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Exhibit 4.1  


 
 

AGREEMENT AND PLAN OF MERGER    
    
    Between    
    
    LUXOTTICA GROUP S.p.A.    
    
    COLORADO ACQUISITION CORP.    
    
    and    
    
    COLE NATIONAL CORPORATION    


    Dated as of January 23, 2004    
    






  



 
 

Table of Contents    
    



	ARTICLE I	 	THE MERGER	 	2
	 	 	Section 1.01. The Merger	 	2
	 	 	Section 1.02. Effective Time; Closing	 	2
	 	 	Section 1.03. Effects of the Merger	 	2
	 	 	Section 1.04. Certificate of Incorporation and By-Laws of the Surviving Corporation	 	3
	 	 	Section 1.05. Directors	 	3
	 	 	Section 1.06. Officers	 	3
	 	 	Section 1.07. Conversion of Shares	 	3
	 	 	Section 1.08. Conversion of Merger Sub Common Stock	 	3
	 	 	Section 1.09. Dissenting Shares	 	4
	 	 	Section 1.10. Company Stock-Based Arrangements	 	4
	

ARTICLE II	
 	

PAYMENT FOR SHARES	
 	

6
	 	 	Section 2.01. Payment for Shares	 	6
	

ARTICLE III	
 	

REPRESENTATIONS AND WARRANTIES OF THE COMPANY	
 	

8
	 	 	Section 3.01. Organization and Qualification; Subsidiaries	 	8
	 	 	Section 3.02. Certificate of Incorporation and By-Laws	 	9
	 	 	Section 3.03. Capitalization	 	9
	 	 	Section 3.04. Authority Relative to this Agreement	 	11
	 	 	Section 3.05. No Conflict; Required Filings and Consents	 	12
	 	 	Section 3.06. Compliance	 	13
	 	 	Section 3.07. SEC Reports and Financial Statements	 	13
	 	 	Section 3.08. Off-Balance Sheet Arrangements	 	14
	 	 	Section 3.09. Information	 	14
	 	 	Section 3.10. Litigation	 	15
	 	 	Section 3.11. Compliance with Applicable Laws	 	15
	 	 	Section 3.12. Employee Benefit Plans and Arrangements	 	15
	 	 	Section 3.13. Intellectual Property	 	17
	 	 	Section 3.14. Environmental Matters	 	17
	 	 	Section 3.15. Taxes	 	18
	 	 	Section 3.16. Absence of Certain Material Adverse Changes	 	19
	 	 	Section 3.17. Affiliate Transactions	 	19
	 	 	Section 3.18. Real Property	 	20
	 	 	Section 3.19. Labor Matters	 	20
	 	 	Section 3.20. Material Contracts	 	20
	 	 	Section 3.21. Opinion of Financial Advisor	 	21
	 	 	Section 3.22. Rights Agreement	 	21
	 	 	Section 3.23. HAL Standstill Waiver	 	21
	 	 	Section 3.24. Brokers	 	22
	

ARTICLE IV	
 	

REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUB	
 	

22
	 	 	Section 4.01. Organization and Qualification	 	22
	 	 	Section 4.02. Authority Relative to this Agreement	 	23
	 	 	Section 4.03. No Conflict; Required Filings and Consents	 	23
	 	 	Section 4.04. Information	 	24
	 	 	Section 4.05. Financing	 	24
	 	 	Section 4.06. Ownership of Shares	 	24





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	 	 	Section 4.07. Brokers	 	24
	

ARTICLE V	
 	

COVENANTS	
 	

25
	 	 	Section 5.01. Conduct of Business of the Company	 	25
	 	 	Section 5.02. Access to Information; Control of Operations	 	28
	 	 	Section 5.03. Further Assurances; Reasonable Best Efforts	 	29
	 	 	Section 5.04. Filings; Consents	 	30
	 	 	Section 5.05. Public Announcements	 	31
	 	 	Section 5.06. Indemnification; Employees and Employee Benefits	 	32
	 	 	Section 5.07. No Solicitation	 	35
	 	 	Section 5.08. Preparation of the Proxy Statement	 	37
	 	 	Section 5.09. Stockholder's Meeting	 	38
	 	 	Section 5.10. Notification of Certain Matters	 	38
	 	 	Section 5.11. State Takeover Laws	 	38
	 	 	Section 5.12. Stockholder Litigation	 	39
	 	 	Section 5.13. Merger Sub	 	39
	 	 	Section 5.14. No Acquisition of Shares	 	39
	

ARTICLE VI	
 	

CONDITIONS TO CONSUMMATION OF THE MERGER	
 	

39
	 	 	Section 6.01. Conditions to the Obligations of Each Party	 	39
	 	 	Section 6.02. Conditions to the Obligations of Parent and Merger Sub	 	39
	 	 	Section 6.03. Conditions to the Obligations of the Company	 	40
	

ARTICLE VII	
 	

TERMINATION; AMENDMENTS; WAIVER	
 	

41
	 	 	Section 7.01. Termination	 	41
	 	 	Section 7.02. Effect of Termination	 	42
	 	 	Section 7.03. Fees and Expenses	 	42
	 	 	Section 7.04. Amendment	 	44
	 	 	Section 7.05. Extension; Waiver	 	44
	

ARTICLE VIII	
 	

MISCELLANEOUS	
 	

44
	 	 	Section 8.01. Non-Survival of Representations and Warranties	 	44
	 	 	Section 8.02. Entire Agreement; Assignment	 	44
	 	 	Section 8.03. Validity	 	45
	 	 	Section 8.04. Notices	 	45
	 	 	Section 8.05. Governing Law; Jurisdiction	 	46
	 	 	Section 8.06. Waiver of Jury Trial	 	46
	 	 	Section 8.07. Descriptive Headings, etc.	 	46
	 	 	Section 8.08. Counterparts; Execution and Delivery by Facsimile	 	47
	 	 	Section 8.09. Parties in Interest; No Third Party Beneficiaries	 	47
	 	 	Section 8.10. Certain Definitions	 	47
	 	 	Section 8.11. Specific Performance	 	48




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AGREEMENT AND PLAN OF MERGER    
    


        AGREEMENT AND PLAN OF MERGER, dated as of January 23, 2004, by and among Luxottica Group S.p.A., an Italian corporation ("Parent"), Colorado Acquisition
Corp., a Delaware corporation and an indirect wholly-owned subsidiary of Parent ("Merger Sub"), and Cole National Corporation, a Delaware corporation (the "Company"). 


        WHEREAS,
the respective Boards of Directors of Parent, Merger Sub and the Company have approved and declared advisable this Agreement, which contemplates the merger of Merger Sub with
and into the Company, as set forth below (the "Merger"), in accordance with the General Corporation Law of the State of Delaware (the "DGCL") and upon the terms and subject to the
conditions set forth in this Agreement; 


        WHEREAS,
upon the consummation of the Merger, each issued and outstanding share of common stock, $.001 par value per share, of the Company (each a "Share" and collectively, the "Shares")
will be converted into the right to receive $22.50 per share in cash (without interest) (the "Merger Price"), upon the terms and subject to the limitations and conditions of this Agreement; 


        WHEREAS,
concurrently herewith, the Company has executed and delivered to HAL International N.V., a Netherlands Antilles corporation ("HAL"), a waiver (the "HAL Standstill
Waiver"), a copy of which has been delivered to Parent, pursuant to which the Company has waived certain of the provisions of the Standstill Agreement, dated as of November 22, 1999 (as it may
thereafter have been amended, the "HAL Standstill Agreement"), between the Company and HAL, on the terms and subject to the limitations specified therein; 


        WHEREAS,
as an inducement to Parent and Merger Sub to enter into this Agreement, concurrently herewith, Larry Pollock ("Pollock") has entered into an agreement (the "Pollock Voting
Agreement") with Parent and Merger Sub to vote his Shares in favor of this Agreement and the Merger on the terms and subject to the limitations specified therein; 


        WHEREAS,
the Board of Directors of the Company (the "Board") has approved the terms of the Pollock Voting Agreement; 


        WHEREAS,
the Board is recommending that the Company's stockholders approve this Agreement and the Merger; 


        WHEREAS,
the Board has taken such action as is necessary so that the restrictions on transactions with "interested stockholders" set forth in Section 203 of the DGCL (the
"Interested Stockholder Statute") and Article TENTH of the Company's certificate of incorporation do not apply and will not apply to Parent, Merger Sub or affiliates or associates of Parent or Merger
Sub as a result of the transactions contemplated by this Agreement and the Pollock Voting Agreement; and 



        WHEREAS,
Parent, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various
conditions to the Merger; 


        NOW,
THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, Parent, Merger Sub and the Company agree as
follows: 


 
 

ARTICLE I
  
    THE MERGER    
    



        Section 1.01.    The Merger.    Upon the terms and subject to the satisfaction or waiver of the conditions
hereof, and in accordance with the applicable provisions of this Agreement and the DGCL, at the Effective Time (as defined in Section 1.02), Merger Sub shall be merged with and into the
Company. Following the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") and an indirect 





 



wholly-owned
subsidiary of Parent. At the option of Parent and provided that such amendment does not delay the Effective Time, the Merger may be structured so that the Company shall be merged with and
into Merger Sub or another direct or indirect wholly-owned Subsidiary of Parent, with Merger Sub or such other Subsidiary of Parent continuing as the Surviving Corporation, or that another direct or
indirect wholly-owned Subsidiary of Parent shall be merged with and into the Company, with the Company as the Surviving Corporation; provided, however,
that (y) the Company shall be deemed not to have breached any of its representations and warranties herein which, absent such election, would not have been breached, and (z) such
election would not adversely affect in any manner the Company or the stockholders of the Company. As a condition to such election, the parties (and such additional Subsidiary) shall execute an
appropriate amendment to this Agreement in order to reflect such election. 


        Section 1.02.    Effective Time; Closing.    The closing (the "Closing") will be held at the offices of
Winston & Strawn, 200 Park Avenue, New York, New York at 10:00 A.M., New York, New York time, on the fifth business day following the date of the satisfaction or waiver of the conditions
set forth in Article VI (other than those conditions that by their nature are to be satisfied or waived at the Closing, but subject to the satisfaction or waiver of those conditions), or such
other place and time as Parent and the Company may agree (the "Closing Date"). On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as is required by, and executed in accordance with, the relevant provisions of Delaware law. The Merger
shall become effective at such time at which such Certificate of Merger shall be duly filed with the Secretary of State of the State of Delaware, or at such later time reflected in such Certificate of
Merger as shall be agreed by Parent and Company (the time that such Merger becomes effective, the "Effective Time"). 


        Section 1.03.    Effects of the Merger.    The Merger shall have the effects set forth in Section 259 of
the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. 


        Section 1.04.    Certificate of Incorporation and By-Laws of the Surviving Corporation.    


        (a)   At
the Effective Time, the restated certificate of incorporation of the Company, as in effect immediately prior to the Effective Time, shall be amended and restated to
read in its entirety as set forth in Exhibit A attached hereto and incorporated by reference herein, and, as so amended and restated, shall be the certificate of incorporation of the Surviving
Corporation, until thereafter amended in accordance with the provisions thereof and hereof and applicable law. 


        (b)   At
the Effective Time, the by-laws of the Company, as in effect immediately prior to the Effective Time, shall be amended and restated to read in their
entirety as set forth in Exhibit B attached hereto and incorporated by reference herein, and, as so amended and restated, shall be the by-laws of the Surviving Corporation, until
thereafter amended in accordance with the provisions thereof and hereof and applicable law. 



        Section 1.05.    Directors.    Subject to applicable law, the directors of Merger Sub immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation
or removal. 


        Section 1.06.    Officers.    The individuals specified by Parent in writing to the Company at least two
business days prior to the Closing Date shall be the initial officers of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their
earlier death, resignation or removal. 


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        Section 1.07.    Conversion of Shares.    At the Effective Time, by virtue of the Merger and without any action
on the part of the holders thereof, each Share issued and outstanding immediately prior to the Effective Time (other than any Shares held by Parent, Merger Sub, any wholly-owned Subsidiary of Parent
or Merger Sub, in the treasury of the Company or by any wholly-owned Subsidiary of the Company, which Shares, by virtue of the Merger and without any action on the part of the holder thereof, shall be
cancelled and shall cease to exist with no payment being made with respect thereto, and other than any Shares constituting Dissenting Shares (as defined below)) shall be converted into and represent
the right to receive in cash the Merger Price. At the Effective Time, all Shares that have been converted into the right to receive the Merger Price as provided in this Section 1.07 shall be
automatically cancelled and shall cease to exist and the holders of certificates which immediately prior to the Effective Time represented such Shares shall cease to have any rights with respect to
such Shares other than the right to receive the Merger Price, without interest thereon, upon surrender of such certificates in accordance with Article II hereof. 



        Section 1.08.    Conversion of Merger Sub Common Stock.    At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, each share of common stock, par value $.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $.001 per share, of the Surviving Corporation and shall constitute the only outstanding
shares of capital stock of the Surviving Corporation. 


        Section 1.09.    Dissenting Shares.    Notwithstanding anything contained in this Agreement to the contrary, no
Shares issued and outstanding immediately prior to the Effective Time, the holder of which (i) has not voted in favor of the Merger or consented thereto in writing, (ii) has demanded its
rights to appraisal in accordance with Section 262 of the DGCL, and (iii) has not effectively withdrawn or lost its rights to appraisal (the "Dissenting Shares"), shall be converted into
the right to receive the Merger Price. At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, all Dissenting Shares shall be cancelled and shall cease
to exist and shall represent the right to receive only those rights provided under the DGCL. If, after the Effective Time, any holder of Dissenting Shares withdraws, loses or fails to perfect its
rights to appraisal, then (i) such Dissenting Shares shall be treated as if they had been converted into the right to receive the Merger Price as of the Effective
Time and (ii) such holder shall also be entitled to those rights (without duplication) granted under Section 262 of the DGCL. The Company shall promptly notify Parent upon the receipt of
any written demands for appraisal under Section 262 of the DGCL and any withdrawals of such demands, and Parent shall have the right to participate in all negotiations and proceedings with
respect to such demands. The Company shall not settle, offer to settle or make any payment with respect to such demands unless it receives prior written consent from Parent. 


        Section 1.10.    Company Stock-Based Arrangements.    



        (a)    Company Options.    At the Effective Time, by virtue of the Merger and without any action on the part of the
holder thereof, all outstanding and unexpired options and similar rights to acquire Shares (other than Company Stock-Based Awards and rights to acquire Shares pursuant to the Stock Purchase Plan, as
such terms are defined in Section 1.10(b) and Section 1.10(c) below), regardless of whether or not such options or rights have vested (the "Company Options"), including, without
limitation, Company Options granted pursuant to the Company's (i) 1992 Management Stock Option Plan, (ii) 1993 Management Stock Option Plan, as amended, (iii) 1996 Management
Stock Option Plan, (iv) Amended and Restated 1998 Equity and Performance Incentive Plan, (v) 1999 Broad-Based Employee Stock Plan, and (vi) Amended and Restated Nonqualified Stock
Option Plan for Nonemployee Directors, as amended (collectively, the "Option Plans"), shall be cancelled and each holder of a cancelled Company Option shall be entitled to receive, at the Effective
Time, in consideration for the cancellation of each such Company Option, an amount in cash equal to the product of (x) the number of Shares subject to such Company Option immediately prior to
the 


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Effective
Time and (y) the excess, if any, of the Merger Price over the exercise price per Share subject to such Company Option, payable to such holder, without interest thereon. 


        (b)    Company Stock-Based Awards.    At the Effective Time, by virtue of the Merger and without any action on the
part of the holder thereof: (i) all restricted stock units, if any, outstanding immediately prior to the Effective Time under the Company's 1999 Broad-Based Employee Stock Plan that shall not
yet have been replaced by issued Shares upon the lapse of the applicable forfeiture condition, and (ii) all rights to receive Shares in lieu of fees for service as a director of the Company, if
any, outstanding immediately prior to the Effective Time under the Company's Non-Employee Director and Employee Deferred Compensation Plan that shall not yet have been replaced by issued
Shares (such restricted stock units and rights to receive Shares referred to in clauses (i) and (ii) are referred to herein as "Company Stock-Based Awards"), shall be cancelled and each
holder of a cancelled Company Stock-Based Award shall be entitled to receive, at the Effective Time, in consideration for the cancellation of such Company Stock-Based Award, an amount in cash equal to
the product of (x) the number of Shares subject to such Company Stock-Based Award immediately prior to the Effective Time and (y) the Merger Price, payable to such holder, without
interest thereon. All dividend equivalents, if any, credited to the account of each holder of a Company Stock-Based Award as of the Effective Time shall be distributed to the holder of such Company
Stock-Based Award at the Effective Time, payable to such holder, without interest thereon. 


        (c)    Stock Purchase Plan.    At the Effective Time, the Company's Amended and Restated 1999 Employee Stock Purchase
Plan (the "Stock Purchase Plan") shall be cancelled and each participant therein shall be entitled to receive, in lieu of any other amounts otherwise payable to such participant under the Stock
Purchase Plan with respect to the then current Offering Period (as defined therein), an amount in cash equal to the product of (x) the number of whole and fractional Shares, if any, that would
have been, but shall not yet have been, purchased for such participant pursuant to Section 9 of the Stock Purchase Plan in connection with a change of control of the Company (as defined
therein) and (y) the Merger Price, without interest thereon. 


        (d)    Restricted Stock Awards.    Any restrictions on each Share ("Restricted Share") issued under any of the Plans
(as defined in Section 3.12(a) below) or otherwise shall lapse immediately prior to, and effective upon the occurrence of, the Effective Time, and each Restricted Share shall be fully vested in
each holder thereof at such time, and each such Restricted Share will be treated at the Effective Time the same as, and have the same rights and be subject to the same conditions (including the
condition set forth in Section 2.01(f)) as, each Share not subject to any restrictions. All dividend equivalents, if any, credited to the account of each holder of a Restricted Share as of the
Effective Time shall be distributed to the holder of such Restricted Share at the Effective Time. 


        (e)    Actions.    Prior to the Effective Time, the Company shall deliver to the holders of Company Options and
Company Stock-Based Awards and each participant in the Stock Purchase Plan appropriate notices, in form and substance reasonably acceptable to Parent, setting forth such holders' rights pursuant to
this Agreement. The Company shall take all action as is necessary prior to the Effective Time to terminate all Option Plans and the Stock Purchase Plan (including such actions as are necessary to
amend each Option Plan and the Stock Purchase Plan to cancel the Company Options, Company Stock-Based Awards and other rights granted pursuant to such Option Plan or Stock Purchase Plan) so that at
and after the Effective Time, no current or former employee, director, consultant or other person shall have any option to purchase or right to receive any Company Options or Company Stock-Based
Awards, or shall be entitled under the Stock Purchase Plan to require the Company to purchase Shares for his or her benefit. Not more than ten nor less than three business days prior to the
anticipated Effective Time, the Company shall deliver to Parent a list, in form reasonably acceptable to Parent, of (x) the number of Company Options and Company Stock-Based Awards expected to
be outstanding immediately prior to the Effective Time, and the names of the holders thereof and (y) the number of Shares expected to be issuable pursuant to the Stock Purchase 


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Plan
as of the Effective Time and the names of the participants in the Stock Purchase Plan to whom such Shares are issuable, in each case together with the applicable addresses, tax identification
numbers and other information relating to such holders and participants as Parent may reasonably require in connection with the payments to be made pursuant to this Section 1.10. Parent may
take such actions, as promptly as practicable, prior to making any payment under this Section 1.10, as are reasonably necessary and appropriate in order to verify the right of any person to
receive such a payment hereunder, the identifying information relating to such person and whether any withholding is required with respect thereto and, if so, the amount thereof. 


 
 

ARTICLE II
  
    PAYMENT FOR SHARES    
    


        Section 2.01.    Payment for Shares.    


        (a)   From
and after the Effective Time, a bank or trust company mutually acceptable to Parent and the Company shall act as paying agent (the "Paying Agent") in effecting the
payment of the Merger Price in respect of certificates (the "Share Certificates") that, prior to the Effective Time, represented Shares entitled to payment of the Merger Price pursuant to
Section 1.07. Prior to the Effective Time, Parent shall enter into a paying agent agreement with the Paying Agent in form and substance reasonably acceptable to the Company. At or prior to the
Effective Time, Parent or Merger Sub shall deposit, or cause to be deposited, in trust with the Paying Agent the aggregate Merger Price to which holders of Shares shall be entitled at the Effective
Time pursuant to Section 1.07 (such funds being hereinafter referred to as the "Exchange Fund"). Parent shall be obligated to, from time to time, deposit any additional funds necessary to pay
the aggregate Merger Price with respect to Shares outstanding at the Effective Time. 



        (b)   Promptly
after the Effective Time, the Paying Agent shall, and Parent shall cause the Paying Agent to, mail to each record holder of Share Certificates that immediately
prior to the Effective Time represented Shares (other than Share Certificates representing Shares held by Parent or Merger Sub, any wholly-owned Subsidiary of Parent or Merger Sub, in the treasury of
the Company or by any wholly-owned Subsidiary of the Company, and other than Dissenting Shares) a form of letter of transmittal, in form and substance reasonably satisfactory to Parent, which shall
specify that delivery shall be effected, and risk of loss and title to the Share Certificates shall pass, only upon proper delivery of the Share Certificates to the Paying Agent, and instructions for
use in surrendering such Share Certificates and receiving the aggregate Merger Price in respect thereof. Upon the surrender of each such Share Certificate for cancellation to the Paying Agent or to
such additional agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the
holder of such Share Certificate shall be paid the Merger Price multiplied by the number of Shares formerly represented by such Share Certificate in consideration therefor, and such Share Certificate
shall forthwith be cancelled. Until so surrendered, each such Share Certificate (other than Share Certificates representing Shares held by Parent or Merger Sub, by any wholly-owned Subsidiary of
Parent or Merger Sub, in the treasury of the Company or by any wholly-owned Subsidiary of the Company, and other than Dissenting Shares) shall represent solely the right to receive the aggregate
Merger Price relating thereto. No interest or dividends shall be paid or accrued on the Merger Price. If the Merger Price (or any portion thereof) is to be delivered to any person other than the
person in whose name the Share Certificate formerly representing Shares surrendered therefor is registered, it shall be a condition to such right to receive such Merger Price that the Share
Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the person surrendering such Share Certificate shall pay to the Paying Agent any transfer or
other taxes required by reason of the payment of the Merger Price to a person other than the registered holder of the Share Certificate surrendered, or shall establish to the satisfaction of the
Paying Agent that such tax has been paid or is not applicable. 


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        (c)   Promptly
following the date which is 180 days after the Effective Time, the Paying Agent shall deliver to the Surviving Corporation all cash, Share Certificates
and other documents in its possession relating to the transactions described in this Agreement, and the Paying Agent's duties shall terminate. Thereafter, each holder of a Share Certificate formerly
representing a Share may surrender such Share Certificate to the Surviving Corporation and, subject to the applicable abandoned property, escheat and similar laws, receive in exchange therefor the
aggregate consideration relating thereto, without any interest or dividends thereon, as provided in this Agreement. 


        (d)   After
the Effective Time, the stock transfer books of the Company shall be closed and there shall be no transfers on the stock transfer books of the Company of any
Shares which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Share Certificates formerly representing Shares are presented to the Surviving Corporation or the
Paying Agent, they shall be surrendered and cancelled in exchange for the payment of the aggregate consideration as provided in this Agreement. 



        (e)   None
of Parent, Merger Sub, the Company nor the Surviving Corporation shall be liable to any holder of the Shares, Company Options, Company Stock-Based Awards or other
securities for any consideration to be paid in the Merger delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 


        (f)    Each
of the Surviving Corporation, Parent and the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Shares, Company Options, Company Stock-Based Awards or other securities such amounts as it is required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code") or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Surviving Corporation, Parent or
the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares, Company Options, Company Stock-Based Awards or other
securities in respect of which such deduction and withholding was made by the Surviving Corporation, Parent or the Paying Agent, as the case may be. 


        (g)   If
any Share Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Share Certificate to be
lost, stolen or destroyed and, if required by Parent or the Surviving Corporation, the posting by such person of a bond, in such reasonable amount as Parent or the Surviving Corporation may direct, as
indemnity against any claim that may be made against it with respect to the alleged loss, theft or destruction of such Share Certificate, the Paying Agent will issue in exchange for such lost, stolen
or destroyed Share Certificate, the Merger Price, without any interest thereon. 


        (h)   The
Paying Agent shall invest the funds constituting the Exchange Fund as directed by Parent. Any interest or other income resulting from such investment shall be paid
to Parent. The Exchange Fund shall not be used for any other purpose except as provided in this Agreement. 


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ARTICLE III
  
    REPRESENTATIONS AND WARRANTIES OF THE COMPANY    
    



        The Company hereby represents and warrants to Parent and Merger Sub, except as set forth in the disclosure schedule delivered by the Company to Parent and Merger
Sub prior to the date of the execution and delivery of this Agreement and identified as such by the Company (the "Company Disclosure Schedule"), that: 


        Section 3.01.    Organization and Qualification; Subsidiaries.    The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware. Section 3.01 of the Company Disclosure Schedule sets forth the number of shares of capital stock or other equity
interests owned by the Company and its Subsidiaries in its Significant Subsidiaries (as defined below) and the number of shares held by the Company in Pearle Europe B.V. and the percentage of all of
the issued and outstanding shares of capital stock or other equity interests of each such person represented by such shares. Each of the Company's Subsidiaries is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or organization, except where the failure to be so organized, existing or in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on the Company (as defined below). The Company and each of its Subsidiaries has the requisite power (corporate or otherwise) and authority to own, operate or
lease its properties and to carry on its business as it is now being conducted, and is duly qualified or licensed to do business, and is in good standing, in each jurisdiction in which the nature of
its business or the properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except where the failure to have such power or authority or to be so
qualified, licensed or in good standing would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The term "Subsidiary," as used in this Agreement, means, with
respect to any entity, any corporation, partnership, limited liability company or other organization, whether incorporated or unincorporated, which is consolidated with such entity for financial
reporting purposes. The term "Significant Subsidiary," as used in this Agreement, shall, as to the Subsidiaries of the Company, have the meaning set forth in Rule 1-02(w) of
Regulation S-X under the Securities Act of 1933, as amended (the "Securities Act") and as in effect on the date of this Agreement, as determined for the fiscal year ended
February 1, 2003, and shall also include certain Subsidiaries of the Company that are not covered by such definition but are specified as "Significant Subsidiaries" in Section 3.01 of
the Company Disclosure Schedule. Section 3.01 of the Company Disclosure Schedule sets forth the name, jurisdiction of incorporation and principal line of business of each Subsidiary of the
Company and identifies each Subsidiary that is a Significant Subsidiary. The term "Material Adverse Effect on the Company," as used in this Agreement, means any change or effect that is or would
reasonably be expected to be materially adverse to the business, financial condition or revenues of the Company and its Subsidiaries, taken as a whole, except for any such effects or changes arising
out of or relating to (i) the announcement of the transactions contemplated by this Agreement or actions by Parent, Merger Sub or the Company required to be taken pursuant to this Agreement,
(ii) changes in general economic or political conditions or the securities markets, (iii) changes in laws, rules, regulations or orders of any Governmental Entity (as defined herein) or
interpretations thereof by any Governmental Entity or changes in accounting rules, (iv) changes affecting generally the industries in which the Company or its Subsidiaries conduct business,
(v) the termination or failure to renew the license agreement to operate optical departments in Target Stores, whether at the end of the current contract term or following any extensions or
renewals thereof, provided the costs and expenses related thereto are not materially greater than the estimates disclosed in the Company's quarterly report on Form 10-Q for the
fiscal quarter ended November 1, 2003, (vi) the SEC Investigation Matters (as defined herein), including any settlement, compromise or consent made in compliance with the terms of this
Agreement or the entry of any order or decree in connection therewith or (vii) the case entitled People of the State of California v. Cole National Corporation, et. al. or related cases (the
"California Litigation 


7





 



Matters"),
including any settlement, compromise or consent made in compliance with the terms of this Agreement, but excluding any other settlement, compromise or consent or any change or effect
arising out of or relating to any other judgment, order or decree in connection therewith. 



        Section 3.02.    Certificate of Incorporation and By-Laws.    The Company has heretofore made
available to Parent and Merger Sub an accurate and complete copy of the certificate of incorporation and by-laws, each as amended to the date hereof, of the Company. Such certificate of
incorporation and by-laws are in full force and effect. The Company is not in violation of any provision of its certificate of incorporation or by-laws. 


        Section 3.03.    Capitalization.    The authorized capital stock of the Company consists of 40,000,000 Shares
and 5,000,000 shares of preferred stock ("Preferred Stock"), of which 400,000 shares of Preferred Stock are designated as Series A Junior Participating Preferred Stock. As of the close of
business on December 27, 2003, there were 16,645,571 Shares issued and outstanding, and 548,379 Shares were held in treasury and no shares of Preferred Stock were issued and outstanding. The
Company has no shares of capital stock reserved for issuance, except that, as of December 27, 2003, there were (i) 3,378,045 Shares reserved for issuance pursuant to the Option Plans,
the Stock Purchase Plan and the Company Stock-Based Awards and (ii) 400,000 shares of Series A Junior Participating Preferred Stock reserved for issuance pursuant to the Company's Rights
Agreement, dated as of November 22, 1999, by and between the Company and National City Bank, as Rights Agent (the "Rights Agreement"). As of the date of this Agreement, there are outstanding
Company Stock-Based Awards in the form of restricted stock units which have not yet been replaced by issued Shares representing an aggregate of 59,026 Shares. As of the date of this Agreement, there
are outstanding Company Stock-Based Awards in the form of rights to receive Shares in lieu of fees for service as a director of the Company that have not yet been replaced by issued Shares
representing an aggregate of 45,333 Shares. Set forth in Section 3.03 of the Company Disclosure Schedule are: (i) the number of Shares originally made subject to the Stock Purchase Plan;
(ii) the number of Shares that, as of January 1, 2004, had been issued pursuant to the Stock Purchase Plan or are issuable to participants in respect of the cycle ended
December 31, 2003; (iii) the number of Shares that, as of the date of this Agreement, remain issuable pursuant to the Stock Purchase Plan; and (iv) an estimate of the maximum
dollar amount that could be contributed to the Stock Purchase Plan in respect of the period from January 1 through June 30, 2004 based on the current salary of the participants. There
are no other shares of capital stock of the Company authorized, or, as of December 27, 2003, issued or outstanding. Section 3.03 of the Company Disclosure Schedule sets forth, as of
December 27, 2003, (i) the names of the record holders of all outstanding Company Options and the number of Shares, exercise prices and expiration dates of each grant to each such holder
and (ii) the names of the record holders of all outstanding Company Stock-Based Awards and the number of Shares issuable to each such holder. Since December 27, 2003, the Company has not
issued any shares of capital stock or securities exchangeable or convertible into capital stock except for (A) rights to acquire Series A Junior Participating Preferred Stock (the
"Preferred Stock Purchase Rights") issued pursuant to the Rights Agreement that attach to Shares issued since such date and prior to the date of this Agreement or pursuant to the following
clause (E), (B) Company Options granted pursuant to the Option Plans since such date and prior to the date of this Agreement or granted pursuant to the Option Plans since such date in
compliance with the terms of this Agreement, (C) Company Stock-Based Awards granted since such date and prior to the date of this Agreement or Company Stock-Based Awards issued in compliance
with the terms of this Agreement, (D) participation rights granted pursuant to the Stock Purchase Plan since such date and prior to the date of this Agreement or participation rights granted in
compliance with the terms of this Agreement, and (E) Shares issued pursuant to the Stock Purchase Plan or the exercise of Company Options or the conversion to Shares of Company Stock-Based
Awards granted prior to the date of this Agreement or in compliance with the terms of this Agreement. All of the outstanding Shares are, and all Shares which may be issued pursuant to the exercise of
outstanding Company Options, in respect of the Company Stock-Based Awards or under the Stock Purchase Plan, 


8





 



will
be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and nonassessable and are not subject to nor were they issued in violation of any
preemptive rights (or similar rights). There are no bonds, debentures, notes or other indebtedness having general voting rights (or convertible into, or exchangeable for, securities having such
rights) ("Voting Debt") of the Company or any of its Subsidiaries issued and outstanding. Except for the Company Options, the Company Stock-Based Awards, participation rights granted pursuant to the
Stock Purchase Plan, the Preferred Stock Purchase Rights referred to in the preceding provisions of this Section 3.03 (including, for any period after the date of this Agreement, those
constituting Permitted Issuances (as defined in
Section 5.01(c)) and options, subscriptions or other rights issued and outstanding which are held by the Company or any Subsidiary in any other Subsidiary, there are no existing options,
warrants, calls, subscriptions or other rights, agreements, arrangements or commitments of any character, relating to the issued or unissued capital stock of the Company or any of its Subsidiaries,
obligating the Company or any of its Subsidiaries to issue, transfer or sell or cause to be issued, transferred or sold any shares of capital stock or Voting Debt of, or other equity interest in, the
Company or any of its Subsidiaries or securities convertible into or exchangeable for such shares or equity interests, nor are there any obligations of the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, subscription or other right, agreement, arrangement or commitment. There are no outstanding contractual obligations of the Company or any of its
Subsidiaries to any third-party to repurchase, redeem or otherwise acquire any Shares or other capital stock of the Company or any of its Subsidiaries. Except for the HAL Standstill Agreement and the
Pollock Voting Agreement, to the knowledge of the Company, as of the date of this Agreement, there are no voting agreements with respect to the Shares which affect or relate to the voting of, or the
execution of written consents with respect to, or the solicitation of proxies relating to the voting of, any security of the Company or any of its Subsidiaries. Each of the outstanding shares of
capital stock of each of the Company's Subsidiaries is validly issued, fully paid and nonassessable, and, such shares of the Company's Subsidiaries are owned, beneficially and of record, by the
Company or by a Subsidiary of the Company, in each case, free and clear of any lien, claim, option, charge, security interest or encumbrance (any of the foregoing being a "Lien"), other than Liens
imposed by or arising under applicable law or which are not material, but in any event excluding any Lien in the nature of a consensual pledge or security interest. Neither the Company nor any
Subsidiary owns, directly or indirectly, any capital stock of, or any other interest in, any entity other than its Subsidiaries and Pearle Europe B.V. There are no outstanding contractual obligations
of the Company or any of its Subsidiaries to make a material investment (in the form of a loan, capital contribution or otherwise) in any entity other than a Subsidiary. 


        Section 3.04.    Authority Relative to this Agreement.    Except for the approval of the Company's stockholders
in connection with the consummation of the Merger, the Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby
have been duly and validly authorized, approved and declared advisable by the Board and no other corporate proceedings on the part of the Company are necessary to authorize or approve this Agreement
(other than, with respect to the Merger, the adoption of this Agreement by holders of a majority of the outstanding Shares and the filing of the Certificate of Merger as required by the DGCL). This
Agreement has been duly and validly executed and delivered by the Company and, assuming the due and valid authorization, execution and delivery of this Agreement by Parent and Merger Sub, constitutes
a legally valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to the enforcement of creditors' rights generally and (ii) is subject to general principles of equity. The Board, at a meeting
duly called and held on January 23, 2004 by adopting resolutions that, as of the date of this Agreement, are in full force and effect and have not been in any way modified or 


9





 



rescinded,
has duly taken all actions necessary under the DGCL and the Company's certificate of incorporation to (a) approve and adopt this Agreement and the transactions contemplated hereby
(including the Merger), (b) determine that this Agreement and the transactions contemplated hereby (including the Merger) are fair to and in the best interests of the Company and its
stockholders, (c) resolve to recommend that the stockholders of the Company approve this Agreement and the transactions contemplated hereby and (d) ensure that none of the restrictions
set forth in the Interested Stockholder Statute and Article TENTH of the Company's certificate of incorporation apply or will apply to Parent, Merger Sub, or to any other Subsidiary of Parent or the
transactions contemplated by this Agreement and the Pollock Voting Agreement, including, without limitation, the Merger. As a result of the foregoing actions, the only vote required to authorize and
approve the Merger is the affirmative vote of the holders of a majority of the Shares. 


        Section 3.05.    No Conflict; Required Filings and Consents.    



        (a)   Assuming
(i) compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and any requirements of any
foreign, supranational or other antitrust laws, (ii) the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange
Act") and any applicable state securities or "blue sky" laws are met, (iii) the filing of the Certificate of Merger and other appropriate instruments, if any, as required by the DGCL, is made,
(iv) the Consents referred to in Section 3.05(b) of the Company Disclosure Schedule are obtained or made and (v) compliance with any requirements of any applicable state franchise
laws and regulations ("Required Franchise Laws"), none of the execution and delivery of this Agreement by the Company, the performance or consummation by the Company of the transactions contemplated
hereby or compliance by the Company with any of the provisions hereof will (w) conflict with or violate the certificate of incorporation or by-laws of the Company or the comparable
organizational documents of any of its Significant Subsidiaries, (x) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment, decree, injunction or other binding
action or requirement of any Governmental Entity (as defined in Section 3.05(b) below) applicable to the Company or any of its Subsidiaries, or by which any of them or any of their respective
properties or assets may be bound or affected, (y) other than the accelerated vesting of Restricted Shares, Company Options and Company Stock-Based Awards, result in a breach or violation of, a
default under (or an event which with notice or lapse of time or both would become a default), or the triggering of any payment or other obligations to any of the Company's or any of its Subsidiaries'
present or former employees pursuant to, any of the Company's or any of its Subsidiaries' existing Employee Benefit Arrangements (as defined in Section 5.01(g) below) or any grant or award made
under any of the foregoing, or (z) result in a violation or breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or result in any loss of any benefit under, or the creation of any Lien on any of the property or assets of the Company or
any of its Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective assets or properties may be bound or affected, except, with respect to clauses (x), (y) and
(z), as would not, individually or in the aggregate, have a Material Adverse Effect on the Company or prevent the consummation of the Merger. 


        (b)   None
of the execution and delivery of this Agreement by the Company, the performance or consummation by the Company of the transactions contemplated hereby or compliance
by the Company with any of the provisions hereof will require any consent, waiver, approval, authorization, order, decree, license, or permit of, or registration or filing with or notification to (any
of the foregoing being a "Consent"), any government or subdivision thereof, domestic, foreign or supranational, or any administrative, governmental or regulatory authority, agency, commission,
tribunal or body, domestic, foreign or supranational (a "Governmental Entity") or any third party, except for (i) compliance with 


10





 



any
applicable requirements of the Exchange Act, (ii) the filing of the Certificate of Merger pursuant to the DGCL, (iii) compliance with the HSR Act and any requirements of any foreign,
supranational or other antitrust laws, (iv) compliance with any requirements of the Required Franchise Laws, and (v) Consents the failure of which to obtain or make would not,
individually or in the aggregate, have a Material Adverse Effect on the Company. 


        Section 3.06.    Compliance with Agreements.    Except as disclosed in the SEC Reports (as defined in
Section 3.07(a)) filed and publicly available prior to the date of this Agreement, neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its Subsidiaries is a party or, to the knowledge of
the Company, by which the Company or any of its Subsidiaries, or any property or asset of the Company or any of its Subsidiaries is bound or affected, including, without limitation, any Contract (as
defined in Section 3.20 below), except for such conflicts, defaults and violations which would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 


        Section 3.07.    SEC Reports and Financial Statements.    


        (a)   The
Company has filed with the United States Securities and Exchange Commission (the "SEC") all material forms, reports, schedules, registration statements, definitive
proxy statements and other documents required to be filed by the Company with the SEC since May 18, 2003 (as they have been amended since the time of their filing and including any current
report on Form 8-K that has been filed with or furnished to the SEC and any documents filed, furnished or incorporated by reference as exhibits to any such filing, collectively, the
"SEC Reports"). As of their respective dates, each SEC Report (including, without limitation, any financial statements or schedules included or incorporated by reference therein) complied as to form
in all material respects with the requirements of the Exchange Act or the Securities Act, and the rules and regulations of the SEC promulgated thereunder, that were applicable to such SEC Report, and
none of the SEC Reports contained when filed any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading. Other than Cole National Group Inc., which is required to file forms, reports and other documents with the SEC in
connection with its issued and outstanding 85/8% Senior Subordinated Notes due 2007 and 87/8% Senior Subordinated Notes due 2012, since May 18, 2003, no Subsidiary
of the Company is or has been required to file any form, report or other document with the SEC. 


        (b)   The
consolidated balance sheets as of February 1, 2003 and February 2, 2002 and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three fiscal years in the period ended February 1, 2003 (including the related notes and schedules thereto) of the Company contained in the Company's annual report on
Form 10-K for the fiscal year ended February 1, 2003 included in the SEC Reports present fairly, in all material respects, the consolidated financial position and the
consolidated results of operations and cash flows of the Company and its consolidated Subsidiaries as of the dates or for the periods presented therein in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved except as otherwise noted therein. 


        (c)   Except
as reflected, reserved against or otherwise disclosed in the financial statements (including the related notes and schedules thereto) of the Company included in
the SEC Reports filed and publicly available prior to the date of this Agreement, neither the Company nor any of its Subsidiaries has any liabilities or obligations (absolute, accrued, fixed,
contingent or otherwise) required to be set forth in a consolidated balance sheet of the Company and its Subsidiaries under GAAP, other than liabilities incurred in the ordinary course of business or
which would not have, individually or in the aggregate, a Material Adverse Effect on the Company. 


11





 



        (d)   The
Company's unaudited consolidated balance sheets as of May 3, 2003, August 2, 2003 and November 1, 2003, and the related consolidated statements
of income, stockholders' equity and cash flows for each period of thirteen weeks then ended, as applicable (collectively, the "Most Recent Financial Statements"), contained in the Company's quarterly
reports on Form 10-Q for the fiscal quarters ended May 3, 2003, August 2, 2003 and November 1, 2003, present fairly, in all material respects (subject to normal
year-end adjustments), the consolidated financial position and the consolidated results of operations and cash flows of the Company and its consolidated Subsidiaries as of the date or for
the periods presented therein in accordance with GAAP applied on a consistent basis during the periods involved, except as otherwise noted therein (including the related notes and schedules thereto). 



        (e)   The
Company has heretofore furnished to Parent an accurate and complete copy of all material agreements, documents or other instruments required to be, but which have
not yet been, filed with the SEC and any amendments or modifications which have not yet been filed with the SEC to agreements, documents or other instruments which previously had been filed by the
Company with the SEC pursuant to the Securities Act and the rules and regulations promulgated thereunder or the Exchange Act and the rules and regulations promulgated thereunder. 


        Section 3.08.    Off-Balance Sheet Arrangements.    Section 3.08 of the Company Disclosure
Schedule describes, and the Company has made available to Parent accurate and complete copies of the documentation creating or governing, all securitization transactions and other
"off-balance sheet arrangements" (as defined in Item 303(c) of Regulation S-K of the SEC) to which the Company or any of its Subsidiaries is a party and has any
continuing liability and which would be required to be disclosed pursuant to the Exchange Act in an annual or quarterly report required to be filed with the SEC. 


        Section 3.09.    Information.    None of the information supplied by the Company specifically for inclusion or
incorporation by reference in (i) the Proxy Statement (as defined in Section 5.08 below) or (ii) any other document filed or to be filed with the SEC in connection with the
transactions contemplated by this Agreement (the "Other Filings") will, at the respective times filed with the SEC and, in addition, in the case of the Proxy Statement, at the date it or any amendment
or supplement is mailed to stockholders of the Company, and at the time of the Special Meeting (as defined in Section 5.09 below), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they
were made, not misleading, provided that no representation is made by the Company with respect to information furnished by Parent or Merger Sub specifically for inclusion therein. The Proxy Statement
and the Other Filings made by the Company will, at the respective times filed with the SEC and mailed to the stockholders, comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder, if applicable, except that no representation is made by the Company with respect to statements made therein based on information supplied by
Parent or Merger Sub in writing specifically for inclusion in the Proxy Statement. 


12







  





        Section 3.10.    Litigation.    Except as disclosed in the SEC Reports filed and publicly available prior to
the date hereof, there is no legal action, suit, claim or legal, administrative or other proceeding, or, to the knowledge of the Company, investigation, pending or threatened against the Company or
any of its Subsidiaries that would, individually or in the aggregate, have a Material Adverse Effect on the Company, or prevent the consummation of the Merger, nor is there any judgment, decree,
injunction or order of any Governmental Entity or arbitrator outstanding against the Company or any of its Subsidiaries that would, individually or in the aggregate, have a Material Adverse Effect on
the Company or prevent the consummation of the Merger. 


        Section 3.11.    Compliance with Applicable Laws.    The Company and its Subsidiaries hold all permits,
licenses, variances, exemptions, orders and approvals of all Governmental Entities required in connection with the ownership or occupancy of their respective properties and assets and the operation of
their respective businesses, except for such permits, licenses, variances, exemptions, orders and approvals the failure of which to hold would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. Except as referred to in the SEC Reports filed and publicly available prior to the date hereof, the Company and its Subsidiaries are not in violation of any law, rule,
regulation or order of any Governmental Entity applicable to the Company or its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected,
including, without limitation, the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") (except that no representation or warranty is made in this Section 3.11 with respect to Environmental
Laws (as defined in Section 3.14) or the matters specifically covered by Sections 3.12 and 3.15), except for violations or possible violations that would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. 


        Section 3.12.    Employee Benefit Plans and Arrangements.    


        (a)   "Plans"
means all severance, benefit, deferred compensation, incentive compensation, stock option, bonus, welfare benefit and other employee benefit plans, programs and
policies providing benefits to any present or former director, officer or employee of the Company or any of its Subsidiaries, or any beneficiary or dependent of any such person (whether or not
written), sponsored or maintained by the Company or any of its Subsidiaries to which the Company or any of its Subsidiaries contributes or is obligated to contribute. Without limiting the generality
of the foregoing, the term "Plans" includes all employee welfare benefit plans within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder ("ERISA") and all employee pension benefit plans within the meaning of Section 3(2) of ERISA. An "ERISA Affiliate" means, with respect to the Company, any corporation,
person or trade or business which is a member of the group which is under common control with the Company, and which together with the Company is treated as a single employer within the meaning of
Section 414(b), (c), (m) or (o) of the Code. "Controlled Group Liability" means any and all liabilities (i) under Title IV of ERISA, (ii) under Section 302 of
ERISA, (iii) under Sections 412 and 4971 of the Code, (iv) arising as a result of a failure to comply with the continuation coverage requirements of Section 601 et seq. of ERISA
and Section 4980B of the Code, and (v) under corresponding or similar provisions of foreign laws or regulations. 


        (b)   Section 3.12
of the Company Disclosure Schedule includes a complete list of each material Plan. With respect to each written Plan, the Company has made available
to Parent a true, correct and complete copy of: (i) all plan documents, benefit schedules, trust agreements, and insurance contracts and other funding vehicles; (ii) the most recent
Annual Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current summary plan description, if any; (iv) the most recent annual financial report, if any;
(v) the most recent actuarial report, if any; and (vi) the most recent determination letter from the Internal Revenue Service (the "IRS"), if any. With respect to each material unwritten
Plan, the Company has made available to Parent a summary in reasonable detail of such Plan. 


13





 



        (c)   Except
as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, the Company and each of its Subsidiaries has complied, and is now
in compliance, with all provisions of ERISA, the Code and all laws and regulations applicable to the Plans, and, with respect to each Plan that is intended to be a "qualified plan" within the meaning
of Section 401(a) of the Code ("Qualified Plans"), the IRS has issued a favorable determination letter evidencing the Plan's compliance with the GUST amendment or an application for a favorable
determination letter has been or will be filed with the IRS within the applicable remedial amendment period under Code Section 401(b) and, to the knowledge of the Company, nothing has occurred
or is expected to occur that would adversely affect the qualified status of such Plan or any related trust. 


        (d)   Except
as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, all contributions required to be made to any Plan by applicable law
or regulation or by any Plan document, and all premiums due or payable with respect to insurance policies funding any Plan, have been timely made or paid in full or, to the extent not required to be
made or paid on or before the date hereof, have been fully reflected in the financial statements of the Company included in the SEC Reports and in the Most Recent Financial Statements to the extent
required under GAAP. There does not now exist, nor do any circumstances exist that would result in, any Controlled Group Liability that would be a material liability of the Company or its
Subsidiaries, taken as a whole, following the Closing. 


        (e)   Except
as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, (i) as of the date hereof, each Plan that is subject to
Section 302 of ERISA and Section 412 of the Code meets the minimum funding standards of Section 302 of ERISA and Section 412 of the Code (without regard to any funding
waiver); and (ii) as of the date hereof, neither the Company nor any of its ERISA Affiliates is required to provide security to such Plan pursuant to Section 307 of ERISA or
Section 501(a)(29) of the Code; and since its last valuation date, there have been no amendments to such Plan that materially increase the present value of accrued benefits. 


        (f)    No
Plan is a multiemployer plan, as defined in Section 3(37) of ERISA. Except for claims that would not, individually or in the aggregate, have a Material Adverse
Effect on the Company, no claims are pending against the Plans, or the Company or any of its Subsidiaries with respect to the Plans, except for benefit payments in the normal course of business. No
Plan provides benefits to current or former employees, beneficiaries, or dependents of the Company or its Subsidiaries which continue after termination of employment, other than as required by
Section 601 et seq. of ERISA. 


        Section 3.13.    Intellectual Property.    


        (a)   The
term "Intellectual Property," as used herein, shall mean all material patents, patent applications, patent disclosures, trademark registrations and trademark
applications, service mark registrations and service mark applications, certification mark registrations and certification mark applications, copyright registrations and copyright registration
applications, mask works registrations and mask works registration applications, both domestic and foreign, and internet domain names which are owned or used by the Company or any of its Subsidiaries. 


        (b)   Except
as would not, individually or in the aggregate, have a Material Adverse Effect on the Company and except as disclosed in the SEC Reports filed and publicly
available prior to the date of this Agreement: (i) the Company and each of its Subsidiaries owns all right, title and interest to, is licensed or otherwise has a valid right to use, all
Intellectual Property used in or necessary for the conduct of its business as currently conducted; (ii) to the knowledge of the Company, the use of any Intellectual Property by the Company and
its Subsidiaries does not infringe on or otherwise violate the rights of any person and is in accordance with any applicable license pursuant to which the Company or any Subsidiary acquired the right
to use any Intellectual Property; (iii) to the knowledge of the Company, no person has infringed upon or violated or is currently infringing or otherwise violating any right of the Company or
any of its Subsidiaries with respect to any Intellectual Property owned by or 


14





 



licensed
to the Company or its Subsidiaries; (iv) to the knowledge of the Company, since February 1, 2003, neither the Company nor any of its Subsidiaries has received any notice of any
claim of infringement, misappropriation or violation of the intellectual property or other proprietary rights of any person and no person has asserted or threatened to assert any challenge with
respect to any Intellectual Property used by the Company and its Subsidiaries; and (v) to the knowledge of the Company, no cancellation proceedings have been filed or threatened against the
Company with respect to any Intellectual Property owned or licensed by it. 


        Section 3.14.    Environmental Matters.    Except as disclosed in the SEC Reports filed and publicly available
prior to the date hereof, and except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, (i) there has been no Release of Hazardous Substances by the
Company or any of its Subsidiaries on any real property currently or, to the knowledge of the Company, formerly owned, leased or operated by the Company or any of its Subsidiaries that would require
notice or remedial action under applicable Environmental Law and no real property currently or, to the knowledge of the Company, formerly owned, leased or operated by the Company or any Subsidiary
thereof is contaminated with any Hazardous Substances in a manner which would require notice or remedial action under Environmental Law; (ii) no judicial or administrative proceeding, order,
judgment, decree, settlement or, to the knowledge of the Company, investigation is pending or, to the knowledge of the Company, threatened against the Company or its Subsidiaries relating to alleged
violations of Environmental Laws; (iii) since February 1, 2003, the Company and its Subsidiaries have not received in writing any claims, notices or correspondence alleging liability
under any Environmental Law related to Releases or threatened Releases of Hazardous Substances on real property currently or formerly owned, leased or operated by the Company or any of its
Subsidiaries, or liability for any off-site disposal of Hazardous Substances or contamination; and (iv) the business and operations of the Company and its Subsidiaries comply with
all Environmental Laws and the Company and its Subsidiaries have obtained all material permits, authorizations and licenses relating to Environmental Laws necessary for the operation of their
businesses; all such permits, authorizations and licenses are in full force and effect and the Company and its Subsidiaries are in compliance, in all material respects, with all terms and conditions
of such permits. "Environmental Law" means any applicable federal, state or local law, regulation, permit, order, decree or judicial opinion or other agency requirement having the force and effect of
law and relating to noise, odor, Hazardous Substances or protection of the environment or human health as it relates to the environment. "Hazardous Substance" means any toxic or hazardous substance or
waste that is regulated by or under authority of any Environmental Law, including any petroleum products, asbestos or polychlorinated biphenyls. "Release" means spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a Hazardous Substance into the environment, including the
abandonment or discarding of barrels, containers, and other closed receptacles containing any Hazardous Substance. 


        Section 3.15.    Taxes.    


        (a)   The
Company and each of its Subsidiaries have timely filed with the appropriate taxing authorities all material Tax Returns required to be filed, and all Tax Returns
filed by the Company and its Subsidiaries were prepared in accordance with applicable Law except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company. All
Taxes of the Company and each of its Subsidiaries shown to be due and payable on such Tax Returns have been paid and the Company has made adequate provisions in the Company's financial statements for
all payments of Taxes anticipated to be payable for all relevant taxable periods (or portions thereof). 


        (b)   Section 3.15(b)
of the Company Disclosure Statement lists, as of the date of this Agreement, the periods through which the Tax Returns required to be filed by the
Company or any of its Subsidiaries are being audited by the appropriate taxing authority or examined by the IRS, and the periods through which any assessments may be made by the IRS. All material
deficiencies and 


15





 



assessments
asserted as a result of such examinations or audits have been paid, settled, or adequately provided for in the Company's financial statements. 


        (c)   No
issue or claim has been asserted in writing for Taxes (i) the adverse determination of which would result in a deficiency or (ii) that has given rise to
a Lien against property of the Company or any of its Subsidiaries, except for those issues or claims that would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 



        (d)   As
of the date of this Agreement, there are no outstanding agreements or waivers extending the statutory period of limitations applicable to any Tax Returns of the
Company or any of its Subsidiaries. 


        (e)   Neither
the Company nor any of its Subsidiaries since they have been Subsidiaries of the Company (i) has been a member of a group filing consolidated returns for
federal income tax purposes (except for a group that has the Company as its common parent) or (ii) is a party to a Tax sharing or a material Tax indemnity agreement for the benefit of a third
party or a similar agreement that remains in effect. 


        (f)    The
term "Tax," as used in this Agreement, means any net income, capital gains, gross income, gross receipts, sales, use, transfer, ad valorem, franchise, profits,
license, capital, withholding, payroll, employment, excise, goods and services, severance, stamp, occupation, premium, property, windfall profits or other tax, charge, fee, levy, custom duties, or
other similar charge imposed by a taxing authority of the United States or any state, local, or foreign government or agency or subdivision thereof, including any interest, penalties, additions to
tax, or additional amounts accrued under applicable law or charged by any taxing authority. 



        (g)   The
term "Tax Return," as used in this Agreement, means any return, declaration, report, claim for refund, or information return or other statement in relation to Taxes,
including any schedule or attachment thereto or amendment thereof. 


        Section 3.16.    Absence of Certain Material Adverse Changes.    Other than as previously disclosed in the SEC
Reports filed and publicly available prior to the date of this Agreement, since May 19, 2003, (i) there has not been an event which, with all other events, would have a Material Adverse
Effect on the Company and (ii) the business of the Company and its Significant Subsidiaries has been conducted, in all material respects, only in the ordinary course of business. In addition,
other than as previously disclosed in the SEC Reports filed and publicly available prior to the date of this Agreement, Section 3.16 of the Company Disclosure Schedule describes any action
taken or agreed to be taken by the Company or its Subsidiaries between February 1, 2003 and the date of this Agreement that, if taken after the date of this Agreement, would be proscribed by
Section 5.01(b), (d), (e), (f), (h), (m), (n) or (r). 


        Section 3.17.    Affiliate Transactions.    


        (a)   Except
as previously disclosed in the SEC Reports filed and publicly available prior to the date of this Agreement, since February 1, 2003, there have been no
transactions, agreements, arrangements or understandings between the Company or any of its Subsidiaries, on the one hand, and any affiliate thereof, on the other hand, that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act. 


        (b)   Section 3.17(b)
of the Company Disclosure Schedule lists all outstanding loans to any executive officer or director of the Company or any of its Subsidiaries,
other than loans in connection with cashless exercises of stock options or advancements of relocation, travel or other business expenses, including the date of the loan, the amount of the loan and the
date of any amendment to the terms of the loan. Since July 30, 2002, neither the Company nor any of its Subsidiaries extended or maintained credit, arranged for the extension of credit, or
renewed any extension of credit in the form 


16





 



of
a personal loan to or for any director or executive officer of the Company in violation of the Sarbanes-Oxley Act. 


        Section 3.18.    Real Property.    Neither the Company nor any of its Subsidiaries owns any real property. 



        Section 3.19.    Labor Matters.    As of the date of this Agreement, except for employees, not in excess of 200
in the aggregate, represented by Local 108, Retail Wholesale and Department Store Union, AFL-CIO and Local 888, United Food and Commercials Workers Union, AFL-CIO, no employee
of the Company or of any of its Subsidiaries is represented by any labor union or any collective bargaining organization. As of the date of this Agreement, no labor organization or group of employees
of the Company or any of its Subsidiaries has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation
proceeding presently pending or, to the knowledge of the Company, threatened to be brought or filed, with the National Labor Relations Board or any other labor relations tribunal or authority.
Section 3.19 of the Company Disclosure Schedule lists all employment agreements covering employees of the Company or any of its Subsidiaries providing for annual salaries of more than $100,000. 


        Section 3.20.    Material Contracts.    


        (a)   Section 3.20(a)
of the Company Disclosure Schedule lists all written and oral contracts, agreements, guarantees, leases, and executory contracts that exist as of
the date hereof to which the Company or any of its Subsidiaries is a party or by which it is bound, other than those contracts that are filed as exhibits to the SEC Reports filed and publicly
available prior to the date of this Agreement (the "Filed Contracts"), that (i) are required to be filed as an exhibit to an SEC Report, (ii) materially restrict or would materially
restrict the ability of the Company, Parent (after giving effect to the consummation of the Merger) or any of their respective Subsidiaries from competing or otherwise conducting their respective
businesses substantially as such businesses are conducted on the date of this Agreement, or (iii) contain minimum annual purchase requirements of the Company or its Subsidiaries of $1,000,000
or more, and which have a term of more than one year and cannot be cancelled on less than 90 days notice without a material penalty or other material financial cost to the Company or any of its
Subsidiaries (the contracts so described and the Filed Contracts are referred to herein collectively as the "Contracts"). 


        (b)   Neither
the Company nor any of its Subsidiaries has received any notice from Sears to the effect, or has otherwise been advised by Sears, that Sears will not renew or
will terminate its licensing arrangements with the Company and its Subsidiaries with respect to one-third or more of the then current total number of the Sears stores in which the Company
has a licensed department and the stores in which it holds a license to use the Sears name. As of the date of this Agreement, neither the Company nor any of its Subsidiaries has received any notice
from BJ's that it will not renew or will terminate its overall licensing arrangements with the Company and its Subsidiaries. 


        Section 3.21.    Opinion of Financial Advisor.    The Board received, at its meeting held on January 23,
2004, an opinion of Lehman Brothers Inc. to the effect that, as of such date, the consideration to be received by the holders of the Shares pursuant to the Merger is fair to the holders of the
Shares from a financial point of view. As of the date of this Agreement, such opinion is in full force and effect and Lehman Brothers Inc. has agreed to deliver such opinion to the Board in
writing and has authorized the inclusion of such opinion, to such effect, in the Proxy Statement, provided that the disclosures relating
to such opinion set forth in the Proxy Statement are reasonably satisfactory in form and substance to Lehman Brothers Inc. and its counsel. 


        Section 3.22.    Rights Agreement.    



        (a)   The
Company has made available to Parent an accurate and complete copy of the Rights Agreement. The Company has taken all action necessary to ensure that so long as this
Agreement shall 


17





 

not
have been terminated pursuant to Section 7.01: (i) neither Parent nor Merger Sub shall, by virtue of the approval, execution, delivery or announcement of this Agreement or of the
Pollock Voting Agreement or the consummation of the transactions contemplated hereby or thereby, be deemed an "Acquiring Person" (as that term is defined in the Rights Agreement), (ii) no
"Rights Certificates" (as that term is defined in the Rights Agreement) are issued or required to be issued to the stockholders of the Company by virtue of the approval, execution, delivery or
announcement of this Agreement or of the Pollock Voting Agreement or the consummation of the transactions contemplated hereby or thereby, (iii) no "Distribution Date," "Share Acquisition Date,"
or "Triggering Event" (as each such term is defined in the Rights Agreement) shall occur by virtue of the approval, execution, delivery or announcement of this Agreement or of the Pollock Voting
Agreement or the consummation of the transactions contemplated hereby or thereby and (iv) the Rights shall expire immediately prior to the Effective Time. So long as this Agreement has not been
terminated pursuant to Section 7.01, no other action is required to prevent the holders of Rights from having any rights under the Rights Agreement as a result of the Merger or other
transactions contemplated by this Agreement or the Pollock Voting Agreement. 


        (b)   The
Company has not amended the Rights Agreement, redeemed the Rights thereunder or taken any other action to make the Rights Agreement or the Rights thereunder
inapplicable, in each case, with respect to (i) any person or entity other than Parent, Merger Sub or the Company or (ii) any Acquisition Proposal (as defined in Section 5.07(d))
(or any other substantially similar proposal). 


        Section 3.23.    HAL Standstill Waiver.    The Company has executed and delivered to HAL the HAL Standstill
Waiver and has delivered to Parent an accurate and complete copy thereof. The HAL Standstill Waiver has been duly and validly executed and delivered by the Company, is in full force and effect and is
enforceable against the Company in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to the enforcement of creditors' rights generally and (ii) is subject to general principles of equity. As of the date of this Agreement, no other amendment, modification or waiver, or
any termination, of the HAL Standstill Agreement exists or has been entered into. 


        Section 3.24.    Brokers.    Except for the engagement of Lehman Brothers Inc., whose fees will be paid
by the Company, none of the Company, any of its Subsidiaries, or any of their respective officers, directors, or employees has employed any broker or finder or incurred any liability for any
investment banking or
brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement for which the Company or any of its Subsidiaries is responsible. The Company has
heretofore delivered to Parent accurate and complete copies of all written agreements between the Company and any attorneys, accountants, investments bankers, financial advisors, public relations
consultants, proxy solicitation firms and other experts and advisors entered into on or prior to the date of this Agreement pursuant to which any such person would be entitled to any payment of any
Merger Fees. "Merger Fees" means all fees and expenses paid or payable by or on behalf of the Company or any of its Subsidiaries to all attorneys, accountants, investment bankers, financial advisors,
public relations consultants, proxy solicitation firms and other experts and advisors incident to the negotiation, preparation and execution of this Agreement and the consummation of the transactions
contemplated hereby. 


        When
used in this Article III, references to "the knowledge of the Company" or similar phrases shall mean to the actual knowledge of the Chief Executive Officer, Chief Financial
Officer, General Counsel or any Senior Vice President of the Company after reasonable inquiry. 


18





 


 
 

ARTICLE IV
  
    REPRESENTATIONS AND WARRANTIES
  OF PARENT AND THE MERGER SUB    
    


        Parent and Merger Sub represent and warrant to the Company that: 


        Section 4.01.    Organization and Qualification.    Parent is a corporation duly organized, validly existing
and in good standing under the laws of Italy. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Parent and Merger Sub
has the requisite corporate power and authority to own, operate or lease its properties and to carry on its business as it is now being conducted, and is duly qualified or licensed to do business, and
is in good standing, in each jurisdiction in which the nature of its business or the properties owned, operated or leased by it makes such qualification, licensing or good standing necessary, except
where the failure to be so qualified, licensed or in good standing, would not, individually or in the aggregate, prevent or materially impair or delay the consummation of the Merger or the other
transactions contemplated by this Agreement or Parent or Merger Sub from satisfying their respective obligations under this Agreement. 


        Section 4.02.    Authority Relative to this Agreement.    Each of Parent and Merger Sub has all necessary
corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly authorized, approved and declared advisable by the Boards of Directors of Parent and Merger Sub, and approved by Luxottica
U.S. Holdings Corp., a Delaware corporation and the sole stockholder of Merger Sub ("Luxottica U.S. Holdings"), and no other corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize or approve this Agreement or to consummate the transactions contemplated hereby (other than, with respect to the Merger, the filing of the Certificate of Merger or other instruments as
required by the DGCL). This Agreement has been duly and validly executed and delivered by each of Parent and Merger Sub and, assuming the due and valid authorization, execution and delivery by the
Company, constitutes a legally valid and binding obligation of each of Parent and Merger Sub, enforceable against each of them in accordance with its terms, except that such enforceability
(i) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to the enforcement of creditors' rights generally and (ii) is subject to general
principles of equity. 


19







  





        Section 4.03.    No Conflict; Required Filings and Consents.    


        (a)    Assuming
(i) compliance with the HSR Act and any requirements of any foreign, supranational or other antitrust laws, (ii) the requirements of the Exchange
Act and any applicable state securities or "blue sky" laws are met and (iii) the filing of the Certificate of Merger and other appropriate instruments, if any, as required by the DGCL is made,
none of the execution and delivery of this Agreement by Parent or Merger Sub, the consummation by Parent or Merger Sub of the transactions contemplated hereby or compliance by Parent or Merger Sub
with any of the provisions hereof will (x) conflict with or violate the organizational documents of Parent or Merger Sub, (y) conflict with or violate any law, statute, ordinance, rule,
regulation, order, judgment, decree, injunction or other binding action or requirement of any Governmental Entity applicable to Parent or Merger Sub, or any of their Subsidiaries, or by which any of
them or any of their respective properties or assets may be bound or affected, or (z) result in a violation or breach of or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in any loss of any benefit under, or the creation of any Lien
on any of the property or assets of Parent, Merger Sub, or any of their respective Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Parent or Merger Sub or any of their respective Subsidiaries is a party or by which Parent, Merger Sub, or any of their respective Subsidiaries or any of
their respective assets or properties may be bound or affected, except with respect to clauses (y) and (z), as would not, individually or in the aggregate, prevent or materially impair or delay
the consummation of the Merger or the other transactions contemplated by this Agreement or Parent or Merger Sub from satisfying their respective obligations under this Agreement. 



        (b)    None
of the execution and delivery of this Agreement by Parent and Merger Sub, the performance or consummation by Parent and Merger Sub of the transactions contemplated
hereby or compliance by Parent and Merger Sub with any of the provisions hereof will require Parent or Merger Sub to obtain any Consent of any Governmental Entity or any third party, except for
(i) compliance with any applicable requirements of the Exchange Act, (ii) the filing of the Certificate of Merger pursuant to the DGCL, (iii) compliance with the HSR Act and any
requirements of any foreign, supranational or other antitrust laws, and (iv) Consents the failure of which to obtain or make would not, individually or in the aggregate, prevent or materially
impair or delay the consummation of the Merger or the other transactions contemplated by this Agreement or Parent or Merger Sub from satisfying their respective obligations under this Agreement. 


        Section 4.04.    Information.    None of the information supplied or to be supplied by Parent or Merger Sub in
writing specifically for inclusion or incorporation by reference in (i) the Proxy Statement or (ii) the Other Filings will, at the respective times filed with the SEC or any Governmental
Entity with regulatory jurisdiction over enforcement of any applicable antitrust laws and, in addition, in the case of the Proxy Statement, at the date it or any amendment or supplement is mailed to
stockholders, and at
the time of the Special Meeting and the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make
the statements made therein, in light of the circumstances under which they are made, not misleading, provided that no representation is made by either Parent or the Merger Sub with respect to
information furnished by the Company specifically for inclusion therein. The Other Filings made by Parent or Merger Sub will, at the respective times filed with the SEC, comply as to form in all
material respects with the provisions of the Exchange Act and the rules and regulations thereunder, if applicable, except that no representation is made by Parent or Merger Sub with respect to
statements made therein based on information supplied by the Company in writing specifically for inclusion in the Other Filings. 



        Section 4.05.    Financing.    Parent will have prior to the Effective Time the funds necessary to pay, or
cause Merger Sub to pay, the Merger Price with respect to the Shares outstanding immediately prior 


20





 



to
the Effective Time, to fund payments contemplated hereby with respect to the Company Options, Company Stock-Based Awards and Stock Purchase Plan, and to pay all fees and expenses related to the
transactions contemplated by this Agreement to be paid by it. Parent will provide such funds to Merger Sub or the Paying Agent at or prior to the Effective Time. 


        Section 4.06.    Ownership of Shares.    As of the date hereof, Parent and its Subsidiaries beneficially own
100 Shares. 


        Section 4.07.    Brokers.    Except for the engagement of Goldman Sachs SIM S.p.A., whose fees will be paid by
Parent, none of Parent, Merger Sub, or any of their respective Subsidiaries, officers, directors or employees, has employed any broker or finder or incurred any liability for any investment banking or
brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement for or with respect to which the Company is or might be liable prior to the Effective
Time. 


 
 

ARTICLE V
  
    COVENANTS    
    


        Section 5.01.    Conduct of Business of the Company.    Except as contemplated by this Agreement, by
Section 5.01 of the Company Disclosure Schedule or with the prior written consent of Parent (which consent shall not unreasonably be withheld, as and to the extent set forth in the next
sentence), during the period from the date of this Agreement to the earlier of (x) such time as this Agreement is
terminated in accordance with Section 7.01, and (y) the Effective Time, the Company will, and will cause each of its Subsidiaries to, (i) conduct its operations in all material
respects only in the ordinary course of business, (ii) use its reasonable efforts to preserve intact the business or organization of the Company and each of its Significant Subsidiaries, taken
as a whole, and to keep available the services of its and their present officers and key employees, generally, and (iii) use its reasonable efforts to preserve the goodwill of those having
business relationships with it. Without limiting the generality of the foregoing and except as otherwise contemplated by this Agreement or as set forth in Section 5.01 of the Company Disclosure
Schedule, the Company will not, and will not permit any of its Subsidiaries to, prior to the Effective Time, without the prior written consent of Parent (which consent shall not be unreasonably
withheld with respect to matters described in subparagraphs (h), (k), (l), (n), (o), (p), (t), and, as applicable (u): 


        (a)    adopt
any amendment to the certificate of incorporation or bylaws or comparable organizational documents in effect on the date hereof of the Company or any Subsidiary; 



        (b)    sell,
pledge, encumber or dispose of any stock owned by it in any of its Subsidiaries or in Pearle Europe B.V., except to a wholly-owned Subsidiary of the Company; 


        (c)    except
for (i) issuances of capital stock of the Company's Subsidiaries to the Company or a wholly-owned Subsidiary of the Company, (ii) issuances of
Shares with respect to the Company Options or Company Stock-Based Awards outstanding as of the date hereof or any Company Option or Company Stock-Based Award granted in compliance with the terms of
this Agreement, (iii) grants made pursuant to the Option Plans in the ordinary course of business of additional Company Options, but, in any event, without regard to whether or not in the
ordinary course of business, grants to purchase not more than 100,000 Shares in the aggregate, and having an exercise price that is no less than the current market price on the date of grant for the
Shares as quoted on The New York Stock Exchange or any other national exchange on which the Shares are traded, (iv) offerings and issuances of Shares under the Stock Purchase Plan on the terms
and conditions in effect on the date of this Agreement of up to, in the aggregate, the number of Shares that, as of the date of this Agreement, as set forth in Section 3.03 of the Company
Disclosure Schedule, remain issuable pursuant to the Stock Purchase Plan, (v) issuances of Company Stock-Based Awards, in the form of the right to receive 


21





 



Shares,
to directors of the Company in lieu of fees for service as a director under the Company's Non-Employee Director and Employee Defined Compensation Plan, pursuant to elections made
prior to the date of this Agreement, and (vi) issuances of the Preferred Stock Purchase Rights pursuant to the Rights Agreement that are attached to Shares issued in compliance with this
Agreement (collectively, clauses (i) through (vi), the "Permitted Issuances"), issue, reissue, sell, or convey, or authorize the issuance, reissuance, sale or conveyance of (x) shares of
capital stock (or other ownership interests) of any class (including shares held in treasury), or securities convertible or exchangeable into capital stock (or other ownership interests) of any class,
or any rights, warrants or options to acquire any such convertible or exchangeable securities or capital stock (or other ownership interests), or any Voting Debt or (y) any other securities in
respect of, in lieu of, or in substitution for, Shares outstanding on the date hereof; 


        (d)    declare,
set aside or pay any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any class or series of
its capital stock or otherwise make any payments to stockholders in their capacity as stockholders, other than any distribution by a Subsidiary of the Company to the Company or a wholly-owned
Subsidiary of the Company; 


        (e)    other
than in connection with the Permitted Issuances, split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire, or propose to redeem or purchase
or otherwise acquire, directly or indirectly, any shares of its capital stock, or any of its other securities; 


        (f)    amend,
modify or terminate, or waive any of the Company's rights under, the Rights Agreement, the HAL Standstill Agreement or the HAL Standstill Waiver; 


        (g)    increase
the compensation or fringe benefits payable or to become payable to any of its present or former directors, officers or employees (whether from the Company or
any of its Subsidiaries), or pay or award any benefit not required by any existing plan or arrangement (including, without limitation, the granting of stock options, stock appreciation rights, phantom
stock, shares of restricted stock or performance units pursuant to the Option Plans or otherwise), or grant any severance or termination pay to, or enter into any employment, severance or other
compensation agreement with, any former, existing or new director, officer or employee of the Company or any of its Subsidiaries, or establish, adopt, enter into, amend or waive any performance or
vesting criteria or accelerate vesting or exercisability under, any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, savings,
welfare, deferred compensation, employment, termination, severance or other employee benefit plan, agreement, trust, fund, policy or arrangement for the benefit or welfare of any former, existing or
new director, officer or employee (any of the foregoing being an "Employee Benefit Arrangement") or amend or modify the terms of any Employee Benefit Arrangement, except in each case (i) as
permitted by Section 5.01(c), Section 5.06(h) or Section 5.06(j), (ii) to the extent required by applicable law or regulation, (iii) to the extent required under
existing Employee Benefit Arrangements, including under existing severance programs, (iv) for normal increases in salary, wages, incentive compensation and benefits of employees who are junior
in title to directors in the ordinary course of business, that do not result, in the aggregate, in a material increase in benefits or compensation expense to the Company or any of its Subsidiaries,
(v) for renewals of existing collective bargaining agreements in the ordinary course of business, (vi) for an increase in the annual base salary of any employee whose title is director
or more senior (or the equivalent of any such title) that is not in excess of 4% of such person's annual base salary as was in effect as of December 31, 2003 (other than in the case of a
promotion from director to vice president), provided that after giving effect to any such increase (including any increase relating to promotions of
directors), the aggregate amount of the base salaries payable to all persons having such titles as of such effective date would not exceed 103% of the aggregate amount of the annual base salaries of
all persons having such titles as were in effect as of December 31, 2003, or (vii) renewals or extensions of annual incentive bonus plans as were in effect as of December 31, 2003
for employees who are junior in title to directors, in the ordinary course of business; 


22





 



        (h)    mortgage,
encumber, license, sell, lease or dispose of any assets (other than inventory) or securities (other than those referred to in Section 5.01(b), which
shall govern in respect thereof) which are material to the Company and its Subsidiaries, taken as a whole, in each case outside the ordinary course of business, other than the sale of franchises or
the sale of company stores to franchisees in the ordinary course of business, and, the sale of fixed assets and inventories at store locations that are closed; 



        (i)    sell,
lease, assign, convey or otherwise transfer or dispose of any assets of the Company or any of its Significant Subsidiaries to any Subsidiary which is not a
Significant Subsidiary; 


        (j)    create
or acquire any Subsidiary other than a Significant Subsidiary; 


        (k)    other
than guarantees of leases for franchisees or pursuant to existing agreements or commitments in the ordinary course of business, (i) incur, assume, guarantee
or pre-pay any indebtedness for borrowed money, except that the Company and its Subsidiaries may incur, assume or pre-pay indebtedness for borrowed money under existing
revolving credit agreements and lines of credit described in Section 5.01 of the Company Disclosure Schedule, (ii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for any obligations of any other person (other than the Company or a wholly-owned Subsidiary of the Company) in excess of $100,000, except in the ordinary
course of business, (iii) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, contingent or otherwise) in excess of $100,000, other than the payment, discharge
or satisfaction of liabilities or obligations in the ordinary course of business or those reflected or reserved against in the Most Recent Financial Statements, (iv) make any loans, advances or
capital contributions to, or investments in, any other person in excess of $100,000, except in the ordinary course of business and except for loans, advances, capital contributions or investments
between any wholly-owned Subsidiary of the Company and the Company or another wholly-owned Subsidiary of the Company or (v) authorize or make capital expenditures other than in accordance with
the purposes, amounts and time periods specified in Section 5.01(k) of the Company Disclosure Schedule; 


        (l)    settle
or compromise any suit or claim or threatened suit or claim where the uninsured amount to be paid is greater than $500,000, or settle or compromise or consent to
the entry of any order or decree in connection with the California Litigation Matters or the SEC Investigation Matters, except as permitted by Section 5.01(l) of the Company Disclosure
Schedule; 


        (m)    authorize,
recommend, propose or announce an intention to adopt a plan of complete or partial liquidation or dissolution of the Company or any of its Significant
Subsidiaries; 


        (n)    make
any material tax election not required by law or settle or compromise any material tax liability other than in the ordinary course of business; 


        (o)    other
than in the ordinary course of business (and other than in respect of the matters covered by Section 5.01(f), which shall govern in respect thereof),
(i) waive any rights of substantial value, or (ii) cancel or forgive any indebtedness for borrowed money in excess of $100,000 owed to the Company or any of its Subsidiaries other than
indebtedness of the Company or a wholly-owned Subsidiary of the Company; 


        (p)    voluntarily
permit any material insurance policy naming the Company or any of its Significant Subsidiaries as a beneficiary or a loss payee to be canceled or terminated,
except in the ordinary course of business; 


        (q)    enter
into or amend, or agree to the renewal of, any contract or agreement that would be a "Contract" as defined in Section 3.20, or any contract or agreement
providing for payment by either party of more than $1,000,000 in any 12-month period, for a term in excess of one (1) year, that cannot be terminated by the Company or one of its
Subsidiaries on less than 90 days' notice without material 


23





 



penalty
or other material financial costs to the Company or any of its Subsidiaries, other than (i) Contracts, contracts or arrangements between the Company or one or more of its Subsidiaries
and customers or other third-parties involved in its managed vision care business, (ii) Contracts, contracts or arrangements for the supply or purchase of goods or services as part of the
general corporate overhead or administrative functions of the Company or any of its Subsidiaries, in each case entered into or renewed in the ordinary course of business for a term of up to two
(2) years and that is terminable on less than 90 days' notice without material penalty or other material financial costs to the Company or any of its Subsidiaries,
(iii) amendments or waivers that are required by applicable law or regulations or (iv) automatic renewals of contracts, agreements or Contracts in accordance with the terms thereof; or
agree to an amendment or modification of any agreement relating to the payment of any Merger Fees to Lehman Brothers Inc. or any of its affiliates or Wachtell, Lipton, Rosen & Katz; 



        (r)    except
as may be required as a result of a change in law or under GAAP, make any material change in its methods, principles and practices of accounting; 


        (s)    acquire
(by merger, consolidation or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof, other than the
acquisition of franchised stores in the ordinary course of business, or acquire any material assets of any such entity or of any other person other than in the ordinary course of business; 



        (t)    enter
into any joint venture, partnership or similar agreement; or 


        (u)    agree
in writing or otherwise to take any of the foregoing actions. 


        Section 5.02.    Access to Information; Control of Operations.    


        (a)    From
the date hereof until the Effective Time, the Company shall, and shall cause its Subsidiaries, and shall use its reasonable efforts to cause each of their
respective officers, employees, counsel, accountants, financial advisors, representatives and agents (collectively, the "Company Representatives") to, provide Parent and Merger Sub and their
respective officers, employees, counsel, advisors, accountants, financial advisors, financial sources and representatives (collectively, the "Parent Representatives") reasonable access during normal
business hours and upon reasonable notice, to the offices and other facilities and to the books and records of the Company and its Subsidiaries, as will permit Parent and Merger Sub to make
inspections of such as either of them may reasonably require, and shall use its reasonable efforts to cause the Company Representatives and the Company's Subsidiaries to furnish Parent, Merger Sub and
Parent Representatives to the extent reasonably available with such financial and operating data and other information with respect to the business and operations of the Company and its Subsidiaries
as Parent and Merger Sub may from time to time reasonably request; provided that such access and inspections shall not unreasonably disrupt the
operations of the Company or its Subsidiaries. In addition, the Company shall, and shall cause the relevant Company Representatives to, promptly notify Parent and the relevant Parent Representatives
of all material developments in the SEC Investigation Matters or the California Litigation Matters and, in particular, furnish copies to Parent and the relevant Parent Representatives of all
non-privileged correspondence to and from the SEC and any other investigating agency or plaintiff and all deposition transcripts with respect to the SEC Investigation Matters or the
California Litigation Matters, and, at the request of Parent from time to time, discuss the current status thereof. Parent, Merger Sub and the Parent Representatives shall maintain the confidentiality
of any information obtained pursuant to this Section or otherwise in accordance with the terms of the Amended and Restated Confidentiality and Standstill Agreement dated September 18, 2003
between Parent and the Company (the "Confidentiality Agreement"). Notwithstanding anything to the contrary in this Agreement, the Company shall not be required to provide any information or access
that it reasonably believes would violate applicable law, rules or regulations or the terms of any confidentiality obligation by which it is bound, or cause forfeiture of attorney/client privilege;  provided, that in any case where the Company is relying on this sentence in not providing all or any of the information or access requested by Parent,
it shall promptly 


24





 



inform
Parent and/or the relevant Parent Representative of its reliance on this exception and indicate in such notice the specific reason for such reliance. 


        (b)    Nothing
contained in this Agreement shall give to Parent or Merger Sub, directly or indirectly, the right to control or direct the Company's or its Subsidiaries'
operations prior to the Effective Time. 


        Section 5.03.    Further Assurances; Reasonable Best Efforts.    



        (a)    Subject
to the terms and conditions herein provided and to applicable legal requirements, each of the Company, Parent and Merger Sub shall, and shall cause its
respective Subsidiaries to, cooperate and use its reasonable best efforts to take, or cause to be taken, all action, and to do, or cause to be done, in the case of the Company, consistent with the
fiduciary duties of the Board with the advice of the Company's outside counsel, and to assist and cooperate with the other parties hereto in doing, as promptly as practicable, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. 



        (b)    If
at any time prior to the Effective Time any event or circumstance relating to either the Company or Parent or Merger Sub or any of their respective Subsidiaries, is
discovered by the Company or Parent, as the case may be, and which should be set forth in an amendment to the Proxy Statement, the discovering party will promptly inform the other party of such event
or circumstance. If at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, including the execution of additional instruments,
the proper officers and directors of each party to this Agreement shall take all such necessary or desirable action. 



        (c)    Each
of the parties agrees to cooperate with each other in taking, or causing to take, at the direction of Parent, all actions necessary to delist the Shares from The
New York Stock Exchange, provided that such delisting shall not be effective until after the Effective Time. 


        Section 5.04.    Filings; Consents.    


        (a)    Upon
the terms and conditions hereof, each of the parties hereto shall, and shall cause its Subsidiaries to, use its best efforts to obtain as promptly as practicable
all Consents of any Governmental Entity or any other person required in connection with, and waivers of any breaches or violations of any Contracts, permits, licenses or other agreements that may be
caused by, the consummation of the transactions contemplated by this Agreement, including, without limitation, by (i) filing, or causing to be filed, a Notification and Report Form and related
material required under the HSR Act as soon as reasonably practicable after the date of this Agreement but, in any event, unless specifically agreed otherwise by the Company and Parent, no later than
thirty (30) calendar days after the date of this Agreement, and by using its best efforts to be able to certify, and to certify, as soon as reasonably practicable, its substantial compliance
with any such requests for additional information or documentary material that may be made under the HSR Act, unless Parent and the Company mutually determine that it is reasonable under the
circumstances not to comply substantially with any requests for additional information and documentary material under the HSR Act, (ii) promptly making all other required filings or submissions
to Governmental Entities, including, without limitation, filings under the Required Franchise Laws, (iii) cooperating with one another in (A) determining whether any other filings are
required to be made with, or Consents, permits, authorizations or approvals are required to be obtained from, any third party, the United States government or any other Governmental Entity in
connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (B) timely making all such filings and timely seeking all such
Consents, permits, authorizations or approvals, (iv) seeking to avoid the entry of, or seeking to have vacated or terminated, any decree, order, or judgment that would restrain, prevent or
delay the Closing, including, without limitation, by defending through litigation on the merits any claim asserted in any court by any person and (v) taking, or causing to be taken, all other
actions 


25





 



necessary
to avoid or eliminate each and every impediment under any antitrust, competition or trade regulation law that may be asserted by any Governmental Entity with respect to the Merger so as to
enable the Closing to occur as soon as reasonably possible, and in any event no later than the Final Termination Date (as defined in Section 7.01(b)), provided that the Company shall not be
required to obtain (x) any Consent from any person other than Governmental Entities unless Parent reimburses the Company for all reasonable out-of-pocket expenses
incurred in obtaining such Consent or (y) the Consent of the Company's senior lenders or of the holders of Cole National Group's 87/8% Senior Subordinated Notes or
85/8% Senior Subordinated Notes; provided, further that the Company shall not pay or agree to pay any fee or other similar charge to any such person in order to obtain its Consent
without the prior written approval of Parent not to be unreasonably withheld. In furtherance of the foregoing, Parent shall, and shall cause its Subsidiaries to, take all such actions, including,
without limitation (x) proposing, negotiating, committing to and effecting, by consent decree, hold separate order, or otherwise, the sale, divestiture or disposition of such assets or
businesses of Parent or any of its Subsidiaries or, after the Effective Time, of the Company or of any of its Subsidiaries and (y) otherwise taking or committing to take actions that limit or
would limit Parent's or its Subsidiaries' (including, after the Effective Time, the Company's and its Subsidiaries' as Subsidiaries of Parent) freedom of action with respect to, or its ability to
retain, one or more of their respective businesses, product lines or assets, in each case as may be required in order to avoid the entry of, or to effect the dissolution of, any injunction, temporary
restraining order, or other order in any suit or proceeding, which would otherwise have the effect of preventing or materially delaying the Closing; provided, however, that Parent shall not be
required to take any such action, and the failure to do so shall not be deemed to be a failure to exercise its best efforts as required by the preceding sentence, if: (i) such action would
require the sale, divestiture or disposition of businesses, product lines or assets of Parent (whether alone or together with businesses, product lines or assets of the Company) that accounted for
more than $55 million in consolidated net revenues of Parent, or (ii) subject to clause (i), such action would require the sale, divestiture or disposition of businesses, product
lines or assets of the Company alone, or of the Company and Parent, that accounted for more than $110 million in
consolidated net revenues of the Company alone, or of the Company and Parent in the aggregate, as the case may be, during, for each of clause (i) and (ii), the most recently completed period of
four consecutive fiscal quarters of Parent or the Company, as the case may be. The Company shall take such of the foregoing actions as Parent may request, provided that any such action is conditioned
upon the consummation of the Merger. Neither the Company nor any of its Subsidiaries shall propose, negotiate, or commit to any such sale, divestiture or disposition of any of its assets, businesses
or product lines without Parent's prior written consent. 


        (b)   Each
of the Company and Parent shall keep the other informed of any material communication, and provide to the other copies of all correspondence between it (or its
advisors) and any Government Entity relating to this Agreement and shall permit the other to review any material communication to be given by it to, and shall consult with the other in advance of any
telephone calls, meetings or conferences with, any Government Entity and, to the extent permitted, give the other party the opportunity to attend and participate in such telephone calls, meetings and
conferences. 


26







  





        Section 5.05.    Public Announcements.    The initial press release announcing the terms of this Agreement
shall be a joint press release. Thereafter, Parent, Merger Sub and the Company each agree to consult with each other before issuing any press release or otherwise making any public statement with
respect to the transactions contemplated by this Agreement, agree to provide to the other party for review a copy of any such press release or public statement, and shall not issue any such press
release or make any such public statement prior to such consultation and review, unless required by applicable law or any listing agreement with a securities exchange. 


        Section 5.06.    Indemnification; Employees and Employee Benefits.    


        (a)   Parent
agrees that all rights to indemnification now existing in favor of any individual who at or prior to the Effective Time was a director, officer, employee or agent
of the Company or any of its Subsidiaries or who, at request of the Company or any of its Subsidiaries, served as a director, officer, member, trustee or fiduciary of another corporation, partnership,
joint venture, trust, pension or other employee benefit plan or enterprise (together with such individual's heirs, executors or administrators, the "Indemnified Parties") as provided in the
certificates of incorporation and by-laws of the Company and its Subsidiaries existing and in effect on the date hereof and/or indemnification agreements existing and in effect on the date
hereof, shall survive the Merger, and shall continue in full force and effect for a period of not less than six years from the Effective Time (or, with respect to any indemnification agreement, the
term of such indemnification agreement, if such term is less than six years) unless otherwise required by law, and the indemnification provisions of the certificate of incorporation and
by-laws of the Surviving Corporation and the Subsidiaries of the Company and such indemnification agreements shall not be amended, repealed or otherwise modified,  provided that in the event any claim or
claims are asserted or made within such six-year period, all rights to indemnification in respect of
any such claim or claims shall continue until final disposition of any and all such claims. From and after the Effective Time, Parent shall cause Luxottica U.S. Holdings to assume, be jointly and
severally liable for, and honor, guarantee and stand surety for, and shall cause the Surviving Corporation to honor, in accordance with their respective terms, each of the covenants contained in this
Section 5.06. 


        (b)   Parent
agrees that, from and after the Effective Time, the Surviving Corporation shall cause to be maintained in effect for not less than six years (except as provided
in the last proviso of this Section 5.06(b)) from the Effective Time the current policies of directors' and officers' liability insurance maintained by the Company;  provided that the Surviving
Corporation may substitute therefor policies of at least the same coverage containing terms and conditions which are not
materially less advantageous to the beneficiaries of the current policies and with carriers having an A.M. Best "key rating" of A X or better, provided that such substitution shall not result
in any gaps or lapses in coverage with respect to matters occurring prior to the Effective Time, and provided further that the Surviving Corporation
shall first use its reasonable best efforts to obtain from such carriers a so-called "tail" policy providing such coverage and being effective for the full six year period referred to
above, and shall be entitled to obtain such coverage in annual policies from such carriers only if it is unable, after exerting such efforts for a reasonable period of time, to obtain such a "tail"
policy; and provided, further, that the Surviving Corporation shall not be required to pay an annual
premium in excess of 200% of the last annual premium paid by the Company prior to the date hereof as set forth in Section 5.06(b) of the Company Disclosure Schedule (or, in the case of a "tail"
policy obtained pursuant to the preceding proviso, shall not be required to pay an aggregate premium therefor in excess of an amount equal to six times 200% of such last annual premium) and, if the
Surviving Corporation is unable to obtain the insurance required by this Section 5.06(b), it shall obtain as much comparable insurance as possible for an annual premium (or an aggregate
premium, as the case may be) equal to such maximum amount. 


        (c)   In
the event Parent, the Surviving Corporation or any of their respective successors or assigns (i) consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its 


27





 



properties
and assets to any person, then and in either such case, proper provision shall be made so that the successors and assigns of Parent or the Surviving Corporation, as the case may be, shall
assume the obligations set forth in this Section. It is expressly agreed that the Indemnified Parties shall be third party beneficiaries of Section 5.06(a) and Section 5.06(b) above, and
of this Section 5.06(c). 


        (d)   For
a period of two years following the Closing Date (the "Continuation Period"), Parent shall cause the Surviving Corporation to provide employees and former employees
of the Company and its Subsidiaries (other than those employees covered by a collective bargaining agreement) as of the Effective Time ("Employees") with benefits that are no less favorable in the
aggregate, determined on a group rather than an individual basis, as those provided under the Company's Employee Benefit Arrangements (other than those related to the equity securities of the Company
and compensation and, except as specifically otherwise provided in this Agreement, retention and incentive compensation arrangements) in effect at the Effective Time;  provided, however, that nothing herein shall prevent the Surviving Corporation from amending or
terminating any specific plan, program, policy, practice or arrangement, or require that the Surviving Corporation provide or permit investment in the securities of Parent or the Surviving
Corporation, or interfere with the Surviving Corporation's right or obligation to make such changes as are necessary to comply with applicable law. Notwithstanding anything to the contrary set forth
herein, nothing herein shall preclude the Surviving Corporation from terminating the employment of any Employee for any reason for which the Company could have terminated such person prior to the
Effective Time. 


        (e)   Parent
and its affiliates shall honor all Employee Benefit Arrangements (including, without limitation, any severance, change of control and similar plans and
agreements) in accordance with their terms as in effect immediately prior to the Effective Time (except for such changes made to any Employee Benefit Arrangement between the date hereof and the
Effective Time other than in compliance with the terms of this Agreement), subject to any amendment or termination thereof after the Effective Time that may be permitted by the terms thereof, and
except that Parent and its affiliates shall be permitted to amend or terminate any plan, program, policy, practice or arrangement as permitted pursuant to the proviso in the first sentence in
Section 5.06(d) above. Notwithstanding the foregoing or Section 5.06(d), however: (i) Parent shall cause the Surviving Corporation to provide, during the Continuation Period, all
Employees who suffer a termination of employment with severance benefits no less favorable than those that would have been provided to such Employees under the Company's Severance Programs, as
described in the memorandum dated October 28, 2003 delivered by the Company's outside counsel to Parent's and Merger Sub's outside counsel, a copy of which is set forth in
Section 5.06(e) of the Company Disclosure Schedule, consisting of the Severance Schedule, the Cole Employees Severance Pay Plan, as amended and restated effective November 17, 1994, and
the references to "case by case," Canadian law and the program in Puerto Rico, referred to therein or annexed thereto; and (ii) Parent shall cause the Surviving Corporation to honor the New
Bonus Plan and the Retention Plan referred to in Sections 5.06(h) and Section 5.06(j), respectively. 


        (f)    For
all purposes under the employee benefit plans of Parent and its affiliates providing benefits to any Employees after the Effective Time (the "New Plans"), each
Employee shall be credited with his or her years of service with the Company and its Subsidiaries prior to the Effective Time (including predecessor or acquired entities or any other entities for
which the Company and its Subsidiaries have given credit for prior service), to the same extent as such Employee was entitled, as at the Effective Time, to credit for such service under any similar or
comparable plans (except to the extent such credit would result in a duplication of accrual of benefits in whole or in part). In addition, and without limiting the generality of the foregoing:
(i) each Employee immediately shall be eligible to participate, without any waiting time, in any and all New Plans to the extent coverage under such New Plan replaces coverage under a similar
or comparable plan in which such Employee participated immediately before the Effective Time (such plans, collectively, the "Old Plans"); and (ii) for purposes of each New Plan providing
medical, dental, pharmaceutical and/or vision benefits to any Employee, 


28





 



Parent
shall with respect to fully insured programs use its best efforts to, and with respect to self-insured programs shall, cause all pre-existing condition exclusions and
actively-at-work requirements of such New Plan to be waived for such Employee and his or her covered dependents, and Parent shall cause any eligible expenses incurred by such
Employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the date such Employee's participation in the corresponding New Plan begins to be taken into
account under such New Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements, as well as all maximums or caps with respect to
number of visits or annual or lifetime dollar limitations, applicable to such Employee and his or her covered dependents for the applicable plan year as if such amounts had been paid or such visits
occurred in accordance with such New Plan. 


        (g)   Parent
hereby acknowledges that a "change of control" (or similar phrase) within the meaning of any of the plans, contracts or agreements included in the Company's
Employee Benefit Arrangements, will occur at or prior to the Effective Time, as applicable. 



        (h)   The
Company shall establish a bonus plan for its fiscal year beginning February 1, 2004 (the "New Bonus Plan"), for its management employees, on terms and
conditions substantially similar to those applicable to its bonus plan for its fiscal year ending January 31, 2004 (the "Existing Bonus Plan"), with targets and levels of potential payment with
reference to such targets that are created and applied in a manner substantially similar to that applicable to the targets and levels of potential payments as are in effect under the Existing Bonus
Plan, providing for payments not more frequently than semi-annually, based on targets for six-month periods, and appropriate adjustments for the full year, all as reflected in
and as required by the specific terms of the New Bonus Plan set forth in Section 5.06(h) of the Company Disclosure Schedule, including, without limitation, the maximum specified therein for the
aggregate amounts paid or payable thereunder by the Company and the Surviving Corporation for the twelve-month period ending January 31, 2005. 


        (i)    For
the plan year in which the Effective Time occurs, Parent shall, or shall cause the Surviving Corporation to, cause the matching contribution formula as established
under the Company 401(k) Plan for such plan year to remain in effect; provided, however, that any
discretionary contributions under the Company 401(k) Plan for such plan year shall be made only if targets based on the Company's earnings before interest, tax, depreciation and amortization,
determined in January 2004 by agreement between Parent and the Company using the same criteria that were used to determine such targets for 2003, are met;  provided, further, however, that the aggregate amount of
discretionary matching contributions for such plan year shall not in any event exceed the amount specified in Section 5.06(i) of the Company Disclosure Schedule. For so long after the
Effective Time as the Surviving Corporation maintains the Company 401(k) Plan or Parent maintains a 401(k) plan with a loan feature for similarly situated employees, Parent shall cause the Company
401(k) Plan to retain the loan feature of such plan. 


        (j)    Parent
agrees to honor, and to cause the Surviving Corporation to honor, the retention plan (the "Retention Plan") for certain employees of the Company and its
Subsidiaries described in Section 5.06(j) of the Company Disclosure Schedule. 


        Section 5.07.    No Solicitation.    


        (a)   The
Company shall, and shall cause its Subsidiaries and shall use its reasonable best efforts to cause the Company Representatives and its directors to, immediately
cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Acquisition Proposal. The Company also will promptly
request each person that has heretofore executed a confidentiality agreement in connection with its consideration of an Acquisition Proposal and in connection with which discussions are taking place,
or have taken place during the twelve (12) month period preceding the date of this Agreement with respect to an Acquisition Proposal, to 


29





 



return
or destroy all confidential information heretofore furnished to such person by the Company or on the Company's behalf. 


        (b)   The
Company agrees that, prior to the Effective Time, it shall not, directly or indirectly, and shall not permit or cause any of its Subsidiaries to, nor shall it
authorize or permit any Company Representatives or any of its directors to, directly or indirectly, (i) initiate, solicit or encourage (including by way of furnishing non-public
information or assistance) the making of any proposal or offer concerning an Acquisition Proposal or (ii) engage in any discussions or negotiations concerning, or provide any
non-public information or data to any person relating to, an Acquisition Proposal, whether made before or after the date of this Agreement unless, after the date hereof, (A) the
Company receives a bona fide unsolicited written proposal that constitutes an Acquisition Proposal, (B) the Board in good faith reasonably determines, after consultation with its independent
financial advisors, that such Acquisition Proposal may reasonably be expected to result in a Superior Acquisition Proposal, (C) the Board determines in good faith that such action is necessary
in order for its directors to comply with their fiduciary duties under applicable law, (D) the Company (x) shall have provided at least 48 hours' advance written notice to Parent
that it intends to take such action, together with the identity of the person making the Acquisition Proposal and the terms and conditions of such proposal and (y) shall have received from such
person an executed customary confidentiality agreement containing terms no less stringent in all material respects, than those terms contained in the Confidentiality Agreement, including, in any
event, a prohibition on such person from purchasing or otherwise acquiring any capital stock of the Company while such person is engaged in negotiations with the Company, provided that the Company
shall promptly notify Parent if and when such prohibition is no longer in effect; provided, that such confidentiality agreement shall not contain any
exclusivity provision or other term that would prevent the Company from consummating the transactions contemplated by this Agreement, and (E) the Company shall have made available to Parent the
same nonpublic information being furnished to such person; provided, however, that nothing contained
herein shall prevent the Company from complying with Rule 14e-2 and Rule 14d-9 promulgated under the Exchange Act with regard to an Acquisition Proposal or from
making any disclosure to the stockholders of the Company as, in the good faith judgment of the Board (after consultation with outside counsel), is required by its fiduciary duties or under applicable
law. The Company shall promptly notify Parent of any material amendments or revisions to any such Acquisition Proposal. 


        (c)   The
Board (or any committee thereof) shall not (i) withdraw, modify or change, or propose publicly to withdraw, modify or change, in a manner adverse to Parent,
the Company Board Recommendation (as defined in Section 5.08) other than as permitted pursuant to Section 5.07(e), (ii) approve or recommend, or propose publicly to approve or
recommend, any Acquisition Proposal, or (iii) cause the Company or any of its Subsidiaries to enter into or approve any letter of intent, agreement in principle, acquisition agreement or
similar agreement relating to any Acquisition Proposal (an "Acquisition Agreement") unless (A) the Board has received an Acquisition Proposal which it has reasonably determined in good faith
(after having consulted with outside legal counsel and its independent financial advisors) is a Superior Acquisition Proposal and that it is necessary for the Board to terminate this Agreement or
withdraw, modify or change the Company Board Recommendation in order for its directors to comply with their fiduciary duties under applicable law, (B) the Company has notified Parent in writing
of the terms of the Superior Acquisition Proposal and the determinations described in clause (A) above and of its intent to take such action, and has taken into account any revised proposal
made by Parent to the Company (a "Revised Parent Proposal") within three business days after Parent's receipt of such notice and again has reasonably determined in good faith after consultation with
its outside legal counsel and independent financial advisors that such Acquisition Proposal (as the same may have been modified or amended) remains a Superior Acquisition Proposal, and (C) if a
Revised Parent Proposal has been made, and such Acquisition Proposal had been modified or amended prior to the Board's re-determination referred to in clause (B) above, the Board
has: (x) first, notified Parent of the revised terms of such Acquisition Proposal; (y) second, established a 


30





 



deadline,
and notified Parent and the person making such Acquisition Proposal thereof, to occur not less than three nor more than seven business days after giving such notice, for the submission of
final proposals from both Parent and such person; and (z) within seven business days after such deadline, has again reasonably determined in good faith after consultation with its outside legal
counsel and independent financial advisors that such Acquisition Proposal remains a Superior Acquisition Proposal and has notified Parent of such determination. 



        (d)   The
term "Acquisition Proposal" shall mean any offer or proposal (whether or not in writing and whether or not delivered to the Company's stockholders generally), from
any person to acquire, in a single transaction or series of transactions, by merger, tender offer, stock acquisition, asset acquisition, consolidation, liquidation, business combination or otherwise
(i) at least 15% of any class of equity securities of the Company or one or more of its Subsidiaries which in the aggregate constitutes 15% or more of the net revenues, net income or assets of
the Company and its Subsidiaries, taken as a whole, or (ii) assets of the Company and/or one or more of its Subsidiaries which in the aggregate constitutes 15% or more of the net revenues, net
income or assets of the Company and its Subsidiaries, taken as a whole, other than the transactions contemplated by this Agreement. The term "Superior Acquisition Proposal" shall mean any bona fide
unsolicited written Acquisition Proposal (x) on terms more favorable to the holders of Shares than the transactions contemplated by this Agreement, taking into account all of the terms and
conditions of such proposal and this Agreement (including any proposal by Parent to amend the terms of the transactions contemplated by this Agreement) and (y) reasonably capable of being
completed, taking into account the identity of the person or persons making the proposal and all financial, regulatory, legal and other aspects of such proposal. 


        (e)   Nothing
in this Agreement shall prohibit or restrict the Board, in circumstances not involving an Acquisition Proposal, from amending, modifying or withdrawing the
Company Board Recommendation to the extent that the Board determines in good faith (after consultation with outside legal counsel) that such action is necessary under applicable law in order for the
directors to comply with their fiduciary duties to the Company's stockholders. The Company shall give Parent and Merger Sub written notice of any such action taken by the Board not later than the
business day next succeeding the day on which such action is taken, setting forth in reasonable detail the action taken and the basis therefor. 


        Section 5.08.    Preparation of the Proxy Statement.    



        (a)   As
soon as reasonably practicable following the date of this Agreement, the Company shall prepare a preliminary proxy statement relating to the meeting of the Company's
stockholders to be held in connection with the Merger (together with any amendments thereof or supplements thereto, in each case in the form or forms mailed to the Company's stockholders, the "Proxy
Statement") and file the Proxy Statement with the SEC. The Proxy Statement shall include a recommendation of the Board (the "Company Board Recommendation") that its stockholders vote in favor of the
Merger and this Agreement (subject to Section 5.07 hereof). The Company shall use its reasonable best efforts to have the Proxy Statement cleared by the SEC as promptly as practicable after
such filing. The Company shall use its reasonable best efforts to cause the Proxy Statement to be mailed to the Company's stockholders as promptly as practicable and, in any event, within five
(5) business days after the Proxy Statement is cleared by the SEC. 


        (b)   If
at any time prior to the Effective Time any event shall occur that should be set forth in an amendment of or a supplement to the Proxy Statement, the Company shall
prepare and file with the SEC such amendment or supplement as soon thereafter as is reasonably practicable. Parent, Merger Sub and the Company shall cooperate with each other in the preparation of the
Proxy Statement, and the Company shall notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement and of any requests by the SEC for any amendment or supplement
thereto or of additional requests by the SEC for any amendment or supplement thereto or for additional information, and shall 


31





 



provide
to Parent promptly copies of all correspondence between the Company or any representative of the Company and the SEC with respect to the Proxy Statement. The Company shall give Parent and its
counsel the opportunity to review the Proxy Statement and all responses to requests for additional information by, and replies to comments of, the SEC before their being filed with, or sent to, the
SEC. Each of the Company, Parent and Merger Sub shall use its reasonable best efforts after consultation with the other parties hereto, to respond promptly to all such comments of and requests by the
SEC. 


        Section 5.09.    Stockholder's Meeting.    The Company shall, through its Board, take all action necessary, in
accordance with and subject to the DGCL and its certificate of incorporation and bylaws, to duly call, give notice of and convene and hold a special meeting of its stockholders not earlier than thirty
(30) calendar days, but in no event later than fifty (50) calendar days, after the Proxy Statement is first mailed to stockholders, to consider and vote upon the adoption and approval of
this Agreement and
the Merger (such special stockholder meeting, the "Special Meeting"), provided that such later date may be extended to the extent reasonably necessary
to permit the Company to file and distribute any material amendment to the Proxy Statement as is required by applicable law. The Company shall include in the Proxy Statement the Company Board
Recommendation and the Board shall use its reasonable best efforts to obtain the approval of the Merger and this Agreement, subject to the duties of the Board to make any further disclosure to the
stockholders (which shall not, unless expressly stated, constitute a withdrawal or adverse modification of such recommendation) and subject to the right to withdraw, modify or change such
recommendation in accordance with Section 5.07 hereof. If the Board withdraws, modifies or changes its recommendation of this Agreement or the Merger in a manner adverse to Parent or resolves
to do any of the foregoing, the Company shall nevertheless remain obligated to call, give notice of, convene and hold the Special Meeting. 


        Section 5.10.    Notification of Certain Matters.    Parent and the Company shall use their reasonable best
efforts to promptly notify each other of: (a) any notice or other communication from any person alleging that the Consent of such person is or may be required in connection with the
transactions contemplated by this Agreement if such Consent would be material to the transactions; (b) any material notice or other communication from any governmental or regulatory agency or
authority in connection with the transactions contemplated by this Agreement or regarding any violation, or alleged violation of law; (c) any actions, suits, claims, investigations or
proceedings in connection with the transactions contemplated by this Agreement commenced or, to the best of its knowledge, threatened against or involving or otherwise affecting the Company or any of
its Subsidiaries; or (d) the occurrence or non-occurrence of any fact or event which would be reasonably likely to cause any condition set forth in Article VI not to be
satisfied; provided, however, that no such notification, nor the obligation to make such notification,
shall affect the representations, warranties or covenants of any party or the conditions to the obligations of any party hereunder. 


        Section 5.11.    State Takeover Laws.    



        (a)   If
any "fair price," "moratorium," "control share acquisition," "interested stockholder" or other similar anti-takeover statute or regulation (each a
"Takeover Statute") (including the Interested Stockholder Statute) is or may become applicable to the Merger or the other transactions contemplated by this Agreement, each of Parent and the Company
shall grant such approvals and take such actions as are necessary so that such transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement, and otherwise act
to eliminate or minimize the effects of such Takeover Statutes. 


        (b)   Without
limiting the terms of Section 5.07, the Company covenants and agrees that it will not take any action that would make the Interested Stockholder Statute,
any other Takeover Statute or Article TENTH of the Company's certificate of incorporation inapplicable to an Acquisition Proposal (other than the Merger). 


32





 



        Section 5.12.    Stockholder Litigation.    The Company shall give Parent the opportunity to participate in the
defense of any stockholder litigation against the Company and/or its officers or directors relating to the transactions contemplated by this Agreement. 


        Section 5.13.    Merger Sub.    Parent will take all action necessary to cause Merger Sub to perform its
obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement. 


        Section 5.14.    No Acquisition of Shares.    Neither Parent nor any of its Subsidiaries shall acquire
beneficial ownership of any additional Shares prior to the earlier of the termination of this Agreement or the Effective Time. 


 
 

ARTICLE VI    
    


CONDITIONS TO CONSUMMATION OF THE MERGER  


        Section 6.01.    Conditions to the Obligations of Each Party.    The respective
obligations of Parent, Merger Sub and the Company to consummate the Merger are subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions: 


        (a)    Stockholder Approval.    The stockholders of the Company shall have duly adopted this Agreement, pursuant to
the requirements of the Company's certificate of incorporation and by-laws and applicable law. 


        (b)    Injunctions; Illegality.    The consummation of the Merger shall not be restrained, enjoined or prohibited by
any order, judgment, decree, injunction or ruling of a court of competent jurisdiction or any Governmental Entity and there shall not have been any statute, rule or regulation enacted, promulgated or
deemed applicable to the Merger by any Governmental Entity which prevents the consummation of the Merger or has the effect of making the Merger illegal. 


        (c)    HSR.    Any applicable waiting period (or any extension thereof), filings or approvals under the HSR Act or any
of the other applicable statutes or regulations identified on Section 6.01(c) of the Company Disclosure Schedule required to consummate the Merger under applicable law shall have expired, been
terminated, been made or been obtained. 


33







  





        Section 6.02.    Conditions to the Obligations of Parent and Merger Sub.    The obligations of Parent and
Merger Sub to consummate the Merger are subject to the satisfaction or waiver by Parent on or prior to the Closing Date of the following further conditions: 


        (a)    Performance.    The Company shall have performed in all material respects its covenants and obligations under
this Agreement required to be performed by it on or prior to the Closing Date. 


        (b)    Representations and Warranties.    The representations and warranties of the Company contained in this
Agreement, to the extent qualified by Material Adverse Effect, shall be true and correct in all respects at and as of the Closing Date as if made at and as of such time, except that the accuracy of
representations and warranties that by their terms speak as of the date of this Agreement or some other date will be determined as of such date. The representations and warranties of the Company
contained in this Agreement that are not so qualified by Material Adverse Effect, including those representations and warranties that are qualified by "material respects" or other similar phrases,
shall be true and correct at and as of the Closing Date as if made at and as of such time (without giving effect to such qualifications of "material respects" or any other similar phrase), except that
the accuracy of representations and warranties that by their terms speak as of the date of this Agreement or some other date will be determined as of such date and except for such failures to be true
and correct that would not have a Material Adverse Effect on the Company. Parent shall have received a certificate of the Company, executed by the Chief Executive Officer and Chief Financial Officer
of the Company, as to the satisfaction of the conditions set forth in Sections 6.02(a) and (b). 


        (c)    Consents.    The Consents of third parties or Governmental Entities, including filings, if any, with
Governmental Entities, set forth in Section 6.02(c) of the Company Disclosure Schedule (the "Closing Consents") shall have been obtained or made. 



        Section 6.03.    Conditions to the Obligations of the Company.    The obligations of the Company to consummate
the Merger are subject to the satisfaction or waiver by the Company on or prior to the Closing Date of the following further conditions: 


        (a)    Performance.    Each of Parent and the Merger Sub shall have performed in all material respects its covenants
and obligations under this Agreement required to be performed by it on or prior to the Closing Date. 



        (b)    Representations and Warranties.    The representations and warranties of Parent and the Merger Sub contained in
this Agreement, to the extent qualified with respect to materiality, shall be true and correct in all respects, and, to the extent not so qualified, shall be true and correct in all material respects,
at and as of the Closing Date as if made at and as of such time, except that the accuracy of representations and warranties that by their terms speak as of the date of this Agreement or some other
date will be determined as of such date. The Company shall have received certificates of each of Parent and Merger Sub, executed by their respective Chief Executive Officer and Chief Financial
Officer, as to the satisfaction of the conditions set forth in Sections 6.03(a) and (b). 


 
 

ARTICLE VII
  
    TERMINATION; AMENDMENTS; WAIVER    
    


        Section 7.01.    Termination.    This Agreement may be terminated and the Merger contemplated hereby may be
abandoned at any time prior to the Effective Time, notwithstanding approval thereof by the stockholders of the Company: 


        (a)   by
the mutual written consent of Parent and the Company; 


        (b)   by
Parent or the Company, if the Effective Time shall not have occurred on or prior to October 23, 2004 (as extended pursuant to the following proviso, the
"Initial Termination Date"); 


34





 



 provided that if the Company does not file a Notification and Report Form, including required exhibits and schedules, relating to the Merger and the transactions
contemplated by this Agreement, as required by the HSR Act within thirty (30) calendar days after the date of this Agreement, or within such longer period as may have been agreed to pursuant to
Section 5.04(a), the Initial Termination Date shall be extended by the number of calendar days in excess of thirty (30) (or, if applicable, the number of days in such longer period) that
elapse after the date of this Agreement prior to the date on which the Company makes such filing; provided, further, that if all of the conditions set
forth in Article VI have been satisfied other than (x) the conditions (the "HSR Conditions") set forth in Section 6.01(b) (to the extent that the order, judgment, decree,
injunction or ruling relates to a violation or alleged violation of antitrust, trade regulation or competition laws) or Section 6.01(c), (y) the last sentence of Section 6.02(b)
and (z) the last sentence of Section 6.03(b), as of the Initial Termination Date, the Initial Termination Date shall be automatically extended to January 23, 2005 (except that
such date shall be deemed to have been extended by the same number of days, if any, as the Initial Termination Date shall have been extended pursuant to the first proviso set forth above) (the "Final
Termination Date") and Parent, Merger Sub or the Company shall be entitled to terminate this Agreement under this Section 7.01(b) only if the Effective Time shall not have occurred on or prior
to the Final Termination Date; provided, further that the right to terminate this Agreement pursuant to this Section 7.01(b) shall not be
available to any party whose breach of the covenants set forth in Sections 5.03(a), 5.04, 5.08 or 5.09 has been the cause of, or resulted in, the failure of the Merger to be consummated by the Initial
Termination Date or the Final Termination Date, as applicable; 


        (c)   by
Parent or the Company if any court or other Governmental Entity shall have issued, enacted, entered, promulgated or enforced any law, order, judgment, decree,
injunction or ruling or taken any other action (that has not been vacated, withdrawn or overturned) restraining, enjoining or otherwise prohibiting the Merger and such law, order, judgment, decree,
injunction, ruling or other action shall have become final and nonappealable; provided that the party seeking to terminate pursuant to this
Section 7.01(c) shall have used its reasonable best efforts to challenge such law, order, judgment, decree, injunction or ruling; 


        (d)   by
the Company, (i) if there shall have occurred, on the part of Parent or Merger Sub, a breach of any representation, warranty, covenant or agreement contained
in this Agreement that (x) would result in a failure of a condition set forth in Section 6.03(a) or Section 6.03(b) and (y) which is not curable or, if curable, is not
cured within thirty (30) calendar days after written notice of such breach is given by the Company to Parent, or (ii) if a third party, including any group, shall have made a Superior
Acquisition Proposal and the Board has taken any of the actions referred to in clauses (i), (ii) or (iii) of Section 5.07(c) (but only after compliance by the Board and the
Company with the requirements of clauses (A), (B) and (C) thereof); 


        (e)   by
Parent, if there shall have occurred, on the part of the Company, a breach of any representation, warranty, covenant or agreement contained in this Agreement that
(x) would result in a failure of a condition set forth in Section 6.02(a) or Section 6.02(b) and (y) which is not curable or, if curable, is not cured within thirty
(30) calendar days after written notice of such breach is given by Parent to the Company; 



        (f)    by
Parent or the Company, if a Special Meeting has been duly held and the requisite stockholder approval referred to in Section 6.01(a) shall not have been
obtained by reason of the failure to obtain the requisite vote at such Special Meeting or at any adjournment or postponement thereof; or 


        (g)   by
Parent, if any of the following shall have occurred: (i) the Board (or any committee thereof) shall have failed to recommend that the Company's stockholders
vote to adopt this Agreement and approve the Merger, or shall have withdrawn or modified its recommendation in a manner adverse 


35





 



to
Parent; (ii) the Company shall have failed to include in the Proxy Statement the Company Board Recommendation or a statement to the effect that the Board has determined and believes that the
Merger is in the best interests of the Company's stockholders; (iii) the Company shall have entered into any Acquisition Agreement relating to any Acquisition Proposal or there shall have been
consummated a transaction with respect to an Acquisition Proposal; (iv) a tender or exchange offer relating to Shares shall have been commenced and the Company shall not have published or sent
to its stockholders, within fifteen business days after the commencement of such tender or exchange offer, a statement disclosing that the Board recommends rejection of such tender or exchange offer;
or (v) the Board shall have recommended acceptance of a third party tender or exchange offer relating to Shares; provided that any termination pursuant to clause (i) or (ii) above
shall have occurred prior to the Special Meeting. 


        Section 7.02.    Effect of Termination.    In the event of the termination of this Agreement pursuant to
Section 7.01, this Agreement shall forthwith become void and have no effect, without any liability on the part of any party or its directors, officers or stockholders, other than pursuant to
the provisions of this Section 7.02, Section 7.03, Article VIII (excluding Section 8.01 and Section 8.11) and the confidentiality obligations set forth in
Section 5.02, which shall survive any such termination. Nothing contained in this Section 7.02 shall relieve any party from liability for any breach of this Agreement. 


        Section 7.03.    Fees and Expenses.    


        (a)   Whether
or not the Merger is consummated, except as otherwise provided herein, all costs and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring such expenses. 



        (b)   In
the event (x) the Company shall have terminated this Agreement pursuant to Section 7.01(d)(ii), (y) Parent shall have terminated this Agreement
pursuant to clauses (i), (ii), (iii) or (v) of Section 7.01(g) or (z) Parent or the Company shall have terminated this Agreement pursuant to Section 7.01(f) or
Section 7.01(g)(iv) and, after the date of this Agreement but prior to the date of the Special Meeting, any person (other than Parent, Merger Sub or their respective affiliates) has made
to the Company an Acquisition Proposal or shall have publicly announced an intention (whether or not conditional) to make a proposal or offer relating to an Acquisition Proposal and, within twelve
(12) months following such termination, the Company or any of its Subsidiaries, directly or indirectly, (i) enters into a definitive agreement for an Acquisition Proposal with any person
who has made an Acquisition Proposal or any affiliate of such person between the date of this Agreement and the date of such termination or (ii) consummates a transaction with respect to an
Acquisition Proposal with any person (provided that, for purposes of this Section 7.03(b)(z), all references to 15% in the definition of Acquisition Proposal shall be deemed to be 50%), then
the Company shall promptly (and, in any event, within three business days after the later of such termination by Parent, the execution of a definitive agreement for an Acquisition Proposal or the
consummation of such Acquisition Proposal, as applicable, or in the case of such termination by the Company, immediately upon such termination) pay to Parent a termination fee of $12 million
(the "Parent Termination Fee"). The Parent Termination Fee shall be payable by wire transfer of immediately available funds. 


        (c)   In
the event this Agreement is terminated pursuant to Section 7.01(b) or Section 7.01(c) as a result of the failure to satisfy the HSR Conditions and
provided that the condition set forth in Section 6.01(a) and all conditions to the obligation of Parent and Merger Sub set forth in Section 6.02 had been satisfied on the date this
Agreement is terminated (other than the condition set forth in the last sentence of Section 6.02(b)), Merger Sub shall promptly (and, in any event, within three business days after such
termination) pay to the Company the sum of $30 million (the "Termination and Expense Reimbursement Fee"), which shall include, up to the full amount thereof, reimbursement to the Company of all
Merger Fees. The Company shall deliver to Parent and Merger Sub a statement, in reasonable detail, of all Merger Fees as promptly as practicable following such termination of this 


36





 



Agreement.
The Termination and Expense Reimbursement Fee shall be payable by wire transfer of immediately available funds. The Termination and Expense Reimbursement Fee shall be unconditionally
guaranteed by Luxottica U.S. Holdings pursuant to that certain Guarantee, in the form attached hereto as Exhibit C, executed and delivered by it concurrently herewith. 


        (d)   The
parties hereto agree that the provisions contained in this Section 7.03 are an integral part of the transactions contemplated by this Agreement, that the
damages resulting from the termination of this Agreement as set forth in Sections 7.03(b) and (c) of this Agreement are uncertain and incapable of accurate calculation and that the amounts
payable pursuant to Sections 7.03(b) and (c) hereof are reasonable forecasts of the actual damages which may be incurred by the parties under such circumstances. The amounts payable pursuant to
Sections 7.03(b) and (c) hereof constitute liquidated damages and not a penalty and shall be the sole monetary remedy in the event of termination of this Agreement on the bases specified in
such Sections. If either party fails to pay to the other party any amounts due under Sections 7.03(b) and (c), as applicable, in accordance with the terms hereof, the breaching party shall pay the
costs and expenses (including legal fees and expenses) of the other party in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment. 


        (e)   Any
amounts not paid when due pursuant to this Section 7.03 shall bear interest from the date such payment is due until the date paid at a rate equal to the prime
rate of Citibank N.A. in effect on the date such payment was required to be made. 



        Section 7.04.    Amendment.    This Agreement may be amended by the Company, Parent and Merger Sub at any time
before or after any approval of this Agreement by the stockholders of the Company but, after any such approval, no amendment shall be made which decreases the Merger Price or which adversely affects
the rights of the Company's stockholders hereunder without the approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of all the parties. 


        Section 7.05.    Extension; Waiver.    Subject to the express limitations herein, at any time prior to the
Effective Time, the parties hereto may (i) extend the time for the performance of any of the obligations or other acts of any other party hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein by any other party or in any document, certificate or writing delivered pursuant hereto by any other party or (iii) waive compliance with any of
the agreements of any other party or with any conditions to its own obligations. Any agreement on the part of any party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. 


 
 

ARTICLE VIII
  
    MISCELLANEOUS    
    



        Section 8.01.    Non-Survival of Representations and Warranties.    The representations and
warranties made in this Agreement shall not survive beyond the Effective Time. Notwithstanding the foregoing, the agreements set forth in Section 1.09, Section 1.10, Section 2.01,
Section 5.03(c), Section 5.06, Section 5.13 and Article VIII shall survive the Effective Time for the applicable statute of limitations (except to the extent a shorter
period of time is explicitly specified therein). 


        Section 8.02.    Entire Agreement; Assignment.    



        (a)   This
Agreement (including the documents and the instruments referred to herein) together with the Confidentiality Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof. 


37





 



        (b)   Neither
this Agreement nor any of the rights, interests or obligations hereunder will be assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party (except as set forth in the last sentence of Section 1.01). Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors and assigns. 


        Section 8.03.    Validity.    The invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement, each of which shall remain in full force and effect. 


        Section 8.04.    Notices.    All notices, requests, claims, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered in person, by overnight courier or facsimile to the respective parties as follows: 


        If
to Parent or Merger Sub: 




Luxottica
Group S.p.A.

Via C. Cantu 2

20123 Milan, Italy

Facsimile: 011-39-02-8699-6550

Attention:  Enrico Cavatorta,

                    Chief Financial Officer 



with
a copy to:



Winston &
Strawn LLP

200 Park Avenue

New York, New York 10166

Facsimile: (212) 294-4700

Attention: Jonathan Goldstein 


If
to the Company:



Cole
National Corporation

1925 Enterprise Parkway

Twinsburg, Ohio 44087

Facsimile: (330) 486-3378

Attention: Larry Pollock,

                    President and Chief Executive Officer 


with
a copy to:



Wachtell,
Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

Facsimile: (212) 403-2000

Attention: Eric S. Robinson 





or
to such other address as the person to whom notice is given may have previously furnished to the other in writing in the manner set forth above (provided that notice of any change of address shall
be effective only upon receipt thereof). 


        Section 8.05.    Governing Law; Jurisdiction.    


        (a)   This
Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof. 


38





 



        (b)   In
addition, each of the parties hereto (i) consents to submit itself to the personal jurisdiction of the Court of Chancery of the State of Delaware or any
federal court within the District of Delaware in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (ii) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that it will not bring any action relating to this Agreement or any
of the transactions contemplated hereby in any court other than the Court of Chancery of the State of Delaware or any federal court within the District of Delaware, (iv) consents to service of
process by first class certified mail, return receipt requested, postage prepaid, or by overnight courier, to the address at which such party is to receive notice and (v) waives any objection
to the laying of venue with respect to such dispute in the Court of Chancery of the State of Delaware or any federal court within the District of Delaware and waives and agrees not to plead or claim
in any such court that any such dispute brought in any such court has been brought in an inconvenient forum. 


        Section 8.06.    Waiver of Jury Trial.    EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY OR DISPUTE
THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT
(i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.06. 



        Section 8.07.    Descriptive Headings, etc.    The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. All references herein to "Articles," "Sections" and "Paragraphs" shall refer to
corresponding provisions of this Agreement unless otherwise expressly noted. 


        Section 8.08.    Counterparts; Execution and Delivery by Facsimile.    This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. This Agreement may be executed and delivered by facsimile, with such
delivery to be as effective as delivery of an originally executed counterpart hereof, followed promptly by delivery of an originally executed counterpart. 


        Section 8.09.    Parties in Interest; No Third Party Beneficiaries.    This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except as set forth in Sections 5.06(a), (b) and (c) nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. 



        Section 8.10.    Certain Definitions.    Certain terms used in this Agreement are defined as follows: 


        (a)   the
term "affiliate," as applied to any person, shall mean any other person directly or indirectly controlling, controlled by, or under common control with, that person.
For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person, whether through the ownership of voting securities, by contract or
otherwise, and a person shall be deemed to control another person if the controlling person owns 25% or more of any class of voting 


39





 



securities
(or other ownership interest) of the controlled person; provided that none of HAL and Pearle Europe B.V., and their respective affiliates, shall be deemed to be affiliates of the Company or
its Subsidiaries; 


        (b)   the
term "business day" shall mean each day other than a Saturday, Sunday or a day on which commercial banks and national stock exchanges located in New York, New York,
or Milan, Italy are closed or authorized by law to close; 


        (c)   the
term "ordinary course of business," as applicable to the Company and its Subsidiaries, shall mean the ordinary course of business of the Company and its Subsidiaries
as heretofore conducted; 


        (d)   the
term "person" shall include individuals, corporations, partnerships, trusts, other entities and groups (which term shall include a "group" as such term is defined in
Section 13(d)(3) of the Exchange Act); and 


        (e)   the
term "SEC Investigation Matters" shall mean the SEC investigation referred to in footnote 7 of the Notes to Condensed Consolidated Financial Statements of the
Company contained in the Company's quarterly report on Form 10-Q for its fiscal quarter ended November 1, 2003 (the "SEC Investigation"), or any litigation or other
investigation arising out of the Company's restatement in May, 2003, of certain of the Company's financial statements, or events or occurrences relating to any of the Company's rights under any
indemnity agreement under which any current or former director, officer or employee of the Company or any of its Subsidiaries could or would be indemnified in respect of the SEC Investigation or any
such other litigation or investigation, or disputes, occurrences or events relating to any rights of the Company in respect of any insurance policy that could provide insurance coverage to the Company
in respect of the SEC Investigation, any such other litigation or investigation, or any obligation under any such indemnity agreement. 


        Section 8.11.    Specific Performance.    The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at
law or in equity, except as otherwise provided in Section 7.03(d). 


[signature
page follows] 


40





 

        IN
WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its respective officer thereunto duly authorized, all as of the day and year first above
written. 



	 	 	LUXOTTICA GROUP S.P.A.
	

 	
 	
By:	

/s/  ENRICO CAVATORTA      
 Name: Enrico Cavatorta

Title: Chief Financial Officer
	

 	
 	
COLORADO ACQUISITION CORP.
	

 	
 	
By:	

/s/  VITO GIANNOLA      
 Name: Vito Giannola

Title: Chief Financial Officer and Treasurer
	

 	
 	
COLE NATIONAL CORPORATION
	

 	
 	
By:	

/s/  LARRY POLLOCK      
 Name: Larry Pollock

Title: Chief Financial Officer




41









QuickLinks


AGREEMENT AND PLAN OF MERGER Between LUXOTTICA GROUP S.p.A. COLORADO ACQUISITION CORP. and COLE NATIONAL CORPORATION Dated as of January 23, 2004


Table of Contents


AGREEMENT AND PLAN OF MERGER

ARTICLE I THE MERGER

ARTICLE II PAYMENT FOR SHARES


ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY


ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUB


ARTICLE V COVENANTS


ARTICLE VI


ARTICLE VII TERMINATION; AMENDMENTS; WAIVER

ARTICLE VIII MISCELLANEOUS