbursement Obligations owing to it, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrowers, any such notice being expressly waived by the Borrowers to the extent permitted by applicable law, upon any amount remaining unpaid (including, without limitation, any amount owing to such Lender in respect of an undivided interest purchased by such Lender in any draft paid by the Issuing Lender under any Letter of Credit pursuant to subsection 3.4(a)) after it becomes due and payable by the Borrowers hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any affiliate, branch or agency thereof to or for the credit or the account of any Borrower. Each Lender agrees promptly to notify the Borrowers and the Administrative Agent after any such set-off and application made by such Lender, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. 11.8 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement 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 Agreement signed by all the parties shall be lodged with the Borrowers and the Administrative Agent. 11.9 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11.10 INTEGRATION. This Agreement and the other Loan Documents and the Fee Letter represent the agreement of the Borrowers, the Administrative Agent and 97 92 the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents or the Fee Letter. 11.11 GOVERNING LAW. THIS AGREEMENT 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. 11.12 SUBMISSION TO JURISDICTION; WAIVERS. Each Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Borrower at its address set forth in subsection 11.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any exemplary, punitive or consequential damages. 11.13 ACKNOWLEDGEMENTS. Each Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; 98 93 (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to such Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and such Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrowers and the Lenders. 11.14 WAIVERS OF JURY TRIAL. EACH BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 11.15 CONFIDENTIALITY. Each Lender agrees to keep confidential any written information (a) provided to it by or on behalf of the Borrowers or any of their Subsidiaries pursuant to or in connection with this Agreement or (b) obtained by such Lender based on a review of the books and records of the Borrowers or any of their Subsidiaries; PROVIDED that nothing herein shall prevent any Lender from disclosing any such information (i) to the Administrative Agent or any other Lender, (ii) to any Transferee or prospective Transferee which agrees to comply with the provisions of this subsection, (iii) to its employees, directors, agents, attorneys, accountants and other professional advisors, (iv) upon the request or demand of any Governmental Authority having jurisdiction over such Lender or as shall be required pursuant to any Requirement of Law, (v) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (vi) in connection with any litigation to which such Lender is a party, (vii) which has been publicly disclosed other than in breach of this Agreement, or (viii) to the extent reasonably necessary, in connection with the exercise of any remedy hereunder; PROVIDED, however, that, if such Lender or any Person to whom such Lender supplies any such information becomes legally compelled to disclosed any such information or otherwise intends to disclose any such information in any of the circumstances contemplated by clauses (iv), (v), (vi) or (vii) above, such Lender agrees to provide the Borrowers as promptly as practicable with prior written notice of such compelled or intended disclosure. 99 IN WITNESS WHEREOF, the parties hereto have caused this Agreement 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: ______________________________ Title: THINGS REMEMBERED, INC. By: ______________________________ Title: COLE GIFT CENTERS, INC. By: ______________________________ Title: PEARLE, INC. By: ______________________________ Title: PEARLE SERVICE CORPORATION By: ______________________________ Title: CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as Administrative Agent By: ______________________________ Title: 100 CIBC INC. By: ______________________________ Title: 101 CREDIT SUISSE By: ______________________________ Title: By: ______________________________ Title: 102 NATIONSBANK, N.A. By: ______________________________ Title: EX-99.2 8 EXHIBIT 99.2 1 Exhibit 99.2 TRADEMARK ASSIGNMENT AGREEMENT ------------------------------ between the undersigned: 1. PEARLE, INC., a company established under the laws of Delaware, United States, having its registered office at 2534 Royal Lane, Dallas, Texas 75229 (United States of America), hereinafter referred to as "Pearle", represented in this matter by Jones, Day, Reavis & Pogue; 2. PEARLE VISION, INC., a company established under the laws of Delaware, United States, having its registered office at 2534 Royal Lane, Dallas, Texas 75229 (United States of America), hereinafter referred to as "PVI" (Pearle and PVI hereinafter also collectively referred to as "Assignors"), represented in this matter by Jones, Day, Reavis & Pogue; 3. PEARLE B.V., a company established under the laws of the Netherlands and an indirect wholly owned subsidiary of PVI, represented in this matter by Nauta Dutilh; and 4. PEARLE TRUST B.V. I.O., a company to be established under the laws of the Netherlands, having its registered office at Amersfoort, the Netherlands, hereinafter referred to as "Assignee", represented in this matter by HAL Investments B.V., established under the laws of the Netherlands, with its registered office at Weena 674, Rotterdam, The Netherlands; WHEREAS: a. Cole National Corporation ("CNC") and HAL Investments B.V. ("HAL") have entered into a purchase agreement on September 24, 1996 pursuant to which all of the Shares and Other Assets have been sold to HAL; CNC, HAL and Assignee have subsequently entered into an assignment dated on or around 14 November 1996 pursuant to which all rights and obligations of HAL under the aforementioned purchase agreement have been transferred to Assignee; CNC, Assignee and the Assignors have entered into an agreement dated on or around 14 November 1996 pursuant to which among others, all rights and obligations of CNC have been transferred to PVI and, in as far as the European Intellectual Property Rights are concerned, to Pearle (these documents together to be referred to as the "Purchase Agreement"); b. Pursuant to article 7.1.a. of the Purchase Agreement, CNC, PVI and Pearle have undertaken to have executed and delivered to Assignee a Trademark Assignment Agreement; 2 c. Assignors are the proprietors of various trademarks and/or trademark applications, including Community trademarks and/or trademark applications (hereinafter referred to as "the Trademarks") in Buyer's Territory (hereinafter referred to as "the Countries"); d. CNC and Assignors have undertaken to see to it that all the Trademarks in the Countries are assigned from Assignors to Assignee. A list of the Trademarks including registration numbers and classes, are attached to this agreement as Annex A; e. Assignors are furthermore the proprietors of other Intellectual Property Rights than the Trademarks (hereinafter referred to as "Other Intellectual Property Rights"); f. CNC and Assignors have undertaken to see to it that all the Other Intellectual Property Rights related to the Countries are assigned from Assignors to Assignee. If however certain Other Intellectual Property Rights are necessary or helpful for the continuation of the present business of Assignors, CNC and Assignors have undertaken to see to it that instead of assignment thereof, a royalty free perpetual license will be given to Assignee; IT IS THEREFORE HEREBY AGREED AS FOLLOWS: - ----------------------------------------- Article 1 - Transfer Of The Trademarks - -------------------------------------- 1.1 Each of the Assignors hereby assigns unto Assignee, who hereby accepts, all the property, right, title and interest in its respective Trademarks in the Countries, together with that part of the goodwill of the business connected with the use of and symbolized, together with all rights to apply for registrations and to renew and continue the Trademarks in the Countries and all common law rights associated therewith, together with the right to sue and recover damages for all past, present and future infringements thereof. 1.2 Each of the Assignors hereby covenants, at any time and from time to time after the date hereof, at Assignee's reasonable request and expense and without further consideration, to execute and deliver such other instruments of sale, transfer, conveyance, assignment, and delivery and confirmation and take such action as Assignee may deem necessary or desirable in order more effectively to transfer, convey and assign to Assignee and to place Assignee in possession and control of, and to confirm Assignee title to, the Trademarks in the Countries, and to assist Assignee in exercising all rights and enjoying all benefits with respect thereto. 1.3 Each of the Assignors hereby appoints Assignee and/or assigns its lawful attorneys in fact with full power of substitution, which power is irrevocable and coupled with an interest, to take on its behalf proceedings for purposes of making 2 3 all filings and recordation necessary for absolutely vesting and perfect Assignee's full right, title and interest in and to the Trademarks in the Countries. 1.4 Assignee will take care of all necessary filings and recordations of this assignment at its own expense. Article 2 - Transfer Of The Other Intellectual Property Rights - -------------------------------------------------------------- 2.1 Each of the Assignors hereby assigns unto Assignee, who hereby accepts, all its property, right, title and interest in the Other Intellectual Property Rights related to the Countries, together with that part of the goodwill of the business connected with the use of and symbolized, together with all rights to apply for registrations to renew and continue the Other Intellectual Property Rights in the Countries and all common law rights associated therewith, together with the right to sue and recover damages for all past, present and future infringements thereof. 2.2 Each of the Assignors hereby covenants, at any time and from time to time after the date hereof, at Assignee's reasonable request and expense and without further consideration, to execute and deliver such other instruments of sale, transfer, conveyance, assignment, and delivery and confirmation and take such action as Assignee may deem necessary or desirable in order more effectively to transfer, convey and assign to Assignee and to place Assignee in possession and control of, and to confirm Assignee title to, the Other Intellectual Property Rights related to the Countries, and to assist Assignee in exercising all rights and enjoying all benefits with respect thereof. 2.3 Each of the Assignors hereby appoints Assignee and/or assigns its lawful attorneys in fact with full power of substitution, which power is irrevocable and coupled with an interest, to take on its behalf proceedings for purposes of making all filings and recordation necessary for absolutely vesting and perfect Assignee's full right, title and interest in and to the Other Intellectual Property Rights related to the Countries. 2.4 Assignee will take care of all necessary filings and recordations of this assignment at its own expense. Article 3 - License Of The Other Intellectual Property Rights - ------------------------------------------------------------- 3.1 If certain Other Intellectual Property Rights related to the Countries are necessary or helpful for the continuation of the present business of Assignors and therefore cannot be assigned unto Assignee, Assignors hereby grant to Assignee a perpetual royalty free license to use the Other Intellectual Property Rights related to the Countries. 3.2 Assignee will take care of all necessary registrations of these licenses at its own expense. Assignors will give full cooperation in this respect, thus Assignors 3 4 covenants to execute all such documents, forms and authorizations and depots to or swear any declaration of oath as may be required by any registrar for vetting this license of the Other Intellectual Property Rights in favor of Assignee. Article 4 - Price - ----------------- In consideration of the present assignment and as consideration for the Purchase Agreement, Assignee shall pay to Pearle an amount of NLG 19,500,000 and to PVI an amount of NLG 19,500,000. Article 5 - Assignment - ---------------------- Assignee is entitled to assign its rights under this Trademark Assignment Agreement or any part thereof to one of its Subsidiaries. Article 6 - Effective Date - -------------------------- This Agreement will be effective as from the Closing. Article 7 - Cancellation Of Prior License - ----------------------------------------- The parties to this agreement hereby agree to terminate the Master License Agreement between Pearle and Pearle B.V. dated 1 November 1988, as amended. Assignee and Pearle B.V. shall enter into a License Agreement in relation to the Trademarks and Other Intellectual Property Rights. Article 8 - General - ------------------- a. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. b. If any provision of this agreement is declared by any tribunal of competent jurisdiction to be invalid or void, the remaining portions or provisions of the agreement nevertheless shall remain in full force and effect. c. This agreement shall be governed by and shall be construed in accordance with the laws of The Netherlands. 4 5 d. All disputes arising in connection with this agreement, if not otherwise resolved, shall be submitted in accordance with Section 9.11 of the Purchase Agreement. Pearle, Inc. Pearle Vision, Inc. /S/ Joseph Gaglioti /S/ Joseph Gaglioti - --------------------------- ------------------------------ By: Joseph Gaglioti By: Joseph Gaglioti Title: Vice President and Treasurer Title: Vice President and Treasurer Date: November 15, 1996 Date: November 15, 1996 Pearle Trust B.V. i.o. Pearle B.V. /S/ Mel Groot /S/ Joop F.G. De Groot - --------------------------- ------------------------------ By: Hal Investments B.V. By: Joop F.G. De Groot ------------------------ --------------------------- Title: By Power of Attorney Title: Managing Director --------------------- ------------------------- Date: November 15, 1996 Date: November 15, 1996 ---------------------- -------------------------- 5 6 ANNEX A ------- The following Trademarks in the now existing European Union countries, the now existing European Free Trade Association countries, Albania, Andorra, Belarus, Bulgaria, the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Russia, Slovakia, Slovenia, Turkey, Ukraine, the former Yugoslavia and any other territories that as of the date hereof are usually referred to as being part of Europe: TRADEMARK-/DESCRIPTION ---------------------- Brilmij - Word and Device Brilmij - Word Mark Brilmij Pearle Express - Word and Device Brilmij Pearle Vision Center - Word and Device Brilmij Pearle Vision Center - Word Mark Brilmij Pearle Vision Center - Word and Device Brilmij Pearle Vision Center - Word Mark Carlo Sebastino - Word Mark Optique Pearle - Word Mark Pearle - Word Mark Pearle Royale - Word Mark Pearle Vision Center - Word Mark Pearle Vision Center - Word Mark Pearle Vision Center - Word and Device Pearle Vision Center - Word and Device Pearle Vision Center - Word Mark Brilmij Pearle Vision Express - Word and Device Kidsafe - Word Mark Pearl Express - Word Mark Pearle Opticiens - Word Mark Pearle Vision Center - Word and Device EX-99.3 9 EXHIBIT 99.3 1 Exhibit 99.3 CNG GUARANTEE AND CASH COLLATERAL AGREEMENT GUARANTEE AND CASH COLLATERAL AGREEMENT, dated as of November 15, 1996, made by COLE NATIONAL GROUP, INC., a Delaware corporation (the "GUARANTOR"), in favor of Canadian Imperial Bank of Commerce, as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") for (i) the banks and other financial institutions (the "LENDERS") from time to time parties 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, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and Pearle Service Corporation (collectively, the "BORROWERS"), the Lenders and the Administrative Agent and (ii) the other Secured Parties (as defined below) parties hereto. W I T N E S S E T H: -------------------- WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make extensions of credit to the Borrowers upon the terms and subject to the conditions set forth therein; WHEREAS, the Borrowers are members of an affiliated group of companies that includes the Guarantor; WHEREAS, the proceeds of the extensions of credit will be used in part to enable the Borrowers to make valuable transfers to the Guarantor in connection with the operation of their respective businesses; WHEREAS, the Guarantor will derive substantial direct and indirect benefit from the making of the extensions of credit under the Credit Agreement; and WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective extensions of credit to the Borrowers under the Credit Agreement that the Guarantor shall have executed and delivered this Agreement to the Administrative Agent for the ratable benefit of the Secured Parties; NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrowers thereunder, the Guarantor hereby agrees with the Administrative Agent, for the ratable benefit of the Secured Parties, as follows: SECTION 1. DEFINED TERMS 2 2 1.1 DEFINITIONS. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. (b) The following terms shall have the following meanings: "AGREEMENT": this CNG Guarantee and Cash Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "BANK ACKNOWLEDGMENT LETTER": the Bank Acknowledgment Letter to be executed and delivered by CoreStates Bank N.A., the Guarantor and the Administrative Agent, substantially in the form of Exhibit A, as the same may be amended, supplemented or otherwise modified from time to time. "CASH COLLATERAL": the collective reference to: (a) all cash, instruments, securities and funds deposited from time to time in the Cash Collateral Account, including, without limitation, all cash or other money proceeds of any collateral subject to a security interest for the benefit of the Administrative Agent under any Loan Document; (b) all investments of funds in the Cash Collateral Account and all instruments and securities evidencing such investments; and (c) all interest, dividends, cash, instruments, securities and other property received in respect of, or as proceeds of, or in substitution or exchange for, any of the foregoing. "CASH COLLATERAL ACCOUNT": account no. 141-387-1466 established at the office of CoreStates Bank N.A. located at 1345 Chestnut St., P.O. Box 7618, Philadelphia, Pennsylvania 19101-7618.. "CODE": the Uniform Commercial Code as from time to time in effect in the State of New York. "COLLATERAL": the collective reference to the Cash Collateral and the Cash Collateral Account. "GUARANTOR": as defined in the preamble hereto. "HEDGE AGREEMENTS": as to any Person, all interest rate swaps, caps or collar agreements or similar arrangements entered into by such Person providing for protection against fluctuations in interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies, including, without limitation, all Interest Rate Protection 3 3 Agreements and Permitted Hedging Arrangements with respect to currency exchange rates. "OBLIGATIONS": the collective reference to the unpaid principal of and interest on the Revolving Credit Loans and Reimbursement Obligations and all other obligations and liabilities of the Borrowers (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Revolving Credit Loans and Reimbursement Obligations and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrowers, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to the Administrative Agent or any Lender (or, in the case of any Hedge Agreement referred to below, any Affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, this Agreement, the other Loan Documents, any Letter of Credit or any Hedge Agreement entered into by any Borrower with any Lender (or, in the case of any Hedge Agreement, any Affiliate of any Lender) or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by any Borrower pursuant to the terms of any of the foregoing agreements). "SECURED OBLIGATIONS": the collective reference to the Obligations and all obligations and liabilities of the Guarantor which may arise under or in connection with this Agreement or any other Loan Document to which the Guarantor is a party, whether on account of reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by the Guarantor pursuant to the terms of this Agreement or any other Loan Document to which the Guarantor is a party). "SECURED PARTIES": the collective reference to the Administrative Agent, the Lenders (including, without limitation, the Issuing Lender) and any Affiliate of any Lender which has entered into a Hedge Agreement with any Borrower or any Subsidiary. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof," "herein", "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. 4 4 (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. GUARANTEE 2.1 GUARANTEE. (a) The Guarantor hereby unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Secured Parties and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations; PROVIDED that the Guarantor's liability hereunder at any time shall be limited to amounts on deposit in the Cash Collateral Account. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of the Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by the Guarantor under applicable federal and state laws relating to the insolvency of debtors. (c) The Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of the Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Administrative Agent or any other Secured Party hereunder. (d) The guarantee contained in this Section 2 shall remain in full force and effect until the first date on which all the Obligations and the obligations of the Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full, no Letter of Credit shall be outstanding and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrowers may be free from any Obligations. (e) No payment made by any Borrower, the Guarantor, any other guarantor or any other Person or received or collected by the Administrative Agent or any other Secured Party from any Borrower, the Guarantor, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by the Guarantor in respect of the Obligations or any payment received or collected from the Guarantor in respect of the Obligations), remain liable for the Obligations up to the maximum liability of the Guarantor hereunder until the first date on which the Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated. 5 5 2.2 NO SUBROGATION. Notwithstanding any payment made by the Guarantor hereunder or any set-off or application of funds of the Guarantor by the Administrative Agent or any other Secured Party, the Guarantor shall not be entitled to be subrogated to any of the rights of the Administrative Agent or any other Secured Party against any Borrower or any collateral security or guarantee or right of offset held by the Administrative Agent or any other Secured Party for the payment of the Obligations, nor shall the Guarantor seek or be entitled to seek any contribution or reimbursement from any Borrower in respect of payments made by the Guarantor hereunder, until all amounts owing to the Administrative Agent and the other Secured Parties by the Borrowers on account of the Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Guarantor in trust for the Administrative Agent and the other Secured Parties, segregated from other funds of the Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned over to the Administrative Agent in the exact form received by the Guarantor (duly indorsed by the Guarantor to the Administrative Agent, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 2.3 AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS. The Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Guarantor and without notice to or further assent by the Guarantor, any demand for payment of any of the Obligations made by the Administrative Agent or any other Secured Party may be rescinded by the Administrative Agent or such other Secured Party and any of the Obligations continued, and the Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any other Secured Party, and the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Majority Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any other Secured Party for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any other Secured Party shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for the guarantee contained in this Section 2 or any property subject thereto. 2.4 GUARANTEE ABSOLUTE AND UNCONDITIONAL. The Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Administrative Agent or any other Secured Party upon the guarantee contained in this Section 2 or acceptance of the guarantee contained 6 6 in this Section 2; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between any Borrower and the Guarantor, on the one hand, and the Administrative Agent and the other Secured Parties, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. The Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrowers or the Guarantor with respect to the Obligations. The Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment. The Guarantor hereby waives, to the extent it may legally do so, any and all defenses that it may have arising out of or in connection with any and all of the following: (a) the validity or enforceability of the Credit Agreement or any other Loan Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any other Secured Party, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Borrower against the Administrative Agent or any other Secured Party, (c) any change in the time, place, manner or place of payment, amendment, or waiver or increase in the Obligations, (d) any exchange, taking, or release of Collateral, (e) any change in the corporate structure or existence of any Borrower, (f) any application of Collateral to Obligations or (g) any other circumstance whatsoever (with or without notice to or knowledge of such Borrower or the Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of any Borrower for the Obligations, or of the Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against the Guarantor, the Administrative Agent or any other Secured Party may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against any Borrower or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any other Secured Party to make any such demand, to pursue such other rights or remedies or to collect any payments from any Borrower or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of any Borrower or any other Person or any such collateral security, guarantee or right of offset, shall not relieve the Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any other Secured Party against the Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 2.5 REINSTATEMENT. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any other Secured Party upon the insolvency, 7 7 bankruptcy, dissolution, liquidation or reorganization of any Borrower or the Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Borrower or the Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 2.6 PAYMENTS. The Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without set-off or counterclaim in Dollars at the office of the Administrative Agent located at 425 Lexington Avenue, 7th Avenue, New York, New York 10017. SECTION 3. GRANT OF SECURITY INTEREST 3.1 GRANT OF SECURITY INTEREST. As collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations, the Guarantor hereby grants to the Administrative Agent, for the ratable benefit of the Lenders, a security interest in the Collateral. 3.2 MAINTENANCE OF CASH COLLATERAL ACCOUNT. (a) The Cash Collateral Account shall be maintained until the Secured Obligations have been paid and performed in full. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrowers thereunder, the Guarantor hereby represents and warrants to the Administrative Agent and each other Secured Party that: 4.1 REPRESENTATIONS IN CREDIT AGREEMENT. (a) The representations and warranties set forth in Section 5 of the Credit Agreement as they relate to the Guarantor or to the Loan Documents to which the Guarantor is a party or to the Transaction Documents to which the Guarantor is a party, each of which is hereby incorporated herein by reference, are true and correct, and the Administrative Agent and each other Secured Party shall be entitled to rely on each of them as if they were fully set forth herein; PROVIDED that each reference in each such representation and warranty to any Borrower's knowledge shall, for the purposes of this Section 4.1(a), be deemed to be a reference to the Guarantor's knowledge. 4.2 TITLE; NO OTHER LIENS. Except for the security interest granted to the Administrative Agent, for the ratable benefit of the Secured Parties, pursuant to this Agreement, the Guarantor owns each item of the Collateral free and clear of any and all Liens or claims of others. No financing statement or other public notice with respect to 8 8 all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, pursuant to this Agreement or as are permitted by the Credit Agreement or for which termination statements will be delivered on the Closing Date. 4.3 PERFECTED FIRST PRIORITY LIENS. The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on SCHEDULE 1 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Administrative Agent in completed and duly executed form) and upon the execution and delivery of the Bank Acknowledgement Letter by the parties thereto, will constitute valid perfected security interests in all of the Collateral in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, as collateral security for the Secured Obligations of the Guarantor, enforceable in accordance with the terms hereof against all creditors of the Guarantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof. 4.4 CHIEF EXECUTIVE OFFICE. On the date hereof, the Guarantor's jurisdiction of organization is Delaware and the location of the Guarantor's chief executive office is 5915 Landerbrook Drive, Mayfield Heights, Ohio 44124. SECTION 5. COVENANTS The Guarantor covenants and agrees with the Administrative Agent and the other Secured Parties that, from and after the date of this Agreement until the Secured Obligations shall have been paid in full, no Letter of Credit shall be outstanding and the Commitments shall have terminated: 5.1 COVENANTS IN CREDIT AGREEMENT. The Guarantor shall take, or shall refrain from taking, as the case may be, each action that is necessary to be taken or not taken, as the case may be, so that no Default or Event of Default is caused by the failure to take such action or to refrain from taking such action by the Guarantor or any of its Subsidiaries. 5.2 PAYMENT OF OBLIGATIONS. The Guarantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of the Guarantor and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein. 9 9 5.3 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION. (a) The Guarantor shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 4.3 and shall defend such security interest against the claims and demands of all Persons whomsoever. (b) At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of the Guarantor, the Guarantor will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby. 5.4 CHANGES IN LOCATIONS, NAME, ETC. The Guarantor will not, except upon 30 days' prior written notice to the Administrative Agent and delivery to the Administrative Agent of all additional executed financing statements and other documents reasonably requested by the Administrative Agent to maintain the validity, perfection and priority of the security interests provided for herein: (i) change the location of its chief executive office from that referred to in Section 4.4; or (ii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Administrative Agent in connection with this Agreement would become misleading. 5.5 NOTICES. The Guarantor will advise the Administrative Agent promptly, in reasonable detail, of any Lien of which the Guarantor obtains actual knowledge (other than security interests created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would adversely affect the ability of the Administrative Agent to exercise any of its remedies hereunder; and of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby. SECTION 6. REMEDIAL PROVISIONS 6.1 CODE AND OTHER REMEDIES. At any time and from time to time after the occurrence and during the continuance of an Event of Default, the Administrative Agent may, without notice of any kind, except for notices required by law which may not be waived, apply the Collateral, after deducting all reasonable costs and expenses of every kind incurred in respect thereof or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative 10 10 Agent and the Secured Parties hereunder, including, without limitation, reasonable attorneys' fees and disbursements of counsel to the Administrative Agent, to the payment in whole or in part of the Secured Obligations, in such order as the Administrative Agent in its sole discretion may elect, and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Code, need the Administrative Agent account for the surplus, if any, to the Guarantor. In addition to the rights, powers and remedies granted to it under this Agreement and in any other agreement securing, evidencing or relating to the Secured Obligations, the Administrative Agent shall have all the rights, powers and remedies available at law, including, without limitation, the rights and remedies of a secured party under the Code. To the extent permitted by law, the Guarantor waives presentment, demand, protest and all notices of any kind and all claims, damages and demands it may acquire against the Administrative Agent or any Secured Party arising out of the exercise by them of any rights hereunder. SECTION 7. THE ADMINISTRATIVE AGENT 7.1 ADMINISTRATIVE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC. (a) The Guarantor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent of the Administrative Agent, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Guarantor and in the name of the Guarantor or in the Administrative Agent's own name, from time to time in the Administrative Agent's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, including, without limitation, any financing statements, endorsements, assignments or other instruments of transfer. Anything in this Section 7.1(a) to the contrary notwithstanding, the Administrative Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing. (b) The expenses of the Administrative Agent incurred in connection with actions undertaken as provided in this Section 7.1, together with interest thereon at a rate per annum equal to the rate per annum at which interest would then be payable on past due ABR Loans under the Credit Agreement, from the date of payment by the Administrative Agent to the date reimbursed by the relevant Guarantor, shall be payable by the Guarantor to the Administrative Agent on demand. (c) The Guarantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 7.2 DUTY OF ADMINISTRATIVE AGENT. The Administrative Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its 11 11 possession, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Administrative Agent, any other Secured Party nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Guarantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Administrative Agent and the other Secured Parties hereunder are solely to protect the Administrative Agent's and the other Secured Parties' interests in the Collateral and shall not impose any duty upon the Administrative Agent or any other Secured Party to exercise any such powers. The Administrative Agent and the other Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to the Guarantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 7.3 EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the Code and any other applicable law, the Guarantor authorizes the Administrative Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of the Guarantor in such form and in such offices as the Administrative Agent reasonably determines appropriate to perfect the security interests of the Administrative Agent under this Agreement. A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. 7.4 AUTHORITY OF ADMINISTRATIVE AGENT. The Guarantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement or any amendment, supplement or other modification of this Agreement shall, as between the Administrative Agent and the Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Guarantor, the Administrative Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting, and no Guarantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. SECTION 8. MISCELLANEOUS 8.1 AMENDMENTS IN WRITING. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a 12 12 written instrument executed by the Guarantor and the Administrative Agent, PROVIDED that any provision of this Agreement imposing obligations on the Guarantor may be waived by the Administrative Agent in a written instrument executed by the Administrative Agent. 8.2 NOTICES. All notices, requests and demands to or upon the Administrative Agent or the Guarantor hereunder shall be effected in the manner provided for in subsection 11.2 of the Credit Agreement; PROVIDED that any such notice, request or demand to or upon the Guarantor shall be addressed to the Guarantor at: 5915 Landerbrook Drive Mayfield Heights, Ohio 44124 Attention: Joseph Gaglioti Fax: (216) 461-3489. with a copy to: Jones, Day, Reavis & Pogue North Point 901 Lakeside Avenue Cleveland, Ohio 44114 Attention: David P. Porter, Esq. Fax: (216) 579-0212 8.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES. Neither the Administrative Agent nor any other Secured Party shall by any act (except by a written instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any other Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any other Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such other Secured Party would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 8.4 ENFORCEMENT EXPENSES; INDEMNIFICATION. (a) The Guarantor agrees to pay or reimburse each Secured Party and the Administrative Agent for all their respective costs and expenses incurred in collecting against the Guarantor under the guarantee contained in Section 2 or otherwise enforcing any rights under this Agreement and the other Loan Documents to which the Guarantor is a party, including, without limitation, the fees and disbursements of counsel (including the allocated fees and 13 13 expenses of in-house counsel) to each Secured Party and of counsel to the Administrative Agent. (b) The Guarantor agrees to pay, and to save the Administrative Agent and the Secured Parties harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. (c) The Guarantor agrees to pay, and to save the Administrative Agent and the Secured Parties harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement (collectively, the "INDEMNIFIED LIABILITIES") to the extent the Borrowers would be required to do so pursuant to Section 11.5 of the Credit Agreement. (d) The agreements in this Section 8.4 shall survive repayment of the Secured Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents. 8.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors and assigns of the Guarantor and shall inure to the benefit of the Administrative Agent and the Secured Parties and their successors and assigns; PROVIDED that no Guarantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent. 8.6 SET-OFF. The Guarantor hereby irrevocably authorizes the Administrative Agent and each other Secured Party at any time and from time to time without notice to the Guarantor or any Borrower, any such notice being expressly waived by the Guarantor and by the Borrowers, upon any amount remaining unpaid after it becomes due and payable by the Guarantor hereunder to set-off and appropriate and apply against any such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Administrative Agent or such other Secured Party to or for the credit or the account of the Guarantor, or any part thereof in such amounts as the Administrative Agent or such other Secured Party may elect. The Administrative Agent and each other Secured Party shall notify the Guarantor promptly of any such set-off and the application made by the Administrative Agent or such other Secured Party of the proceeds thereof; PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent and each other Secured Party under this Section 8.6 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Administrative Agent or such other Secured Party may have. 14 14 8.7 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 8.8 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.9 SECTION HEADINGS. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 8.10 INTEGRATION. This Agreement and the other Loan Documents represent the agreement of the Guarantor, the Administrative Agent and the other Secured Parties with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any other Secured Party relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 SUBMISSION TO JURISDICTION; WAIVERS. The Guarantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgement in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Guarantor at its address referred to in Section 8.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; 15 15 (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any exemplary, punitive or consequential damages. 8.13 ACKNOWLEDGEMENTS. The Guarantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party; (b) neither the Administrative Agent nor any other Secured Party has any fiduciary relationship with or duty to the Guarantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Guarantor, on the one hand, and the Administrative Agent and the Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Secured Parties or among the Guarantor and the Secured Parties. 8.14 WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 8.15 RELEASES. At such time as the Revolving Credit Loans, the Reimbursement Obligations and the other Secured Obligations shall have been paid in full, the Commitments have been terminated and no Letters of Credit shall be outstanding, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and the Guarantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Guarantor. At the request and sole expense of the Guarantor following any such termination, the Administrative Agent shall deliver to the Guarantor any Collateral held by the Administrative Agent hereunder, and execute and deliver to the Guarantor such documents as the Guarantor shall reasonably request to evidence such termination. 16 16 IN WITNESS WHEREOF, the undersigned has caused this CNG Guarantee and Cash Collateral Agreement to be duly executed and delivered as of the date first above written. COLE NATIONAL GROUP, INC. By: _______________________________ Title: 17 EXHIBIT A --------- FORM OF BANK ACKNOWLEDGEMENT LETTER November _, 1996 CoreStates Bank N.A. [address] Attention: Re: Cole National Group, Inc. (hereinafter "CNG") Account Number [_________________] (hereinafter the "CASH COLLATERAL ACCOUNT") Ladies and Gentlemen: Please be advised that we have entered into the CNG Guarantee and Cash Collateral Agreement, dated as of November __, 1996 (the "CNG GUARANTEE AND CASH COLLATERAL AGREEMENT"), made by CNG in favor Canadian Imperial Bank of Commerce, New York Agency, as Administrative Agent (in such capacity, the "ADMINISTRATIVE AGENT"), pursuant which we have been granted a security interest in the Cash Collateral Account and all cash, instruments, securities and funds deposited from time to time in the Cash Collateral Account, all investments of funds in the Cash Collateral Account and all instruments and securities evidencing such investments and all interest, dividends, cash, instruments, securities and other property received in respect of, or as proceeds of, or in substitution or exchange for, any of the foregoing. CNG hereby agrees that it will not permit the Cash Collateral Account to become subject to any other pledge, assignment, lien, charge or encumbrance of any kind, nature or description. CoreStates Bank, N.A. (the "BANK") hereby agrees that it will maintain the Cash Collateral Account and hold any checks, drafts, notes, money and acceptances, cash and other evidences of indebtedness ("REMITTANCES") included therein, as custodian for the Administrative Agent in accordance with the terms of this agreement. The Bank will provide copies of the monthly bank statement with respect to the Cash Collateral Account to the Administrative Agent at the address listed below. Upon notification from the Administrative Agent that an Event of Default has occurred under the Credit Agreement, dated as of November __, 1996, among Cole Vision Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc., Pearle Service Corporation, the Lenders parties thereto and the Administrative Agent (the "CREDIT AGREEMENT"), the Bank hereby agrees that it will not permit CNG to withdraw monies from the Cash Collateral Account and, at the direction of the Administrative Agent from time to time, the Bank will transfer all collected and available funds in the account at such time via federal funds wire to the Administrative Agent at: 18 2 Canadian Imperial Bank of Commerce, New York Agency, as Administrative Agent 425 Lexington Avenue New York, New York 10017 Attention: [_______________] Account No. [________________] The Bank shall be fully protected in acting on any order or direction by the Administrative Agent respecting the Cash Collateral Account and disposition of Remittances without making any inquiry whatsoever as to the Administrative Agent's right or authority to give such order or direction or as to the application or any payment made pursuant thereto. In the event that the Bank is uncertain as to what action it should with respect to any instructions relating to the Cash Collateral Account, the Bank may request instructions from the Administrative Agent and shall be absolutely protected in following such instructions. The Bank agrees that it shall not set-off, deduct, or claim against the Cash Collateral Account or the Remittances unless, and until, all of CNG's Obligations (as defined in the CNG Guarantee and Cash Collateral Agreement) to the Administrative Agent have been paid in full, PROVIDED, HOWEVER, that notwithstanding the foregoing, the Bank may charge the Cash Collateral Account for all service charges, returned items and any other charges to which it may be entitled for maintaining the Cash Collateral Account. Neither the Bank nor CNG will close the Cash Collateral Account without giving the Administrative Agent at least thirty (30) days prior written notice thereof. No modifications or changes in any form may be made to this agreement without the prior written consent of the Administrative Agent. This letter agreement may be executed in one or more counterparts, each of which shall constitute one and the same instrument. 19 3 If the foregoing conforms with your understanding, please sign and return the duplicate enclosed copies of this letter, whereupon this letter, when signed by all requisite parties hereto, shall be binding on all parties. Very truly yours, CANADIAN IMPERIAL BANK OF COMMERCE, as Administrative Agent By: ____________________________ Name: Title: Accepted and agreed to as of the date first written above by: CORESTATES BANK N.A. By: _______________________________ Name: Title: COLE NATIONAL GROUP, INC. By: _______________________________ Title: EX-99.4 10 EXHIBIT 99.4 1 Exhibit 99.4 ================================================================================ GUARANTEE AND COLLATERAL AGREEMENT made by COLE VISION CORPORATION, THINGS REMEMBERED, INC., COLE GIFT CENTERS, INC., PEARLE, INC., and PEARLE SERVICE CORPORATION, and certain of their Subsidiaries in favor of CANADIAN IMPERIAL BANK OF COMMERCE, as Administrative Agent Dated as of November 15, 1996 ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- SECTION 1. DEFINED TERMS.................................................................. 1 1.1 DEFINITIONS.................................................................. 1 1.2 OTHER DEFINITIONAL PROVISIONS................................................ 5 SECTION 2. GUARANTEE...................................................................... 5 2.1 GUARANTEE.................................................................... 5 2.2 RIGHT OF CONTRIBUTION........................................................ 6 2.3 NO SUBROGATION............................................................... 6 2.4 AMENDMENTS, ETC. WITH RESPECT TO THE BORROWER OBLIGATIONS.................... 7 2.5 GUARANTEE ABSOLUTE AND UNCONDITIONAL......................................... 7 2.6 REINSTATEMENT................................................................ 8 2.7 PAYMENTS..................................................................... 8 SECTION 3. GRANT OF SECURITY INTEREST..................................................... 8 SECTION 4. REPRESENTATIONS AND WARRANTIES................................................. 10 4.1 REPRESENTATIONS IN CREDIT AGREEMENT.......................................... 10 4.2 TITLE; NO OTHER LIENS........................................................ 10 4.3 PERFECTED FIRST PRIORITY LIENS............................................... 10 4.4 CHIEF EXECUTIVE OFFICE....................................................... 11 4.5 INVENTORY AND EQUIPMENT...................................................... 11 4.6 FARM PRODUCTS................................................................ 11 4.7 PLEDGED SECURITIES........................................................... 11 4.8 ACCOUNTS..................................................................... 11 4.9 INTELLECTUAL PROPERTY........................................................ 11 SECTION 5. COVENANTS...................................................................... 12 5.1 COVENANTS IN CREDIT AGREEMENT................................................ 12 5.2 DELIVERY OF INSTRUMENTS AND CHATTEL PAPER.................................... 12 5.3 MAINTENANCE OF INSURANCE..................................................... 12 5.4 PAYMENT OF OBLIGATIONS....................................................... 13 5.5 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION............ 13 5.7 NOTICES...................................................................... 14 5.8 PLEDGED SECURITIES........................................................... 14 5.9 ACCOUNTS..................................................................... 15 5.10 INTELLECTUAL PROPERTY....................................................... 15 SECTION 6. REMEDIAL PROVISIONS............................................................ 17 6.1 CERTAIN MATTERS RELATING TO ACCOUNTS......................................... 17 6.2 COMMUNICATIONS WITH OBLIGORS; GRANTORS REMAIN LIABLE......................... 18 6.3 PLEDGED STOCK................................................................ 18 6.4 PROCEEDS TO BE TURNED OVER TO ADMINISTRATIVE AGENT........................... 19
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PAGE ---- 6.5 APPLICATION OF PROCEEDS........................................................ 20 6.6 CODE AND OTHER REMEDIES........................................................ 20 6.7 REGISTRATION RIGHTS............................................................ 21 6.8 DEFICIENCY..................................................................... 22 SECTION 7. THE ADMINISTRATIVE AGENT......................................................... 22 7.1 ADMINISTRATIVE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC.................... 22 7.2 DUTY OF ADMINISTRATIVE AGENT................................................... 24 7.3 EXECUTION OF FINANCING STATEMENTS.............................................. 24 7.4 AUTHORITY OF ADMINISTRATIVE AGENT.............................................. 24 SECTION 8. MISCELLANEOUS.................................................................... 25 8.1 AMENDMENTS IN WRITING.......................................................... 25 8.2 NOTICES........................................................................ 25 8.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES............................ 25 8.4 ENFORCEMENT EXPENSES; INDEMNIFICATION.......................................... 25 8.5 SUCCESSORS AND ASSIGNS......................................................... 26 8.6 SET-OFF........................................................................ 26 8.7 COUNTERPARTS................................................................... 26 8.8 SEVERABILITY................................................................... 26 8.9 SECTION HEADINGS............................................................... 26 8.10 INTEGRATION................................................................... 27 8.11 GOVERNING LAW................................................................. 27 8.12 SUBMISSION TO JURISDICTION; WAIVERS........................................... 27 8.13 ACKNOWLEDGEMENTS.............................................................. 27 8.14 WAIVER OF JURY TRIAL.......................................................... 28 8.15 ADDITIONAL GRANTORS........................................................... 28 8.16 RELEASES...................................................................... 28
ii 4 SCHEDULES 1 Notice Addresses of Guarantors 2 Description of Pledged Securities 3 Filings and Other Actions Required to Perfect Security Interests 4 Location of Jurisdiction of Organization and Chief Executive Office or Sole Place of Business 5 Location of Inventory and Equipment 6 Copyrights and Copyright Licenses; Patents and Patent Licenses; Trademarks and Trademark Licenses ANNEXES 1 Assumption Agreement iii 5 GUARANTEE AND COLLATERAL AGREEMENT GUARANTEE AND COLLATERAL AGREEMENT, dated as of November 15, 1996, made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the "GRANTORS"), in favor of Canadian Imperial Bank of Commerce, as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") for the banks and other financial institutions (collectively, the "LENDERS") from time to time parties 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, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and Pearle Service Corporation (collectively, the "BORROWERS"), the Lenders and the Administrative Agent, and the other Secured Parties (as defined below) parties hereto. W I T N E S S E T H: -------------------- WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make extensions of credit to the Borrowers, jointly and severally, upon the terms and subject to the conditions set forth therein; WHEREAS, the Borrowers are members of an affiliated group of companies that includes each other Grantor; WHEREAS, the proceeds of the extensions of credit will be used in part to enable the Borrowers to make valuable transfers to one or more of the other Grantors in connection with the operation of their respective businesses; WHEREAS, the Borrowers and the other Grantors are engaged in related businesses, and each such Grantor will derive substantial direct and indirect benefit from the making of the extensions of credit under the Credit Agreement; and WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective extensions of credit to the Borrowers under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Administrative Agent for the ratable benefit of the Secured Parties; NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrowers thereunder, each Grantor hereby agrees with the Administrative Agent, for the ratable benefit of the Secured Parties, as follows: SECTION 1. DEFINED TERMS 1.1 DEFINITIONS. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit 6 2 Agreement, and the following terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products, Instruments and Inventory. (b) The following terms shall have the following meanings: "AGREEMENT": this Guarantee and Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "BORROWER OBLIGATIONS": the collective reference to the unpaid principal of and interest on the Revolving Credit Loans and Reimbursement Obligations and all other obligations and liabilities of the Borrowers (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Revolving Credit Loans and Reimbursement Obligations and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrowers, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to the Administrative Agent or any Lender (or, in the case of any Hedge Agreement referred to below, any Affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, this Agreement, the other Loan Documents, any Letter of Credit or any Hedge Agreement entered into by any Borrower with any Lender (or, in the case of any Hedge Agreement, any Affiliate of any Lender) or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by any Borrower pursuant to the terms of any of the foregoing agreements). "CODE": the Uniform Commercial Code as from time to time in effect in the State of New York. "COLLATERAL": as defined in Section 3. "COLLATERAL ACCOUNT": any collateral account established by the Administrative Agent as provided in Section 6.1 or 6.4. "CONTRACTS" with respect to any Grantor, all contracts, agreements, instruments and indentures in any form, and portions thereof, to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same 7 3 may from time to time be amended, supplemented or otherwise modified, including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of such Grantor to damages arising thereunder and (iii) all rights of such Grantor to perform and to exercise all remedies thereunder. "COPYRIGHTS": (i) all United States copyrights, whether published or unpublished (including, without limitation, those listed in SCHEDULE 6), all United States registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) all renewals thereof. "COPYRIGHT LICENSES": any written agreement naming any Grantor as licensor or licensee (including, without limitation, those listed in SCHEDULE 6), granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright. "GENERAL INTANGIBLES": all "general intangibles" as such term is defined in Section 9-106 of the Uniform Commercial Code in effect in the State of New York on the date hereof. "GUARANTOR OBLIGATIONS": with respect to any Guarantor, the collective reference to (i) the Borrower Obligations and (ii) all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement or any other Loan Document to which such Guarantor is a party, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by such Guarantor pursuant to the terms of this Agreement or any other Loan Document). "GUARANTORS": the collective reference to each Grantor other than the Borrowers. "HEDGE AGREEMENTS": as to any Person, all interest rate swaps, caps or collar agreements or similar arrangements entered into by such Person providing for protection against fluctuations in interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies, including, without limitation, all Interest Rate Protection Agreements and Permitted Hedging Arrangements with respect to currency exchange rates. 8 4 "INTELLECTUAL PROPERTY": the collective reference to the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses. "INTERCOMPANY NOTE": any promissory note evidencing loans made by any Grantor to any Borrower or any Subsidiary. "ISSUERS": the collective reference to the Persons identified on SCHEDULE 2 as the issuers of the Pledged Stock. "MAKERS": the collective reference to the Persons identified on SCHEDULE 2 as the makers of the Pledged Notes. "OBLIGATIONS": (i) in the case of each Borrower, the Borrower Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations. "PATENTS": (i) all letters patent of the United States, all reissues and extensions thereof, including, without limitation, any of the foregoing referred to in SCHEDULE 6, and (ii) all applications for letters patent of the United States and all divisions, continuations and continuations-in-part thereof, including, without limitation, any of the foregoing referred to in SCHEDULE 6. "PATENT LICENSE": all agreements providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered by a Patent, including, without limitation, any of the foregoing referred to in SCHEDULE 6. "PLEDGED NOTES": all promissory notes listed on SCHEDULE 2, all Intercompany Notes at any time issued to any Pledgor and all other promissory notes issued to or held by any Grantor (other than promissory notes issued in connection with extensions of trade credit by any Grantor in the ordinary course of business). "PLEDGED SECURITIES": the collective reference to the Pledged Notes and the Pledged Stock. "PLEDGED STOCK": the shares of Capital Stock listed on SCHEDULE 2, together with any other shares, stock certificates, options or rights of any nature whatsoever in respect of the Capital Stock of any Issuer that may be issued or granted to, or held by, any Grantor while this Agreement is in effect (PROVIDED that in no event shall any Grantor be required to pledge more than 65% of the Capital Stock of any foreign issuer pursuant to this Agreement). "PROCEEDS": all "proceeds" as such term is defined in Section 9-306(1) of the Uniform Commercial Code in effect in the State of New York on the date 9 5 hereof and, in any event, shall include, without limitation, all dividends or other income from the Pledged Securities, collections thereon or distributions or payments with respect thereto. "SECURED PARTIES": the collective reference to the Administrative Agent, the Lenders (including, without limitation, the Issuing Lender) and any Affiliate of any Lender which has entered into a Hedge Agreement with any Borrower or any Subsidiary. "SECURITIES ACT": the Securities Act of 1933, as amended from time to time. "TRADEMARKS": (i) all United States trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any political subdivision thereof, or otherwise, including, without limitation, any of the foregoing referred to in SCHEDULE 6, and (ii) all renewals thereof. "TRADEMARK LICENSE": any agreement providing for the grant by or to any Grantor of any right to use any Trademark, including, without limitation, any of the foregoing referred to in SCHEDULE 6. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof," "herein", "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Annex references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (c) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor's Collateral or the relevant part thereof. SECTION 2. GUARANTEE 2.1 GUARANTEE. (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Administrative Agent, for the ratable benefit of the Secured Parties and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrowers when due 10 6 (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2). (c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Administrative Agent or any other Secured Party hereunder. (d) The guarantee contained in this Section 2 shall remain in full force and effect until the earlier to occur of (i) the first date on which all the Borrower Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full, no Letter of Credit shall be outstanding and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrowers may be free from any Borrower Obligations or (ii) as to any Guarantor, the sale or other disposition of all of the Capital Stock of such Guarantor permitted under subsection 8.6 of the Credit Agreement and the release of such Guarantor from its Guarantee in accordance with subsection 10.11 of the Credit Agreement. (e) No payment made by any Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any other Secured Party from any Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Borrower Obligations or any payment received or collected from such Guarantor in respect of the Borrower Obligations), remain liable for the Borrower Obligations up to the maximum liability of such Guarantor hereunder until the earlier to occur of (i) the first date on which the Borrower Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated or (ii) the sale or other disposition of all of the Capital Stock of such Guarantor permitted under subsection 8.6 of the Credit Agreement and the release of such Guarantor from its Guarantee in accordance with subsection 10.11 of the Credit Agreement. 2.2 RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive 11 7 contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the other Secured Parties, and each Guarantor shall remain liable to the Administrative Agent and the Lenders for the full amount guaranteed by such Guarantor hereunder. 2.3 NO SUBROGATION. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Administrative Agent or any other Secured Party, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any other Secured Party against any Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Administrative Agent or any other Secured Party for the payment of the Borrower Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from any Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Administrative Agent and the other Secured Parties by the Borrowers on account of the Borrower Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Borrower Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the other Secured Parties, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Borrower Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 2.4 AMENDMENTS, ETC. WITH RESPECT TO THE BORROWER OBLIGATIONS. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Borrower Obligations made by the Administrative Agent or any other Secured Party may be rescinded by the Administrative Agent or such other Secured Party and any of the Borrower Obligations continued, and the Borrower Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any other Secured Party, and the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Majority Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any other Secured Party for the payment 12 8 of the Borrower Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any other Secured Party shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Borrower Obligations or for the guarantee contained in this Section 2 or any property subject thereto. 2.5 GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by the Administrative Agent or any other Secured Party upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between any Borrower and any of the Guarantors, on the one hand, and the Administrative Agent and the other Secured Parties, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrowers or any of the Guarantors with respect to the Borrower Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment. Each Guarantor hereby waives, to the extent it may legally do so, any and all defenses that it may have arising out of or in connection with any and all of the following: (a) the validity or enforceability of the Credit Agreement or any other Loan Document, any of the Borrower Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any other Secured Party, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Borrower against the Administrative Agent or any other Secured Party, (c) any change in the time, place, manner or place of payment, amendment, or waiver or increase in the Obligations, (d) any exchange, taking, or release of Collateral, (e) any change in the corporate structure or existence of any Borrower, (f) any application of Collateral to Obligations or (g) any other circumstance whatsoever (with or without notice to or knowledge of such Borrower or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of any Borrower for the Borrower Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Administrative Agent or any other Secured Party may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against any Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any other Secured Party to make any such demand, to pursue such other rights or remedies or to collect any payments from any Borrower, any other Guarantor or any other Person or to 13 9 realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of any Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any other Secured Party against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 2.6 REINSTATEMENT. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Borrower Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any other Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 2.7 PAYMENTS. Each Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without set-off or counterclaim in Dollars at the office of the Administrative Agent located at 425 Lexington Avenue, 7th Floor, New York, New York 10017. SECTION 3. GRANT OF SECURITY INTEREST Each Grantor hereby assigns and transfers to the Administrative Agent, and hereby grants to the Administrative Agent, for the ratable benefit of the Secured Parties, a security interest in, all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the "COLLATERAL"), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations of such Grantor: (a) all Accounts; (b) all Chattel Paper; (c) all Contracts; (d) all Documents; (e) all Equipment; 14 10 (f) all General Intangibles; (g) all Instruments; (h) all Intellectual Property; (i) all Inventory; (j) all Pledged Securities; (k) all books and records pertaining to any of the foregoing; and (l) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing; PROVIDED, HOWEVER that to the extent that the grant by such Grantor of a security interest pursuant to this Agreement in its right, title and interest in any Contracts or any General Intangibles or Copyright Licenses, Patent Licenses or Trademark Licenses arising under such Contracts is prohibited by such Contracts without the consent of any other party thereto, would give any other party to such Contracts the right to terminate its obligations thereunder, or is permitted with consent if all necessary consents to such grant of a security interest have not been obtained from the other parties thereto (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents), then a security interest in such right, title and interest shall not be granted pursuant to this Agreement; PROVIDED, FURTHER that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any Account or any money or other amounts due or to become due under any such Contracts. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrowers thereunder, each Grantor hereby represents and warrants to the Administrative Agent and each other Secured Party that: 4.1 REPRESENTATIONS IN CREDIT AGREEMENT. (a) In the case of each Guarantor, the representations and warranties set forth in Section 5 of the Credit Agreement as they relate to such Guarantor or to the Loan Documents to which such Guarantor is a party or to the Transaction Documents to which such Guarantor is a party, each of which is hereby incorporated herein by reference, are true and correct, and the Administrative Agent and each other Secured Party shall be entitled to rely on each of them as if they were fully set forth herein; PROVIDED that each reference in each 15 11 such representation and warranty to any Borrower's knowledge shall, for the purposes of this Section 4.1(a), be deemed to be a reference to such Guarantor's knowledge. 4.2 TITLE; NO OTHER LIENS. Except for the security interest granted to the Administrative Agent, for the ratable benefit of the Secured Parties, pursuant to this Agreement and the other Liens permitted to exist on the Collateral by the Credit Agreement, such Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, pursuant to this Agreement or as are permitted by the Credit Agreement or for which termination statements will be delivered on the Closing Date. 4.3 PERFECTED FIRST PRIORITY LIENS. Except with respect to (x) security interests in any Intellectual Property, to the extent that such security interests cannot be perfected by the filing of financing statements under the Uniform Commercial Code or by the filing and acceptance thereof in the United States Patent and Trademark Office or the United States Copyright Office or (y) security interests in any Intellectual Property in respect of which an interest has been acquired after the date hereof, to the extent that the filings and other actions specified in SCHEDULE 3 have not been completed (this clause not being deemed to constitute a waiver of the Grantor's obligations hereunder to complete such actions), the security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on SCHEDULE 3 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Administrative Agent in completed and duly executed form) will constitute valid perfected security interests in all of the Collateral in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, as collateral security for the Obligations of such Grantor, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for (i) unrecorded Liens permitted by the Credit Agreement which have priority over the Liens on the Collateral by operation of law and (ii) Liens described on SCHEDULE 8.3(h) TO THE CREDIT AGREEMENT. 4.4 CHIEF EXECUTIVE OFFICE. On the date hereof, such Grantor's jurisdiction of organization and the location of such Grantor's chief executive office or sole place of business are specified on SCHEDULE 4. 4.5 INVENTORY AND EQUIPMENT. On the date hereof, the Inventory and the Equipment (other than mobile goods) are kept at the locations listed on SCHEDULE 5. 4.6 FARM PRODUCTS. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 16 12 4.7 PLEDGED SECURITIES. (a) The shares of Pledged Stock pledged by such Grantor hereunder constitute (i) in the case of each domestic Issuer, all the issued and outstanding shares of all classes of the Capital Stock of each such domestic Issuer owned by such Grantor and (ii) in the case of each foreign Issuer, such percentage (not more than 65%) as is specified on SCHEDULE 2 of all the issued and outstanding shares of all classes of the Capital Stock of each such foreign Issuer. (b) All the shares of the Pledged Stock have been duly and validly issued and are fully paid and nonassessable. (c) Each of the Pledged Notes constitutes the legal, valid and binding obligation of the obligor with respect thereto, enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (d) Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Pledged Securities pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except the security interest created by this Agreement. 4.8 ACCOUNTS. (a) No amount payable to such Grantor under or in connection with any Account is evidenced by any Instrument or Chattel Paper which has not been delivered to the Administrative Agent. (b) None of the obligors on any Accounts is a Governmental Authority. (c) The amounts represented by such Grantor to the Lenders from time to time as owing to such Grantor in respect of the Accounts will at such times be accurate. 4.9 INTELLECTUAL PROPERTY. (a) SCHEDULE 6 lists all material Intellectual Property owned by such Grantor in its own name on the date hereof. (b) Except as set forth in SCHEDULE 6, to the best of such Grantor's knowledge, each Copyright, Patent and Trademark is on the date hereof valid, subsisting, unexpired, enforceable and has not been abandoned. (c) Except as set forth in SCHEDULE 6, none of the Copyrights, Patents or Trademarks is on the date hereof the subject of any licensing or franchise agreement. (d) To the best of such Grantor's knowledge, no holding, decision or judgment has been rendered by any Governmental Authority which would limit, cancel or question the validity of any Copyright, Patent or Trademark in any respect that could reasonably be expected to have a Material Adverse Effect. 17 13 (e) No action or proceeding is pending on the date hereof (i) seeking to limit, cancel or question the validity of any Copyright, Patent or Trademark, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Copyright, Patent or Trademark, or the Grantor's ownership thereof. SECTION 5. COVENANTS Each Grantor covenants and agrees with the Administrative Agent and the other Secured Parties that, from and after the date of this Agreement until the Obligations shall have been paid in full, no Letter of Credit shall be outstanding and the Commitments shall have terminated: 5.1 COVENANTS IN CREDIT AGREEMENT. In the case of each Guarantor, such Guarantor shall take, or shall refrain from taking, as the case may be, each action that is necessary to be taken or not taken, as the case may be, so that no Default or Event of Default is caused by the failure to take such action or to refrain from taking such action by such Guarantor or any of its Subsidiaries. 5.2 DELIVERY OF INSTRUMENTS AND CHATTEL PAPER. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be promptly delivered to the Administrative Agent, duly indorsed in a manner satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Agreement. 5.3 MAINTENANCE OF INSURANCE. (a) Such Grantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Inventory and Equipment against loss by fire, explosion, theft and such other casualties as are usually insured against in the same general area by companies engaged in the same or similar business and (ii) insuring such Grantor, the Administrative Agent and the other Secured Parties against liability for personal injury and property damage relating to such Inventory and Equipment, such policies to be in such form and amounts and having such coverage as are usually insured against in the same general area by companies engaged in the same or similar business. (b) All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Administrative Agent of written notice thereof, (ii) name the Administrative Agent as an additional insured party or loss payee, (iii) include deductibles consistent with past practice and (iv) be reasonably satisfactory in all other respects to the Administrative Agent. (c) The Borrowers shall deliver to the Administrative Agent reports of one or more reputable insurance brokers of the individual insurance companies with respect to such insurance during the month of March in each calendar year and such 18 14 supplemental reports with respect thereto as the Administrative Agent may from time to time reasonably request. 5.4 PAYMENT OF OBLIGATIONS. Such Grantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of such Grantor and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein. 5.5 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION. (a) Such Grantor shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 4.3 and shall defend such security interest against the claims and demands of all Persons whomsoever. (b) Such Grantor will furnish to the Administrative Agent and the other Secured Parties from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail. (c) At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby. 5.6 CHANGES IN LOCATIONS, NAME, ETC. Such Grantor will not, except upon 30 days' prior written notice to the Administrative Agent and delivery to the Administrative Agent of (a) all additional executed financing statements and other documents reasonably requested by the Administrative Agent to maintain the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to SCHEDULE 5 showing any additional location at which Inventory or Equipment shall be kept: (i) permit any of the Inventory or Equipment to be kept at a location other than those listed on SCHEDULE 5; 19 15 (ii) change the location of its chief executive office or sole place of business from that referred to in Section 4.4; or (iii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Administrative Agent in connection with this Agreement would become misleading. 5.7 NOTICES. Such Grantor will advise the Administrative Agent promptly, in reasonable detail, of: (a) any Lien of which such Grantor obtains actual knowledge (other than security interests created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would adversely affect the ability of the Administrative Agent to exercise any of its remedies hereunder; and (b) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby. 5.8 PLEDGED SECURITIES. (a) If such Grantor shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Administrative Agent and the other Secured Parties, hold the same in trust for the Administrative Agent and deliver the same forthwith to the Administrative Agent in the exact form received, duly indorsed by such Grantor to the Administrative Agent, if required, together with an undated stock power covering such certificate duly executed in blank by such Grantor and with, if the Administrative Agent so requests, signature guaranteed, to be held by the Administrative Agent, subject to the terms hereof, as additional collateral security for the Obligations (PROVIDED that in no event shall such Grantor be required to pledge more than 65% of the Capital Stock of any foreign issuer pursuant to this Agreement). Any sums paid upon or in respect of the Pledged Securities upon the liquidation or dissolution of any Issuer or Maker shall be paid over to the Administrative Agent to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Stock or any property shall be distributed upon or with respect to the Pledged Stock pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Administrative Agent, be delivered to the Administrative Agent to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Securities shall be received by such Grantor, such Grantor shall, 20 16 until such money or property is paid or delivered to the Administrative Agent, hold such money or property in trust for the Secured Parties, segregated from other funds of such Grantor, as additional collateral security for the Obligations. (b) Without the prior written consent of the Administrative Agent, such Grantor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Securities or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement), (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Pledged Securities or Proceeds thereof, or any interest therein, except for the security interests created by this Agreement or (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Administrative Agent to sell, assign or transfer any of the Pledged Securities or Proceeds thereof. (c) In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Pledged Stock issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Administrative Agent promptly in writing of the occurrence of any of the events described in Section 5.8(a) with respect to the Pledged Stock issued by it and (iii) the terms of Sections 6.3(c) and 6.7 shall apply to it, MUTATIS MUTANDIS, with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with respect to the Pledged Stock issued by it. 5.9 ACCOUNTS. (a) Other than in the ordinary course of business, such Grantor will not (i) grant any extension of the time of payment of any Account, (ii) compromise or settle any Account for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Account, (iv) allow any credit or discount whatsoever on any Account or (v) amend, supplement or modify any Account in any manner that could adversely affect the value thereof. (b) Such Grantor will deliver to the Administrative Agent a copy of each material demand, notice or document received by it that questions or calls into doubt the validity or enforceability of more than 10% of the aggregate amount of the then outstanding Accounts. 5.10 INTELLECTUAL PROPERTY. (a) Such Grantor (either itself or through licensees) will (i) use each material Trademark on each and every trademark class of goods applicable to its then current line as reflected in its then current catalogs, brochures and price lists in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) employ such Trademark with the 21 17 appropriate notice of registration, if applicable, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of any such Trademark unless the Administrative Agent, for the ratable benefit of the Secured Parties, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any such Trademark may become invalidated where such act or failure to act could reasonably be expected to have a Material Adverse Effect. (b) Such Grantor will not do any act, or omit to do any act, whereby any Patent may become abandoned or dedicated where such abandonment or dedication could reasonably be expected to have a Material Adverse Effect. (c) Such Grantor (either itself or through licensees) (i) will employ each material Copyright and (ii) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of the material Copyrights may become invalidated. Such Grantor will not (either itself or through licensees) do any act whereby any material portion of the material Copyrights may become injected into the public domain. (d) Such Grantor will notify the Administrative Agent immediately if it knows, or has reason to know, that any application or registration relating to any material Patent or material Trademark may become abandoned or dedicated, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office or any court or tribunal in the United States) regarding such Grantor's ownership of any material Patent or material Trademark or its right to register the same or to keep and maintain the same. (e) Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Patent or Trademark with the United States Patent and Trademark Office, such Grantor shall report such filing to the Administrative Agent within 45 days after the last day of the fiscal quarter in which such filing occurs. Upon the request of the Administrative Agent, such Grantor shall execute and deliver any and all agreements, instruments, documents, and papers as the Administrative Agent may request to evidence the Administrative Agent's and the Secured Parties' security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (f) Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Copyright with the United States Copyright Office, such Grantor shall report such filing to the Administrative Agent within 45 days after the last day of the fiscal quarter in which such filing occurs. Upon the request of the Administrative Agent, such Grantor shall execute and deliver any and all agreements, instruments, documents, and papers as 22 18 the Administrative Agent may request to evidence the Administrative Agent's and the Secured Parties' security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (g) Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the material Patents and Trademarks, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability where the failure to do so would result in a Material Adverse Effect. (h) In the event that any material Copyright, Patent or Trademark is infringed, misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Copyright, Patent or Trademark and (ii) if such Copyright, Patent or Trademark is of material economic value, promptly notify the Administrative Agent after it learns thereof and sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution. SECTION 6. REMEDIAL PROVISIONS 6.1 CERTAIN MATTERS RELATING TO ACCOUNTS. (a) At any time and from time to time after the occurrence and during the continuance of an Event of Default, the Administrative Agent shall have the right to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Administrative Agent may require in connection with such test verifications. At any time and from time to time after the occurrence and during the continuance of an Event of Default, upon the Administrative Agent's request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts. (b) The Administrative Agent hereby authorizes each Grantor to collect such Grantor's Accounts and the Administrative Agent may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Accounts, when collected by any Grantor, (i) shall be forthwith (and, in any event, within three Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Administrative Agent if required, in a Collateral Account maintained 23 19 under the sole dominion and control of the Administrative Agent, subject to withdrawal by the Administrative Agent for the account of the Secured Parties only as provided in Section 6.5, and (ii) until so turned over, shall be held by such Grantor in trust for the Administrative Agent and the other Secured Parties, segregated from other funds of such Grantor. Each such deposit of Proceeds of Accounts shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit. (c) At any time and from time to time after the occurrence and during the continuance of an Event of Default, at the Administrative Agent's request, each Grantor shall deliver to the Administrative Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Accounts, including, without limitation, all original orders, invoices and shipping receipts. 6.2 COMMUNICATIONS WITH OBLIGORS; GRANTORS REMAIN LIABLE. (a) The Administrative Agent in its own name or in the name of others may at any time and from time to time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Accounts and parties to the Contracts (in each case, to the extent constituting Collateral) to verify with them to the Administrative Agent's satisfaction the existence, amount and terms of any Receivables or Contracts. (b) Upon the request of the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall notify obligors on the Accounts and parties to the Contracts (in each case, to the extent constituting Collateral) that such Accounts and the Contracts have been assigned to the Administrative Agent, for the ratable benefit of the Secured Parties, and that payments in respect thereof shall be made directly to the Administrative Agent. (c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of the Accounts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither the Administrative Agent nor any Lender shall have any obligation or liability under any Account (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Administrative Agent or any other Secured Party of any payment relating thereto, nor shall the Administrative Agent or any other Secured Party be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Account (or any agreement giving rise thereto) to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 6.3 PLEDGED STOCK. (a) Unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given notice to the relevant 24 20 Grantor of the Administrative Agent's intent to exercise its corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted to receive all cash dividends paid in respect of the Pledged Stock and all payments made in respect of the Pledged Notes, in each case paid in the normal course of business of the relevant Issuer or Maker and consistent with past practice, to the extent permitted in the Credit Agreement, and to exercise all voting and corporate rights with respect to the Pledged Stock; PROVIDED, HOWEVER, that no vote shall be cast or corporate right exercised or other action taken which would be inconsistent with or result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document. (b) If an Event of Default shall occur and be continuing and the Administrative Agent shall give notice of its intent to exercise such rights to the relevant Grantor or Grantors, (i) the Administrative Agent shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Pledged Stock and make application thereof to the Obligations in such order as the Administrative Agent may determine, and (ii) any or all of the Pledged Stock shall be registered in the name of the Administrative Agent or its nominee, and the Administrative Agent or its nominee may thereafter exercise (x) all voting, corporate and other rights pertaining to such Pledged Stock at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to such Pledged Stock as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Stock upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by any Grantor or the Administrative Agent of any right, privilege or option pertaining to such Pledged Stock, and in connection therewith, the right to deposit and deliver any and all of the Pledged Stock with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Administrative Agent may determine), all without liability except to account for property actually received by it, but the Administrative Agent shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (c) Each Grantor hereby authorizes and instructs each Issuer or Maker of any Pledged Securities pledged by such Grantor hereunder to (i) comply with any instruction received by it from the Administrative Agent in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer or Maker shall be fully protected in so complying, and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to the Pledged Securities directly to the Administrative Agent. 6.4 PROCEEDS TO BE TURNED OVER TO ADMINISTRATIVE AGENT. In addition to the rights of the Administrative Agent and the other Secured Parties specified in Section 25 21 6.1 with respect to payments of Accounts, if an Event of Default shall occur and be continuing, and the Administrative Agent shall have instructed any Grantor to do so, all Proceeds received by such Grantor consisting of cash, checks and other near-cash items shall be held by such Grantor in trust for the Administrative Agent and the other Secured Parties, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Administrative Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Administrative Agent, if required). All Proceeds received by the Administrative Agent hereunder shall be held by the Administrative Agent in a Collateral Account maintained under its sole dominion and control. All Proceeds while held by the Administrative Agent in a Collateral Account (or by such Grantor in trust for the Administrative Agent and the other Secured Parties) shall continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 6.5. 6.5 APPLICATION OF PROCEEDS. At such intervals as may be agreed upon by the Borrowers and the Administrative Agent, or, if an Event of Default shall have occurred and be continuing, at any time at the Administrative Agent's election, the Administrative Agent may apply all or any part of Proceeds held in any Collateral Account in payment of the Obligations in such order as the Administrative Agent may elect. Any balance of such Proceeds remaining after the Obligations shall have been paid in full, no Letters of Credit shall be outstanding and the Commitments shall have terminated shall be paid over to the Borrowers or to whomsoever may be lawfully entitled to receive the same. 6.6 CODE AND OTHER REMEDIES. If an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Code or any other applicable law. Without limiting the generality of the foregoing, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Administrative Agent or any other Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Administrative Agent or any other Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived or released. 26 22 Each Grantor further agrees, at the Administrative Agent's request, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at such Grantor's premises or elsewhere. The Administrative Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.6, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the other Secured Parties hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Administrative Agent may elect, and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Code, need the Administrative Agent account for the surplus, if any, to any Grantor. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Administrative Agent or any other Secured Party arising out of the exercise by them of any rights hereunder, except to the extent arising as a result of the gross negligence or willful misconduct of the Administrative Agent or such other Secured Party. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. 6.7 REGISTRATION RIGHTS. (a) If the Administrative Agent shall determine to exercise its right to sell any or all of the Pledged Stock pursuant to Section 6.6, and if in the opinion of the Administrative Agent it is necessary or advisable to have the Pledged Stock, or that portion thereof to be sold, registered under the provisions of the Securities Act, the relevant Grantor will cause the Issuer thereof to (i) execute and deliver, and use its best efforts to cause the directors and officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Administrative Agent, necessary or advisable to register the Pledged Stock, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of the Pledged Stock, or that portion thereof to be sold, and (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of the Administrative Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto. Each Grantor agrees to cause such Issuer to comply with the provisions of the securities or "Blue Sky" laws of any and all jurisdictions which the Administrative Agent shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. (b) Each Grantor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions 27 23 contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Administrative Agent shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so. (c) Each Grantor agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Stock pursuant to this Section 6.7 valid and binding and in compliance with any and all other applicable Requirements of Law. Each Grantor further agrees that a breach of any of the covenants contained in this Section 6.7 will cause irreparable injury to the Administrative Agent and the Lenders, that the Administrative Agent and the Lenders have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.7 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement. 6.8 DEFICIENCY. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the Administrative Agent or any other Secured Party to collect such deficiency. SECTION 7. THE ADMINISTRATIVE AGENT 7.1 ADMINISTRATIVE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC. (a) Each Grantor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Administrative Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following: 28 24 (i) in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Administrative Agent for the purpose of collecting any and all such moneys due under any Account or with respect to any other Collateral whenever payable; (ii) in the case of any Copyright, Patent or Trademark, execute and deliver any and all agreements, instruments, documents and papers as the Administrative Agent may request to evidence the Administrative Agent's and the Lenders' security interest in such Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (iii) pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof; (iv) execute, in connection with any sale provided for in Section 6.6 or 6.7, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and (v) (i) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (ii) ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (iii) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (iv) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (v) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (vi) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, to give such discharges or releases as the Administrative Agent may deem appropriate; (vii) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Administrative Agent shall in its sole discretion determine; and (viii) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and do, at the Administrative Agent's option and such Grantor's 29 25 expense, at any time, or from time to time, all acts and things which the Administrative Agent deems necessary to protect, preserve or realize upon the Collateral and the Administrative Agent's and the other Secured Parties' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. Anything in this Section 7.1(a) to the contrary notwithstanding, the Administrative Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing. (b) If any Grantor fails to perform or comply with any of its agreements contained herein, the Administrative Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. (c) The expenses of the Administrative Agent incurred in connection with actions undertaken as provided in this Section 7.1, together with interest thereon at a rate per annum equal to the rate per annum at which interest would then be payable on past due ABR Loans under the Credit Agreement, from the date of payment by the Administrative Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Administrative Agent on demand. (d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 7.2 DUTY OF ADMINISTRATIVE AGENT. The Administrative Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Administrative Agent, any other Secured Party nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Administrative Agent and the other Secured Parties hereunder are solely to protect the Administrative Agent's and the other Secured Parties' interests in the Collateral and shall not impose any duty upon the Administrative Agent or any other Secured Party to exercise any such powers. The Administrative Agent and the other Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 30 26 7.3 EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the Code and any other applicable law, each Grantor authorizes the Administrative Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as the Administrative Agent reasonably determines appropriate to perfect the security interests of the Administrative Agent under this Agreement. A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. 7.4 AUTHORITY OF ADMINISTRATIVE AGENT. Each Grantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement or any amendment, supplement or other modification of this Agreement shall, as between the Administrative Agent and the Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Grantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. SECTION 8. MISCELLANEOUS 8.1 AMENDMENTS IN WRITING. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by each affected Grantor and the Administrative Agent, PROVIDED that any provision of this Agreement imposing obligations on any Grantor may be waived by the Administrative Agent in a written instrument executed by the Administrative Agent. 8.2 NOTICES. All notices, requests and demands to or upon the Administrative Agent or any Grantor hereunder shall be effected in the manner provided for in subsection 11.2 of the Credit Agreement; PROVIDED that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on SCHEDULE 1. 8.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES. Neither the Administrative Agent nor any other Secured Party shall by any act (except by a written instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any other Secured Party, any right, power or privilege hereunder 31 27 shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any other Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such other Secured Party would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 8.4 ENFORCEMENT EXPENSES; INDEMNIFICATION. (a) Each Guarantor agrees to pay or reimburse each Secured Party and the Administrative Agent for all their respective costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing any rights under this Agreement and the other Loan Documents to which such Guarantor is a party, including, without limitation, the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to each Secured Party and of counsel to the Administrative Agent. (b) Each Guarantor agrees to pay, and to save the Administrative Agent and the Secured Parties harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. (c) Each Guarantor agrees to pay, and to save the Administrative Agent and the Secured Parties harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement (collectively, the "INDEMNIFIED LIABILITIES") to the extent the Borrowers would be required to do so pursuant to Section 11.5 of the Credit Agreement. (d) The agreements in this Section 8.4 shall survive repayment of the Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents. 8.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Administrative Agent and the Secured Parties and their successors and assigns; PROVIDED that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent. 8.6 SET-OFF. Each Guarantor hereby irrevocably authorizes the Administrative Agent and each other Secured Party at any time and from time to time without notice to such Guarantor, any other Guarantor or any Borrower, any such notice 32 28 being expressly waived by each Guarantor and by the Borrowers, upon any amount remaining unpaid after it becomes due and payable by such Guarantor hereunder to set-off and appropriate and apply against any such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Administrative Agent or such other Secured Party to or for the credit or the account of such Guarantor, or any part thereof in such amounts as the Administrative Agent or such other Secured Party may elect. The Administrative Agent and each other Secured Party shall notify such Guarantor promptly of any such set-off and the application made by the Administrative Agent or such other Secured Party of the proceeds thereof; PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent and each other Secured Party under this Section 8.6 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Administrative Agent or such other Secured Party may have. 8.7 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 8.8 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.9 SECTION HEADINGS. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 8.10 INTEGRATION. This Agreement and the other Loan Documents represent the agreement of the Grantors, the Administrative Agent and the other Secured Parties with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any other Secured Party relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 SUBMISSION TO JURISDICTION; WAIVERS. Each Guarantor hereby irrevocably and unconditionally: 33 29 (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgement in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Guarantor at its address referred to in Section 8.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any exemplary, punitive or consequential damages. 8.13 ACKNOWLEDGEMENTS. Each Guarantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party; (b) neither the Administrative Agent nor any other Secured Party has any fiduciary relationship with or duty to any Guarantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Guarantors, on the one hand, and the Administrative Agent and the Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Secured Parties or among the Guarantors and the Secured Parties. 8.14 WAIVER OF JURY TRIAL. EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY 34 30 LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 8.15 ADDITIONAL GRANTORS. Each new domestic Subsidiary of any Borrower that is required to become a party to this Agreement pursuant to Section 7 of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto. 8.16 RELEASES. (a) At such time as the Revolving Credit Loans, the Reimbursement Obligations and the other Obligations shall have been paid in full, the Commitments have been terminated and no Letters of Credit shall be outstanding, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. At the request and sole expense of any Grantor following any such termination, the Administrative Agent shall deliver to such Grantor any Collateral held by the Administrative Agent hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination. (b) In connection with the sale or other disposition of all of the Capital Stock of any Guarantor or the sale or other disposition of Collateral permitted under subsection 8.6 of the Credit Agreement and the release of such Guarantor from its Guarantee or the release of the Collateral subject to such sale or other disposition, the relevant Borrower shall deliver to the Administrative Agent, at least ten Business Days prior to the date of the proposed release, a written request for release identifying such Guarantor or the relevant Collateral and the terms of the sale or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by such Borrower stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents. 35 31 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Collateral Agreement to be duly executed and delivered as of the date first above written. COLE VISION CORPORATION By: _______________________________ Title: THINGS REMEMBERED, INC. By: _______________________________ Title: COLE GIFT CENTERS, INC. By: _______________________________ Title: PEARLE, INC. By: _______________________________ Title: PEARLE SERVICE CORPORATION By: _______________________________ Title: BAY CITIES OPTICAL COMPANY By: _______________________________ Title: WESTERN STATES OPTICAL, INC. By: ________________________________ Title: 36 33 COLE VISION SERVICES, INC. By: ________________________________ Title: COLE MANAGEMENT SERVICES, INC. By: _______________________________ Title: COLE LENS SUPPLY, INC. By: ________________________________ Title: PEARLE VISIONCARE, INC. By: ________________________________ Title: PEARLE VISION MANAGED CARE - HMO OF TEXAS, INC. By: ________________________________ Title: 37 Annex 1 to Guarantee and Collateral Agreement ---------------------------------- ASSUMPTION AGREEMENT, dated as of ________________, 199_, made by ______________________________, a ______________ corporation (the "ADDITIONAL GRANTOR"), in favor of CANADIAN IMPERIAL BANK OF COMMERCE, as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") for the banks and other financial institutions (the "LENDERS") from time to time parties to the Credit Agreement referred to below and the other Secured Parties hereto (as defined below). All capitalized terms not defined herein shall have the meaning ascribed to them in such Credit Agreement. W I T N E S S E T H : --------------------- WHEREAS, Cole Vision Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and Pearle Service Corporation (collectively, the "BORROWERS"), the Lenders and the Administrative Agent, have entered into a Credit Agreement, dated as of November __, 1996 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"); WHEREAS, in connection with the Credit Agreement, the Borrowers and certain of their Affiliates (other than the Additional Grantor) have entered into the Guarantee and Collateral Agreement, dated as of November __, 1996 (as amended, supplemented or otherwise modified from time to time, the "GUARANTEE AND COLLATERAL AGREEMENT") in favor of the Administrative Agent, for the ratable benefit of the Secured Parties (as defined in the Guarantee and Collateral Agreement); WHEREAS, the Credit Agreement requires the Additional Grantor to become a party to the Guarantee and Collateral Agreement; and WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee and Collateral Agreement; NOW, THEREFORE, IT IS AGREED: 1. GUARANTEE AND COLLATERAL AGREEMENT. By executing and delivering this Assumption Agreement, the Additional Grantor, as provided in Section 8.15 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder. The information set forth in Annex 1-A hereto is hereby added to the information set forth in Schedules ____________ to the Guarantee and Collateral Agreement. The Additional Grantor hereby represents and warrants that each of the representations and warranties contained in Section 4 of the Guarantee and Collateral 38 2 Agreement is true and correct on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date. 2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written. [ADDITIONAL GRANTOR] By: ______________________________ Title: -----END PRIVACY-ENHANCED MESSAGE-----