LensCrafters 2004 Annual Report Download - page 144

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
143
such higher consideration to all tendering
shareholders, other than Luxottica Group S.p.A. and
its affiliates.
The Company and the other defendants filed a
motion to dismiss the complaint in its entirety which,
on November 26, 2003, the Court granted in part
and denied in part. The Court granted the
Company’s motion to dismiss plaintiffs’ claim under
Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 thereunder, but denied the
Company’s motion to dismiss the claims under Rule
14d-10 relating to the consulting, non-disclosure
and non-competition agreement with Mr. Hauslein,
the former Chairman of SGHI, and aiding and
abetting alleged breaches by SGHI’s former
directors of their fiduciary duties, noting that it was
obligated, for the purpose of rendering its decision
on the motion to dismiss, to treat all of the plaintiffs’
allegations in the complaint as true. On June 8,
2004, the consolidated complaint was further
amended to add Mr. Leonardo Del Vecchio, the
Company’s Chairman, as a defendant in respect of
the two remaining claims.
The Company continues to believe that the claims that
were not dismissed are without merit and that its
defenses are meritorious, and will continue to defend
against such claims vigorously. However, the
Company can provide no assurance as to the
outcome of the case.
In March 2002, an individual commenced an action
in the California Superior Court for the County of San
Francisco against Luxottica Group S.p.A. and certain
of our subsidiaries, including LensCrafters, Inc., and
EYEXAM of California, Inc. The plaintiff, along with a
second plaintiff named in an amended complaint,
seeks to certify this case as a class action. The
claims have been partially dismissed. The remaining
claims, against LensCrafters, EYEXAM and EyeMed
Vision Care, LLC, allege various statutory violations
relating to the operation of LensCrafters’ stores in
California, including violations of California laws
governing relationships among opticians, optical
retailers, manufacturers of frames and lenses and
optometrists, false advertising and other unlawful or
unfair business practices. The action seeks
unspecified damages, disgorgement and restitution
of allegedly unjustly obtained sums, punitive
damages and injunctive relief, including an injunction
that would prohibit defendants from providing eye
examinations or other optometric services at
LensCrafters stores in California. In May 2004, the
trial court stayed all proceedings in the case
pending the California Supreme Court’s decision in
a case against Cole and its subsidiaries expected to
address certain legal questions related to the issues
presented in this case. The Supreme Court has not
yet scheduled oral argument on that appeal.
Although we believe that our operational practices
and advertising in California comply with California
law, an adverse decision in this action or by the
Supreme Court in the suit against Cole might cause
LensCrafters, EYEXAM and EyeMed to modify or
close their activities in California. Further,
LensCrafters, EYEXAM and EyeMed might be
required to pay damages and/or restitution, the
amount of which might have a material adverse
effect on our operating results, financial condition
and cash flow.
In February 2002, the State of California commenced
an action in the California Superior Court for the
County of San Diego against Cole and certain of its
subsidiaries, including Pearle Vision, Inc., and Pearle
Vision Care, Inc. The claims allege various statutory
violations related to the operation of Pearle Vision
Centers in California including violations of California
laws governing relationships among opticians,
optical retailers, manufacturers of frames and lenses
and optometrists, false advertising and other
unlawful or unfair business practices. The action
seeks unspecified damages, disgorgement and
restitution of allegedly unjustly obtained sums, civil
penalties and injunctive relief, including an injunction
that would prohibit defendants from providing eye
examinations or other optometric services at Pearle
Vision Centers in California. In July 2002, the trial
court entered a preliminary injunction to enjoin
defendants from certain business and advertising
practices. Both Cole and the State of California
appealed that decision. On November 26, 2003, the
appellate court issued an opinion in which it stated
that because California law prohibited defendants
from providing eye examinations and other
optometric services at Pearle Vision Centers, the trial
court should have enjoined defendants from