COLE NATIONAL CORP /DE/, DEF 14A, 1998-05-01

COLE NATIONAL CORP /DE/
DEF 14A, 1998-05-01
RETAIL STORES, NEC

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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>

COLE NATIONAL CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies: .......

(2) Aggregate number of securities to which transaction applies: ..........

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............

(4) Proposed maximum aggregate value of transaction: ......................

(5) Total fee paid: .......................................................

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid: ...............................................

(2) Form, Schedule or Registration Statement No.: .........................

(3) Filing Party: .........................................................

(4) Date Filed: ...........................................................

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COLE NATIONAL CORPORATION
5915 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
------------------

NOTICE OF ANNUAL MEETING
------------------

The Annual Meeting of Stockholders of Cole National Corporation (the
"Company") will be held on June 11, 1998 at 10:00 a.m., at 5915 Landerbrook
Drive, Suite 110, Mayfield Heights, Ohio. The principal business of the meeting
will be:

(1) To elect seven Directors.

(2) To approve the Company's 1998 Equity and Performance Incentive Plan
("Omnibus Plan").

(3) To confirm the selection of Arthur Andersen LLP as independent
certified public accountants of the Company for fiscal year 1998.

(4) To transact any other business that may properly come before the
meeting.

Only stockholders of record on April 20, 1998 will be entitled to notice of
and to vote at the Annual Meeting and at any and all adjournments or
postponements thereof. If you own shares through a nominee, you must instruct
your nominee to vote if you wish to have your vote counted.

By Order of the Board of Directors

/s/ Leslie D. Dunn
LESLIE D. DUNN
Secretary
May 1, 1998

YOUR VOTE IS IMPORTANT

PLEASE PROMPTLY FILL OUT, SIGN, DATE AND MAIL THE ENCLOSED FORM OF PROXY
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES. RETURNING A SIGNED PROXY WILL NOT PREVENT YOU FROM ATTENDING
THE MEETING AND VOTING IN PERSON, IF YOU SO DESIRE.
------------------

ALSO ENCLOSED IS A COPY OF OUR ANNUAL REPORT FOR THE YEAR ENDED JANUARY 31,
1998. THE ANNUAL REPORT CONTAINS FINANCIAL AND OTHER INFORMATION ABOUT THE
COMPANY, BUT IS NOT INCORPORATED INTO THE PROXY STATEMENT AND THEREFORE IS NOT A
PART OF THE PROXY SOLICITING MATERIAL.
<PAGE> 3

COLE NATIONAL CORPORATION
5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
------------------

PROXY STATEMENT FOR COLE NATIONAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD JUNE 11, 1998

Your Board of Directors is furnishing this Proxy Statement to you in
connection with our solicitation of proxies for use at the Annual Meeting of
Stockholders of the Company to be held on June 11, 1998. This Proxy Statement
and the related form of proxy was first mailed to stockholders on or about May
1, 1998.

If you sign and return the enclosed proxy card, your shares will be voted
as indicated on the card. Without affecting any vote previously taken, you may
revoke your proxy by delivery to us of a new, later dated proxy for the same
shares, or by giving written notice to us before or at the Annual Meeting. Your
presence at the Annual Meeting will not by itself revoke your proxy appointment.

At the close of business on April 20, 1998, the record date for the
determination of those stockholders who are entitled to notice of, and to vote
at, the Annual Meeting, we had outstanding and entitled to vote 14,812,467
shares of Common Stock. Each share of Common Stock is entitled to one vote on
each matter brought before the meeting.

We will bear the costs of soliciting proxies from our stockholders. In
addition to the use of the mails, proxies may be solicited by the Directors, our
officers and employees by personal interview, telephone or telegram. Directors,
officers and employees will not be paid for such solicitation, except that they
may be reimbursed for any out-of-pocket expenses. We have also engaged Morrow &
Co. to assist in the solicitation of proxies for an estimated fee of $14,000.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries to distribute solicitation material to the beneficial
owners of Common Stock held of record by those persons, and we will reimburse
such brokerage houses, custodians, nominees and fiduciaries for any reasonable
out-of-pocket expenses.

The Company's By-Laws state that the holders of a majority of the Common
Stock present in person or represented by proxy constitute a quorum. The
nominees for election as Directors who receive the greatest number of votes will
be elected Directors. Under New York Stock Exchange rules, approval of the
Omnibus Plan will require the affirmative vote of a majority of the shares of
Common Stock represented in person or by proxy and entitled to vote at the
Annual Meeting, provided that the total vote cast (whether "for," "against" or
"abstain") on the proposal represents a majority of the Common Stock outstanding
and entitled to vote at the Annual Meeting. Confirmation of the selection of the
Company's independent certified public accountants will require approval by a
majority of the shares of Common Stock cast at the Annual Meeting. Abstentions
with respect to a proposal will be counted as votes cast with respect to the
proposal. Shares that are not voted with respect to any proposal because of
restrictions on a broker's discretionary authority ("broker non-votes") will not
be counted as cast for such proposal, but will be counted to determine whether a
quorum is present at the Annual Meeting provided such shares are voted on any
proposal presented to the Annual Meeting. BECAUSE OF THESE REQUIREMENTS, YOU ARE
URGED TO VOTE, AND IF YOU HOLD SHARES IN NOMINEE NAME THROUGH BROKERS, TO
INSTRUCT YOUR NOMINEES TO VOTE "FOR" EACH PROPOSAL.

If you receive multiple copies of our Annual Report, you may call our
Stockholder Services at 440-449-4100 to request that one copy be sent to you for
all of your accounts. Stockholders owning shares beneficially may give
permission to their nominees to request the discontinuance of multiple mailings.
You may resume mailing of an Annual Report to an account by calling our
Stockholder Services.

You will find a number of frequently used terms defined on page 2.

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<PAGE> 4

GLOSSARY OF DEFINED TERMS

For your convenience in reading this Proxy Statement, we have included this
Glossary of Defined Terms where you can find explanations of frequently used
terms.

<TABLE>
<S> <C>
Annual Meeting The 1998 Annual Meeting of the Company's Stockholders
CNG Cole National Group, Inc., a Delaware corporation, a wholly
owned subsidiary of the Company
Common Stock Common Stock, par value $.001 per share, of the Company
Company Cole National Corporation, a Delaware corporation
Internal Revenue Code Internal Revenue Code of 1986, as amended
Omnibus Plan Cole National Corporation 1998 Equity and Performance
Incentive Plan
We, us, or our Cole National Corporation
You or your The stockholders of Cole National Corporation
</TABLE>

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<PAGE> 5

INFORMATION ABOUT THE ANNUAL MEETING

You are being asked to vote on three matters:

(1) the election of seven directors;

(2) the adoption of a new stock-based compensation plan (the "Omnibus
Plan"); and

(3) the confirmation of the appointment of our independent auditors.

THE OMNIBUS PLAN

The Omnibus Plan will allow us to make awards of stock options, performance
stock and performance units, restricted stock and deferred stock to
officers, key employees and consultants of the Company and its
subsidiaries. Key features of the Omnibus Plan include:

- authorization of 884,000 shares of Common Stock subject to the Omnibus
Plan (5.97% of our outstanding shares);

- a prohibition against granting options with an exercise price less than
the fair market value of the Common Stock on the date of grant (except in
the case of options granted in lieu of salary or cash bonus);

- a prohibition against the repricing of options;

- limitations on the number of options that may be granted to any
individual during any consecutive three-year period;

- both aggregate limitations on the number of restricted, deferred and
performance stock grants during the term of the Omnibus Plan and
individual limits on the number of such grants during any consecutive
three-year period; and

- limitations on amendments to the Omnibus Plan.

YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE OMNIBUS PLAN AND RECOMMENDS
THAT YOU ALSO VOTE IN FAVOR OF THE OMNIBUS PLAN. YOU SHOULD VOTE IN FAVOR OF THE
OMNIBUS PLAN BECAUSE:

We are basically out of options with only 34,500 shares available for grant
under our existing plans. Our last plan was put in place in January 1996,
2-1/2 years from when our new plan would go into effect. When the Board of
Directors approved the 1996 Plan, we had 8 senior executives and 64 other
executives who received option grants. Today, as a result of the explosive
growth we have enjoyed in our businesses, we have a total of 14 senior
executives and 105 other eligible executives who we anticipate will receive
grants under the new plan. We believe that, under present circumstances, at
our present size the Omnibus Plan will satisfy our needs for additional
stock-based compensation for the next three years.

Since we adopted our last stock option plan,

- Net revenues have almost doubled and net income (from continuing
operations before nonrecurring charges and extraordinary items) has
increased by 78%.

- We have increased our retail locations by almost 1,000. We made
significant acquisitions of three companies, including 925 Pearle,
AVC/NuVision and Sears Canada optical locations. In addition, we have 74
additional stores in our continuing operations and have more than doubled
our managed care participants, bringing the total to 47 million. Our
growth has required us to bring on a significant number

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of additional, talented people to manage our bigger and more complex
optical business. That translates into a greater need for stock-based
compensation.

- We have increased our outstanding number of shares of Common Stock from
10.4 million to 14.8 million, raising $142.5 million in the equity
markets. Our stockholders' equity has improved from $17.1 million to
$132.0 million, reducing our debt to total capitalization ratio from 91%
to 68%.

We strongly believe that long-term, stock-based compensation is an
essential part of our compensation, incentive and retention programs. Stock
options are a vital part of our management compensation packages as our
executives receive a significant part of their compensation through option
grants. We believe that options -- which gain value only as the Company
itself gains market value -- promote our results-oriented, entrepreneurial
culture. We believe that a substantial portion of our executives'
compensation should be tied to company and market performance -- our goal
is that at least 50% of their income should come from our annual incentive
bonus program and our long-term, stock-based incentive programs. And our
philosophy is that stock-based compensation means compensation related to
the performance of our stock -- we will not re-price options.

To summarize, we believe:

- Stock-based compensation is a critical part of our compensation strategy.

- Our compensation programs are an effective link between our managers and
our stockholders.

- An effective stock-based program is needed to attract and retain a strong
management team in a highly competitive environment.

- We need the Omnibus Plan to keep us competitive within our peer group.

If the Omnibus Plan is not approved by the stockholders, we believe that we
will be hindered in our ability to retain and attract the qualified
executives that we need to continue our growth. Stock-based compensation is
important to hiring and keeping this talent in the highly competitive
optical industry. Without an available pool of stock options we believe we
will be required to provide higher cash compensation to attract and retain
the quality executives essential to accomplishing our long-term growth
plans.

You are urged to mail your signed, dated proxy card in the enclosed envelope as
soon as possible so that your shares will be represented at the Annual Meeting.
If your shares are held in "street" name by your broker, your broker will vote
your shares with respect to the Omnibus Plan only if you provide written
instructions on how to vote. If you do not provide your broker with instructions
on how to vote with respect to the Omnibus Plan, your shares will not be voted
but will be counted for purposes of determining whether a quorum is present at
the Annual Meeting. We urge you to instruct your broker in writing to vote your
shares in favor of the Omnibus Plan. To ensure that your broker receives your
instructions, we suggest that you send your instructions to your broker by fax,
overnight delivery service, or by certified mail, return receipt requested, and
that you also call your broker to make sure your instructions were received.

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ELECTION OF DIRECTORS
ITEM NO. 1

Votes will be cast pursuant to the authority granted by the enclosed proxy
for the election of the seven nominees below. Each elected Director's term of
office is one year, or until a successor is elected. All of the nominees listed
below currently serve as Directors. If an unexpected occurrence should make it
necessary, in the judgment of the proxy holders, to substitute some other person
for any of the nominees, such shares will be voted for such other person as the
proxy holders may select.

Information regarding the nominees is set forth below:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey A. Cole................................. 56 Chairman, Chief Executive Officer,
Chief Financial Officer and Director
Brian B. Smith.................................. 45 President, Chief Operating Officer
and Director
Timothy F. Finley............................... 54 Director
Irwin N. Gold................................... 41 Director
Peter V. Handal................................. 55 Director
Charles A. Ratner............................... 56 Director
Walter J. Salmon................................ 67 Director
</TABLE>

Mr. Cole has been a Director of the Company or its predecessor since 1969.
He has been Chairman of the Company since 1992, Chief Executive Officer of the
Company since 1984, and Chief Financial Officer of the Company since 1991. He is
also a director of Hartmarx Corporation, Edison Brothers, Pearle Europe BV and
Cole National Group, Inc., a wholly owned subsidiary of the Company ("CNG").

Mr. Smith has been a Director of the Company since 1994, and has been
President and Chief Operating Officer of the Company since 1992. Mr. Smith
serves and has served in other executive capacities with the Company's
subsidiaries since 1986. He is also a director of CNG.

Mr. Finley has been a Director of the Company since 1992. Mr. Finley has
been Chairman and Chief Executive Officer of Jos. A. Bank Clothiers, Inc., a
clothing retailer, since 1990. He is also a director of Jos. A. Bank Clothiers,
Inc., Venture Stores, Inc. and CNG.

Mr. Gold has been a Director of the Company since 1992. Mr. Gold is a
Senior Managing Director of Houlihan Lokey Howard & Zukin, a specialty
investment banking firm, where he has been employed since 1988. He is also a
director of Advantica Restaurant Group, Inc., The Bibb Company and CNG.

Mr. Handal has been a Director of the Company since 1992. Currently, Mr.
Handal is President of the consulting company, COWI International Group;
President of J4P Associates, a real estate firm; and President of Fillmore
Leasing Company. Previously, Mr. Handal served as the President of Victor B.
Handal and Bro., Inc., an apparel manufacturer and distributor. He is also a
director of Jos. A. Bank Clothiers, Inc., Family Bargain Corporation and CNG.

Mr. Ratner has been a Director of the Company since March 1995. Mr. Ratner
has served as President and Chief Executive Officer of Forest City Enterprises,
Inc., a national real estate development and management company, since June
1993, prior to which he served as its Executive Vice President. Mr. Ratner is
Chairman of

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Forest City Rental Properties Corporation, a subsidiary of Forest City
Enterprises, Inc., a position he has held for over five years. He is also a
director of Forest City Enterprises, Inc. and CNG.

Mr. Salmon has been a Director of the Company since June 1997. Mr. Salmon
is the Stanley Roth Sr., Professor of Retailing, Emeritus at the Harvard
University Graduate School of Business Administration, where he has been a
member of the faculty since 1956. Mr. Salmon also served as Senior Associate
Dean and Director of External Relations from 1989 to 1994. Mr. Salmon previously
served as a director of the Company's predecessor from 1961 to 1984. He is also
a director of Circuit City Stores, Inc.; Hannaford Bros. Co.; Harrah's
Entertainment, Inc.; Luby's Cafeterias, Inc.; The Neiman Marcus Group; The
Quaker Oats Company; PetsMart and CNG.

Your Board of Directors held five meetings during fiscal 1997. Each
Director attended at least 75% of the meetings of the Board of Directors and the
meetings of any committee of which he is a member.

BOARD COMMITTEES

Your Board of Directors has an Audit Committee, a Compensation Committee
and a Special Compensation Committee. During fiscal 1997, the members of the
Audit Committee were Timothy F. Finley, Irwin N. Gold and Walter J. Salmon; the
members of the Compensation Committee were Peter V. Handal and Charles A.
Ratner; and the members of the Special Compensation Committee were Peter V.
Handal and Timothy F. Finley.

The Audit Committee met for one formal meeting in 1997. The Audit Committee
performs the following functions:

- recommends to the Board of Directors, subject to your approval, the
selection of the Company's independent public accountants;

- discusses with the independent public accountants the overall scope and
specific plans for their audit; and

- meets with the independent public accountants to discuss the results of
their audit, their evaluation of the Company's internal controls and
financial reporting.

The Compensation Committee held four formal meetings during fiscal 1997, in
addition to a number of informal meetings. The Compensation Committee performs
the following functions:

- reviews executive compensation;

- fixes compensation of the executive officers and incentive compensation;

- recommends the adoption of, and administers, all benefit plans; and

- grants stock options.

The Special Compensation Committee held one informal meeting in 1997. The
Special Compensation Committee reviews executive compensation in those instances
that may involve Section 162(m) of the Internal Revenue Code, which limits the
deductibility of executive compensation that exceeds $1 million in certain
circumstances.

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COMPENSATION OF DIRECTORS

CASH COMPENSATION

We pay Directors who are not employees of the Company or its subsidiaries
an annual fee of $20,000 plus reasonable out-of-pocket expenses. Members of the
Audit Committee and the Compensation Committee also receive $500 for each day of
attendance at a committee meeting that is not held on the same day as a meeting
of the Board of Directors. In addition, the chairpersons of the Audit Committee
and the Compensation Committee receive an additional $2,000 and $3,000 per year,
respectively.

STOCK-BASED COMPENSATION

In 1997, our stockholders approved the Nonemployee Director Equity and
Deferral Compensation Plan, which allows Nonemployee Directors to receive their
annual retainer and other fees in the form of Company Common Stock and also
allows them to defer the payment and therefore the recognition as income for
federal income tax purposes of all or part of their annual retainer and other
fees paid to them as Directors. During 1997, Messrs. Handal, Ratner and Salmon
elected to defer a portion of their fees and received credits payable in shares
of Common Stock as follows: Mr. Handal, 356 shares; Mr. Ratner, 285 shares; and
Mr. Salmon, 153 shares.

Our Nonqualified Stock Option Plan for Nonemployee Directors (the "Director
Plan") provides for the granting of stock options for up to 100,000 shares of
our Common Stock to our Directors who are not employees of the Company or any of
its subsidiaries (a "Nonemployee Director"). The Director Plan was approved by
the Company's stockholders prior to our initial public offering in April 1994,
and amendments to the Director Plan were approved by stockholders in 1997. The
Director Plan as amended provides for the automatic grant of a nonqualified
option to purchase 2,500 shares of Common Stock to each newly elected or
appointed Nonemployee Director on January 1 of the year immediately following
the year in which he or she is elected or appointed, and on each January 1
thereafter for as long as he or she continues to serve. Nonemployee Directors
serving at the time of the adoption of the Director Plan became eligible for
option grants beginning on January 1, 1997. Options granted under the Director
Plan generally vest on the first anniversary of the date of grant of the option,
provided that the optionee is still serving as a Nonemployee Director at that
time. The exercise price per share for options granted under the Director Plan
is the average of the high and low selling prices of the Common Stock on the New
York Stock Exchange on the date of grant, or, if no such prices are quoted on
the date of grant, on the last date on which such prices are quoted prior to the
date of grant. Messrs. Finley, Gold, Handal and Ratner each received an
automatic grant of options for 1,500 shares on January 1, 1997 with an exercise
price of $26.125 and options for an additional 1,000 shares on June 12, 1997 at
an exercise price of $41.25. Messrs. Finley, Gold, Handal, Ratner and Salmon
each received an automatic grant of options for 2,500 shares on January 1, 1998
with an exercise price of $29.75.

In January 1993, Messrs. Finley, Gold and Handal received options to
purchase 7,500 shares of the Company's Common Stock. The options, which are now
all vested, are exercisable at $3.00 per share.

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SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS

The following table sets forth information regarding ownership of our
equity securities as of April 20, 1998 (except as otherwise noted) by each of
those persons owning of record or known to us to be the beneficial owner of more
than five percent of the Common Stock; each of our Directors; each of our
executive officers; and all of our Directors and executive officers as a group.
The number of shares of Common Stock outstanding on April 20, 1998 was
14,812,467. Except as noted, all information with respect to beneficial
ownership has been furnished by each Director or officer or is based on filings
with the Securities and Exchange Commission. Unless otherwise indicated below,
voting and investment power of shares reported in this table is not shared with
others. Beneficial ownership of the Common Stock has been determined for this
purpose in accordance with Rules 13d-3 and 13d-5 under the Securities Exchange
Act of 1934, which provide that a person is deemed to be the beneficial owner of
the Common Stock if such person, directly or indirectly, has or shares the
voting or investment power of such stock, or has the right to acquire such
ownership within 60 days.

<TABLE>
<CAPTION>
PERCENT
NAME OF BENEFICIAL OWNER NO. OF SHARES OF CLASS
------------------------ ------------- --------
<S> <C> <C>
FMR Corp.(1) 1,068,500 7.21%
82 Devonshire Street
Boston, MA 02109-3614
Harris Associates, L.P.(2) 1,265,000 8.54%
Two North LaSalle Street, Suite 500
Chicago, Il 60602
Palisade Capital Management, L.L.C.(3) 1,263,300 8.53%
One Bridge Plaza
Suite 695
Fort Lee, NJ 07024
T. Rowe Price Associates, Inc.(4) 1,269,000 8.57%
100 E. Pratt Street
Baltimore, MD 21202
Jeffrey A. Cole (5) 303,906 2.03%
Timothy F. Finley (6) 13,659 *
Irwin N. Gold (7) 19,855 *
Peter V. Handal (8) 22,378 *
Charles A. Ratner (9) 5,000 *
Brian B. Smith (10) 312,242 2.09%
Joseph Gaglioti (11) 25,061 *
Wayne L. Mosley (12) 25,118 *
Leslie D. Dunn 1,000 *
Walter J. Salmon 650 *
All Directors and executive officers as a group (10
persons) (5)(6)(7)(8)(9)(10)(11)(12) 728,869 4.80%
</TABLE>

- ---------------

* Less than one percent

(1) Stock ownership is based on a Schedule 13G dated February 13, 1998. Fidelity
Management & Research Company, a wholly owned subsidiary of FMR Corp. and an
investment adviser registered under the Investment Advisers Act of 1940
("Fidelity"), is the beneficial owner of the shares indicated as a result of

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<PAGE> 11

acting as investment adviser to several investment companies registered
under the Investment Company Act of 1940 (the "Fidelity Funds").

The ownership of one investment company, Fidelity Retirement Growth Fund,
amounted to 1,068,500 shares or 7.21% of the Common Stock outstanding.
Fidelity Retirement Growth Fund has its principal business office at 82
Devonshire Street, Boston, Massachusetts 02109.

Edward C. Johnson 3d, FMR Corp. (through its control of Fidelity), and the
Fidelity Retirement Growth Fund each has sole power to dispose of the
1,068,500 shares owned by the Fidelity Retirement Growth Fund. Neither FMR
Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to
vote or direct the voting of the shares owned directly by the Fidelity
Retirement Growth Fund, which power resides with the Fidelity Retirement
Growth Fund's Board of Trustees. Fidelity carries out the voting of the
shares under written guidelines established by the Fidelity Retirement
Growth Fund Board of Trustees.

Members of the Edward C. Johnson 3d family and trusts for their benefit are
the predominant owners of Class B shares of common stock of FMR Corp.,
representing approximately 49% of the voting power of FMR Corp. Mr. Johnson
3d owns 12.0% and Abigail P. Johnson owns 24.5% of the aggregate outstanding
voting stock of FMR Corp. Mr. Johnson 3d is Chairman of FMR Corp. and
Abigail P. Johnson is a Director of FMR Corp. The Johnson family group and
all other Class B shareholders have entered into a shareholders' voting
agreement under which all Class B shares will be voted in accordance with
the majority vote of Class B shares. Accordingly, through their ownership of
voting common stock and the execution of the shareholders' voting agreement,
members of the Johnson family may be deemed, under the Investment Company
Act of 1940, to form a controlling group with respect to FMR Corp.

(2) Stock ownership is based on a Schedule 13G filed on February 11, 1998.
Harris serves as investment adviser to the Harris Associates Investment
Trust (the "Trust") and various of Harris' officers and directors are also
officers and trustees of the Trust. Harris does not consider that the Trust
is controlled by such persons. The Trust, through its various series, owns
1,250,000 shares, which are included as shares over which Harris has shared
voting and dispositive power, and thus, as shares beneficially owned by
Harris, because of Harris' power to manage the Trust's investments. In
addition, Harris serves as investment adviser to a small number of other
clients who may own shares, but for which Harris does not have discretionary
authority. Nevertheless, if owned by such clients, these shares are included
as shares over which Harris has shared voting and dispositive power,
although Harris may not be deemed the beneficial owner (as defined by Rule
13d-3) of such shares.

(3) Stock ownership is based on a Schedule 13G filed on February 2, 1998.

(4) Stock ownership is based on a Schedule 13G filed on February 6, 1998. These
securities are owned by various individual and institutional investors
(including the T. Rowe Price New America Growth Fund whose principal offices
are located at 100 E. Pratt Street, Baltimore, MD 21202, which owns 800,000
shares, representing 5.40% the shares outstanding), for which T. Rowe Price
Associates, Inc. ("Price Associates") serves as investment adviser with
power to direct investments and/or vote the securities. For purposes of the
reporting requirements of the Securities Exchange Act of 1934, Price
Associates is deemed to be a beneficial owner of such securities; however,
Price Associates disclaims that it is, in fact, the beneficial owner of such
securities.

(5) Includes 2,707 shares of Common Stock that may be acquired pursuant to the
exercise of warrants exercisable within 60 days and 124,271 shares of Common
Stock that may be acquired pursuant to the exercise of options exercisable
within 60 days. Mr. Cole's beneficial ownership reflects a reduction in
shares as a result of a divorce settlement concluded in February 1998.

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<PAGE> 12

(6) Includes 1,228 shares of Common Stock that may be acquired pursuant to the
exercise of warrants exercisable within 60 days, and 10,000 shares of Common
Stock that may be acquired pursuant to the exercise of options exercisable
within 60 days.

(7) Includes 625 shares of Common Stock that may be acquired pursuant to the
exercise of warrants exercisable within 60 days, and 10,000 shares of Common
Stock that may be acquired pursuant to the exercise of options exercisable
within 60 days.

(8) Includes 2,760 shares of Common Stock that may be acquired pursuant to the
exercise of warrants exercisable within 60 days, and 10,000 shares of Common
Stock that may be acquired pursuant to the exercise of options exercisable
within 60 days.

(9) Includes 1,000 shares of Common Stock that may be acquired pursuant to the
exercise of options exercisable within 60 days.

(10) Includes 1,888 shares of Common Stock that may be acquired pursuant to the
exercise of warrants exercisable within 60 days, 160,589 shares of Common
Stock that may be acquired pursuant to the exercise of options exercisable
within 60 days, and 1,950 shares of restricted stock. Also includes 2,240
shares of Common Stock held by his son and 1,000 shares of Common Stock
held by his wife, as to which shares he disclaims beneficial ownership.

(11) Includes 22,800 shares of Common Stock that may be acquired pursuant to the
exercise of options exercisable within 60 days, and 589 shares of
restricted stock.

(12) Includes 22,800 shares of Common Stock that may be acquired pursuant to the
exercise of options exercisable within 60 days, and 589 shares of
restricted stock.

10
<PAGE> 13

COMPENSATION OF EXECUTIVE OFFICERS

SUMMARY OF EXECUTIVE COMPENSATION

The table below shows the before-tax compensation for the years shown for
the Company's Chief Executive Officer and the four next highest paid executive
officers at the end of 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL -----------------------
COMPENSATION(1) RESTRICTED SECURITIES
------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(4) OPTIONS(#) COMPENSATION(5)
--------------------------- ---- -------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Cole -- 1997 $668,942 $283,500 None $82,444
Chairman, Chief Executive 1996 636,539 553,752 240,000(6) 80,404
Officer and Chief 1995 617,692 193,440 25,000(6) 74,649
Financial Officer

Brian B. Smith -- 1997 510,289 220,500 None 47,102
President and Chief 1996 435,673 282,207(2) $124,344 180,000 39,845
Operating Officer 1995 400,192 125,654 17,500 37,617

Leslie D. Dunn -- 1997 81,274 36,427 16,000 6,771
Senior Vice
President -- Business
Development, General Counsel
and Secretary (3)

Joseph Gaglioti -- 1997 142,923 60,900 None 14,708
Vice President and 1996 131,269 85,309(2) 37,580 20,000 12,366
Treasurer 1995 122,231 38,376 3,500 10,885

Wayne L. Mosley -- 1997 142,923 60,900 None 13,204
Vice President and 1996 131,269 85,309(2) 37,580 20,000 11,704
Controller 1995 122,231 38,376 3,500 10,721
</TABLE>

- ---------------

(1) Other annual compensation did not exceed the lesser of $50,000 or 10% of the
salary plus bonus of any of the executive officers for any of the years
listed.

(2) In part reflects a portion of incentive compensation awarded on March 20,
1997 as shares of Common Stock as follows: Mr. Smith ($62,188); Mr. Gaglioti
($18,806); and Mr. Mosley ($18,806), based on the value of unrestricted
shares of Common Stock at such date.

(3) Joined the Company on September 2, 1997.

(4) Reflects March 20, 1997 awards pursuant to the Company's Management
Incentive Bonus Program as follows: (i) Mr. Smith (1,951 shares that vested
March 20, 1998 and 1,950 shares that vest March 20, 1999); (ii) Mr. Gaglioti
(590 shares that vested March 20, 1998 and 589 shares that vest March 20,
1999); and (iii) Mr. Mosley (590 shares that vested March 20, 1998 and 589
shares that vest March 20, 1999). Although such shares were issued with
restrictions and subject to a risk of forfeiture, the value of such awards
shown is based on the value of unrestricted shares of Common Stock as of
March 20, 1997.

(5) The amounts listed for fiscal 1997 consist of: (i) payments by the Company
pursuant to an agreement between the Company and an insurance company that
provides for reimbursements to the named executive

11
<PAGE> 14

officers in amounts up to $20,000 per year for certain medical expenses for
themselves and their families not otherwise covered by the Company's group
medical insurance plan as follows: Mr. Cole ($472), Mr. Smith ($1,056), Ms.
Dunn ($0), Mr. Gaglioti ($1,135), and Mr. Mosley ($400); (ii) contributions
to the Company's 401(k) Plan to match pre-tax elective deferral
contributions as follows: Mr. Cole ($1,425), Mr. Smith ($1,425), Ms. Dunn
($0), Mr. Gaglioti ($625), and Mr. Mosley ($625); (iii) the value of life
insurance provided by the Company for the benefit of the executive officers
as follows: Mr. Cole ($13,047), Mr. Smith ($2,621), Ms. Dunn ($69), Mr.
Gaglioti ($1,348), and Mr. Mosley ($579); and (iv) contribution credits in
fiscal 1997 provided under CNG's Supplemental Retirement Benefit Plan as
follows: Mr. Cole ($67,500), Mr. Smith ($42,000), Ms. Dunn ($6,702), Mr.
Gaglioti ($11,600), and Mr. Mosley ($11,600). See "Supplemental Executive
Retirement Plans" below.

(6) Mr. Cole has transferred options with respect to an aggregate of 42,500
shares of the shares shown pursuant to a divorce settlement concluded in
February 1998, and Mr. Cole no longer retains any interest in such options.

CERTAIN AGREEMENTS

Effective April 1, 1996, Jeffrey A. Cole and Brian B. Smith each entered
into employment agreements with the Company and each of its principal
subsidiaries, which replaced earlier employment agreements. The agreements
provide for a three-year term that, on the first anniversary of the agreement
and each successive anniversary thereafter, automatically extends for an
additional year up to and until Messrs. Cole and Smith, respectively, reach age
65, unless notice to the contrary has been furnished in accordance with the
provisions of the agreements. The agreements currently extend to April 1, 2001.
The agreements provide for an annual base salary of at least $640,000 for Mr.
Cole and $440,000 for Mr. Smith, along with participation in bonus programs and
other customary benefits. For 1998, Mr. Cole's salary has been fixed at $725,000
and Mr. Smith's salary will be $555,000. Under the agreements, upon termination
of employment (including a self-termination during a period following a change
of control of the Company) except (i) termination by reason of death or
disability, (ii) voluntary resignation other than (a) a voluntary resignation
involving a substantial adverse change in duties without consent or (b)
following a change of control of the Company, (iii) the expiration of the term
of the agreement or (iv) termination for cause, Messrs. Cole and Smith are each
entitled to receive a lump sum payment equal to three times the sum of (x) their
respective salaries at the time of such termination and (y) their respective
average bonuses for the last five fiscal years. The agreements also contain
provisions with respect to compensation, bonus and benefits in the event of
their death or disability. The agreements provide that, in the event that any
payments received by Messrs. Cole and Smith under the agreements or otherwise
are subject to an excise tax, they will be entitled to a gross-up payment.

COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS

RETIREMENT PLAN

The CNG Retirement Plan (the "Retirement Plan") provides non-contributory
benefits integrated with Social Security benefits, based upon an employee's
years of credited service and highest average annual base salary for any five
consecutive years in the last ten years of service. Compensation covered by the
Retirement Plan consists only of an employee's base salary, and does not include
bonuses or any other form of compensation. Under the Internal Revenue Code, the
maximum retirement benefit payable under the Retirement Plan and the maximum
amount of annual compensation that can be taken into consideration in the
calculation of

12
<PAGE> 15

pension benefits under the Retirement Plan are limited. At retirement, based on
years of service and current salary levels, it is estimated that the retirement
benefits payable to Jeffrey A. Cole and Brian B. Smith will be reduced because
of those limits.

Credited service under the Retirement Plan for each of the individuals
named in the Summary Compensation Table is as follows: Jeffrey A. Cole -- 19
years; Brian B. Smith -- 14 years; Leslie D. Dunn -- 0 years; Joseph
Gaglioti -- 16 years; and Wayne L. Mosley -- 11 years.

Participants in the Retirement Plan may elect payment of retirement
benefits under several different formulae. The following table shows the
estimated annual retirement benefits which will be payable to participating
employees under the Retirement Plan's normal retirement formula upon retirement
at age 65 after selected periods of service. The benefits as presented below do
not take into account any reduction for joint and survivor payments.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE(1)
--------------------------------------------------
30 OR
REMUNERATION 10 15 20 25 MORE
- ------------ ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000 $ 7,901 $11,851 $ 15,802 $ 19,752 $ 23,702
125,000 10,151 15,226 20,302 25,377 30,452
150,000 12,401 18,601 24,802 31,002 37,202
175,000 (2) 14,651 21,976 29,302 36,627 43,952
200,000 (2) 16,901 25,351 33,802 42,252 50,702
225,000 (2) 19,151 28,726 38,302 47,877 57,452
250,000 (2) 21,401 32,101 42,802 53,502 64,202
300,000 (2) 25,901 38,851 51,802 64,752 77,702
350,000 (2) 30,401 45,601 60,802 76,002 91,202
400,000 (2) 34,901 52,351 69,802 87,252 104,702
500,000 (2) 43,901 65,851 87,802 109,752 131,702
600,000 (2) 52,901 79,351 105,802 132,252 158,702
700,000 (2) 61,901 92,851 123,802 154,752 185,702
725,000 (2) 64,151 96,226 128,302 160,377 192,452
</TABLE>

- ---------------

(1) Based on retirement in 1998.

(2) The Internal Revenue Code places certain limitations on the amount of
compensation that may be taken into account in calculating pension benefits
and on the amount of pensions that may be paid under federal income tax
qualified plans. For benefits accruing in plan years beginning after
December 31, 1993, no more than $150,000 (indexed for inflation) in annual
compensation can be taken into account. However, under the Pension Plan SERP
(as defined below (see "Supplemental Executive Retirement Plans")),
participating executives will receive the amounts to which they otherwise
would have been entitled under the Retirement Plan, provided they have five
years of service with the Company.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS

We have two supplemental executive retirement plans (the "SERPs") that
provide for payment of benefits in addition to the benefits under the Retirement
Plan to the participating executives (who include the officers named

13
<PAGE> 16

in the Summary Compensation Table). The Cole National Group, Inc. Supplemental
Pension Plan (the "Pension Plan SERP") is an excess benefit plan which replaces
benefits that would otherwise have been payable under the Retirement Plan but
that were limited due to Internal Revenue Code limitations. The Cole National
Group, Inc. Supplemental Retirement Benefit Plan (the "Benefit Plan SERP") is a
defined contribution plan under which participants will receive an annual credit
based on a percentage of base salary and an earnings assumption to be determined
on an annual basis. Participants in the Pension Plan SERP will vest in the
excess benefits after five years of service (with credit for past service).
Participants in the Benefit Plan SERP will be fully vested in the defined
contribution benefits after ten years of service (with credit given for a year
of actual past service prior to 1994 for each year of future service). Benefits
under the Pension Plan SERP will be payable on the same basis as the Retirement
Plan benefits, while benefits under the Benefit Plan SERP will generally be
payable upon retirement (at age 55 or older) in ten annual installments or in
another form elected by the participant prior to retirement. The following
contribution credits were provided in 1997 under the Benefit Plan SERP to the
named individuals and are included in "All Other Compensation" in the Summary
Compensation Table: Mr. Cole -- $67,500; Mr. Smith -- $42,000; Ms.
Dunn -- $6,702; Mr. Gaglioti -- $11,600; and Mr. Mosley -- $11,600. In 1997, Ms.
Dunn received past service credit of 10 years for benefit calculation purposes
under the Pension Plan SERP.

STOCK OPTION PLANS

Our 1992 Management Stock Option Plan (the "1992 Plan") provided for the
granting of stock options for up to 555,556 shares of our Common Stock to the
officers or key employees of the Company and its subsidiaries. The 1993
Management Stock Option Plan (the "1993 Plan") provided for the granting of
stock options for up to 600,000 shares of Common Stock to the officers or key
employees of the Company and its subsidiaries. Our 1996 Management Stock Option
Plan (the "1996 Plan") provided for the granting of stock options for up to
884,000 shares of Common Stock. The 1992 Plan and the 1993 Plan were approved by
our stockholders when we were a private company and prior to our 1994 initial
public offering, and the 1996 Plan was approved by our stockholders at the 1996
annual meeting.

The stock options under the 1992 Plan provides for periodic vesting over
four or five years, with early vesting of all or a portion of the unvested
options upon certain events, such as a public offering of our Common Stock, a
sale of all or substantially all of the assets of the Company, certain change in
control transactions, certain mergers or the voluntary dissolution of the
Company. There were grants for 9,000 shares made under the 1992 Plan in fiscal
1997. As of April 28, 1998, approximately 500 shares remained available for new
option grants under this plan.

The stock options under the 1993 Plan provide for periodic vesting over
four or five years, with early vesting of all or a portion of the unvested
options in circumstances similar to those that apply to the options under the
1992 Plan. The original option grants under the 1993 Plan were amended in 1994
to reduce their exercise prices, to extend their vesting period from four to
five years, and to reduce the number of options granted. There were grants for
17,500 shares made under the 1993 Plan in fiscal 1997. As of April 28, 1998,
approximately 1,900 shares remained available for new option grants under this
plan.

The stock options remaining outstanding under the 1992 Plan and the 1993
Plan generally have vested. Many of the options under the 1996 Plan that were
granted to persons other than senior executives have also vested. Those options
remaining unvested generally provide for vesting over four or five years, with
early vesting of all or a portion of the unvested options in the case of certain
events, such as after a change in control of the Company, following certain
terminations of employment with the Company. There were grants for 79,000 shares

14
<PAGE> 17

made under the 1996 Plan in fiscal 1997. As of April 28, 1998, approximately
32,100 shares remained available for new option grants under this plan.

As of April 28, 1998, there were outstanding options for approximately
1,381,900 shares of Common Stock, of which approximately 1,299,700 are held by
current employees or Nonemployee Directors. In addition, warrants for 78,949
shares of Common Stock exercisable at $49.40 per share and 2,625 shares of
Common Stock exercisable at $1.00 per share remain outstanding from transactions
with investors prior to our initial public offering. The number of shares
covered by options represents a 90,000 share, or 6.1%, reduction from our fiscal
1997 year end numbers reflected in Note 8 to our consolidated financial
statements. As of April 28, 1998 there were 14,812,467 shares of Common Stock
outstanding.

The following table contains information concerning options granted under
the 1996 Plan during fiscal 1997.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) IN FISCAL YEAR (%) ($/SH) DATE 5% 10%
---- ---------- ------------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Cole None
Brian B. Smith None
Leslie D. Dunn 15,000 14.2% $43.9375 9/3/2007 $414,481 $1,050,376
1,000 .9% 30.50 1/22/2008 19,181 48,609
Joseph Gaglioti None
Wayne L. Mosley None
</TABLE>

- ---------------

(1) The value, if any, one may realize upon the exercise of a stock option
depends on the excess of the then current market value per share over the
exercise price per share. There is no assurance that the values to be
realized upon exercise of the stock options listed above will be at or near
the amounts shown.

15
<PAGE> 18

The following table contains information concerning options exercised
during fiscal 1997 and unexercised stock options held as of January 31, 1998.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT OPTIONS AT
ON EXERCISE JANUARY 31, 1998(#) JANUARY 31, 1998($)(1)
NAME (#) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ------------------------- -------------------------
<S> <C> <C> <C>
Jeffrey A. Cole -- 92,604/224,053 $2,003,754/$4,982,524
Brian B. Smith -- 113,089/197,733 2,448,066/4,391,843
Leslie D. Dunn -- 0/16,000 0/2,625
Joseph Gaglioti -- 18,300/20,866 455,554/410,536
Wayne L. Mosley -- 18,300/20,866 455,554/410,536
</TABLE>

- ---------------

(1) Based on the closing price of $33.125 per share of the Common Stock on the
New York Stock Exchange on January 30, 1998, the last trading day of fiscal
1997.

The 1992 Plan and the 1993 Plan and the option agreements thereunder
permit, subject to certain restrictions, each optionee to exercise options by
borrowing funds from the Company. The 1996 Plan and the option agreements
thereunder permit such loans only if approved, at the time of exercise, by the
Compensation Committee of the Board of Directors. The principal on such loans is
payable five years after the date of exercise, with interest payable annually at
a rate fixed on the date of exercise. The interest rate is based on a formula
tied to federal borrowing rates. Each loan is made on a recourse basis and is
secured by the option shares acquired from the proceeds of such loan. Messrs.
Cole and Smith each elected to exercise options in 1993 by borrowing from the
Company the full amount of the exercise price of such shares granted under the
1992 Plan. As of February 1, 1998, the amount (excluding accrued interest) owed
by each individual named in the Summary Compensation Table with respect to such
loans is as follows (the interest rate per annum is shown in parentheses):
Jeffrey A. Cole -- $666,666 (5.47%); and Brian B. Smith -- $194,887 (5.47%). The
maturity dates of the loans to Messrs. Cole and Smith have been extended thirty
months and will mature in 2000.

EXECUTIVE LIFE INSURANCE PLAN

Our Executive Life Insurance Plan permits certain officers and key
employees to obtain life insurance benefits in addition to those generally
provided to salaried employees. The level of coverage provided to the Company's
named executive officers includes (1) basic term life insurance coverage equal
to twice the individual's base salary, (2) an opportunity for the individual to
purchase, at group rates based upon age, an additional amount of insurance equal
to one or two times such individual's base salary and (3) purchase by the
Company of an additional amount of coverage equal to 50% of the amount purchased
by the individual under (2). The maximum level of coverage per individual is
$1,500,000.

MANAGEMENT INCENTIVE BONUS PROGRAM

In 1996 the Management Incentive Bonus Program was adopted to replace our
existing bonus plans for senior managers. The Management Incentive Bonus Program
was approved by our stockholders at the 1996 annual meeting. Your Board of
Directors believes that the Management Incentive Bonus Program promotes our

16
<PAGE> 19

compensation objectives by (1) offering additional incentives tied to continued
improvement in operating results, (2) offering additional stock ownership
opportunities to provide retention incentives to our senior management and (3)
making our overall compensation program competitive with similar companies.

Each fiscal year, the Compensation Committee establishes performance goals
for that year. These goals are limited to: earnings, operating income, increases
in revenue, return on assets, investment, sales or equity, total stockholder
return or any combination thereof. For fiscal 1996 and fiscal 1997, the
Compensation Committee established several levels of performance: "threshold,"
representing the minimum performance for which any Management Incentive Bonus
Program award will be payable (which typically equaled the performance of the
Company or the employee's business unit for the prior fiscal year), "Tier One,"
achievement of which results in a payout of 50% of the executive's salary,
representing a higher level of performance, "Tier Two," achievement of which
results in an additional payout of 10% of base salary, representing a superior
level of performance and, for senior executives including those named in the
Summary Compensation Table, a "Tier Three" performance level, representing a
level of performance exceeding the "Tier Two" level, achievement of which
results in an additional payout of 40% of base salary. Similar goals have been
established for fiscal 1998.

In fiscal 1997, the five named executives achieved bonuses above threshold
but less than Tier One, and received bonuses calculated at 42.0% of their base
salary.

The actual level of achievement of the performance goals will serve as the
basis for establishing the amount of the award payable to a participant for the
fiscal year. If operating performance fails to achieve the performance goals
established, no awards will be made.

401(K) PLAN

We provide a defined contribution plan, including features under Section
401(k) of the Internal Revenue Code, which provides retirement benefits to our
employees. Eligible employees may contribute up to 15% of their compensation to
the plan, although highly compensated employees, including all executive
officers of the Company, were limited to a maximum of 2% of their compensation.
There is no mandatory matching of employee contributions by the Company, but a
discretionary match is determined annually by the Board of Directors. For fiscal
1997, your Board of Directors has approved a partial match equal to 15% of
employee contributions, aggregating approximately $375,000. Effective January 1,
1998, the plan was amended to provide, among other things, for an annual
mandatory match by the Company of 10% of the employee's contribution, plus a
discretionary match.

17
<PAGE> 20

BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION

This report shall not be deemed to be incorporated by reference by any
general statement incorporating this Proxy Statement by reference into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
acts.

The following report has been submitted by your full Board of Directors in
lieu of a report by the Compensation Committee of the Board of Directors,
because the majority of actions with respect to the compensation of our
executive officers during 1997 were taken by the full Board of Directors in
response to the recommendations of the Compensation Committee.

GENERAL COMPENSATION POLICIES

Our general compensation policies have been followed for many years, and
divide executive compensation into four main components: base salary, management
bonus plans, long-term stock-based compensation, and benefit plans. Our purpose
in presenting a multi-faceted compensation program is to attract and retain
successful executives in the face of a highly competitive employment situation
among retailers, while linking a significant portion of the executive's
compensation to the Company's short-term and long-term performance.

BASE SALARIES. During 1997, the base salaries of all our executive
officers, other than Messrs. Cole and Smith, were determined by Mr. Cole, and
approved by the Board of Directors following review and a report by the
Compensation Committee. Factors that Mr. Cole considered in fixing base salaries
included the prior year's base compensation, the officer's performance as
measured by our traditional annual review process (which focuses on the
executive's leadership, experience, skills and overall job performance), the
1996 Hay Group Report referred to below, and Mr. Cole's analysis of the
officer's contribution to the Company.

In late 1995, the Board of Directors commissioned an overall review of our
executive compensation programs by The Hay Group, an outside consulting firm.
The Hay Group made a report to the Compensation Committee and the full Board of
Directors in January 1996 (the "1996 Hay Group Report"), and made a variety of
recommendations regarding our executive compensation programs. The Hay Group
again was commissioned in the fall of 1997 to review certain aspects of our
executive compensation program, and delivered a second report (the "1998 Hay
Group Report") in January 1998, in which they did not review any significant
changes to the base salary compensation of our executive officers.

We believe that base salaries should provide a floor for executive
compensation that is necessary to retain executives. We also believe that at
least 50% of the executive's potential annual compensation should come from a
combination of short-term and long-term awards tied to our Company's
performance. In fixing base salaries, we generally rely on executive
compensation consultants or formal or informal surveys of compensation paid to
executives of other corporations, including other retailers. Base salary is
fixed to be appropriate for the particular position at the Company, irrespective
of the Company's performance, and therefore does not fluctuate on the basis of
the Company's performance.

ANNUAL BONUS PLANS. Our annual bonus plans are designed to be attractive
and powerful incentives to spur short-term performance results at each of the
Company's operating units. The 1996 Hay Group Report recommended that our annual
bonus plans for senior executives be revised to provide for a potential bonus of
up to 100% of the executive's base salary, with the portion of the bonus that
exceeds 50% of base salary being paid in shares of Common Stock. These shares
would be subject to a risk of forfeiture if the executive left the employment of
the Company prior to completion of a vesting period following the date the
shares are awarded. In
18
<PAGE> 21

response to the 1996 Hay Group Report, the Board of Directors adopted the
Management Incentive Bonus Program that provides senior executives, including
each of our executive officers, with the opportunity to receive bonus
compensation of up to 100% of their base salaries upon achievement of
performance goals that have been set by the Compensation Committee upon the
recommendations of Messrs. Cole and Smith. The Management Incentive Bonus
Program contemplates that some or all of the bonus will be payable in shares of
Common Stock. In fiscal 1997 the Compensation Committee determined that any
bonus in excess of 50% of base salary would be payable in shares of Common Stock
subject to certain vesting or holding restrictions. The Board of Directors
anticipates that the Management Incentive Bonus Program will serve as the
framework for bonus plans for senior managers for the foreseeable future. The
Management Incentive Bonus Program was approved by the Company's stockholders in
June 1996.

The Board of Directors believes that by making a significant portion of
annual compensation contingent on the Company's performance, executives are
well-motivated to achieve continuing annual improvements in operating results.
The Board of Directors believes that the potential for achieving a larger bonus,
payable in shares, will provide additional motivation for enhanced Company
performance, and that the payment of shares in lieu of cash will provide
additional retention incentives for senior managers in a highly competitive
employment market. No changes to the Management Incentive Bonus Program were
recommended by or made as a result of the 1998 Hay Group Report.

LONG-TERM STOCK-BASED COMPENSATION. We currently have in place three stock
option plans for employees, the 1992 Plan and the 1993 Plan, which were each
established when we were a private company and approved by stockholders before
our initial public offering in 1994, and the 1996 Plan, which was approved by
the Company's stockholders in June 1996. The 1996 Plan was adopted by the Board
of Directors following the recommendation of the Compensation Committee, based
on the 1996 Hay Group Report. The Hay Group recommended the adoption of a new
stock option plan because the Company's existing stock option plans were nearly
depleted.

We commissioned the 1998 Hay Group Report because, given the Company's
growth, we found ourselves in the fall of 1997 again in a position of
near-exhaustion of the Company's existing stock option plans. The Hay Group
considered alternatives available to the Company, and recommended the adoption
of a new stock-based plan encompassing up to 884,000 shares. We then worked with
The Hay Group and other advisors to develop the Omnibus Plan that is described
in detail elsewhere in this Proxy Statement. While we expect that stock options
will be the principal tool we will use under the Omnibus Plan, we believe the
compensation alternatives to stock options contained in the Omnibus Plan will
provide us with greater flexibility in designing compensation awards.

We believe that stock ownership and stock-based compensation are valuable
tools for motivating employees to improve the overall long-term performance of
the Company and for tying a significant amount of the executive's potential
income to enhanced stockholder values. Our three existing stock option plans,
and the Omnibus Plan, reflect this philosophy.

We also believe that stock ownership and stock-based compensation are
important vehicles in aligning the interests of management with the interest of
stockholders. We encourage our managers to own shares of Company stock, and have
further encouraged stock ownership by paying part of our annual incentive
bonuses in restricted shares and by adding Company stock to our 401(k) plan
investment choices. Our Board of Directors has recently adopted guidelines for
our executives, including vice presidents and up -- approximately 40 people --
that establish stock ownership goals of shares worth 5x base compensation for
our Chief Executive Officer and Chief Operating Officer, 3x base compensation
for our other senior executives, and 1x base compensation at the

19
<PAGE> 22

vice president level. Unexercised options will not count toward meeting the
guideline amounts. Achievement of these guideline amounts within a 5 to 7 year
period will be an important criteria used by the Board of Directors in
determining eligibility for the granting of additional stock options at such
time. The Company's Directors have determined to lead by example and have
adopted similar guidelines for Nonemployee Directors to achieve stock ownership
of 5 times their annual directors' fees within the next five years.

Awards under the 1992, 1993 and 1996 Plans have been of nonqualified
options with an exercise price not less than the fair market value of a share of
Common Stock at the date of grant. The number of options granted to Messrs. Cole
and Smith under the 1992 Plan was determined on the basis of direct negotiations
between the executives and the representatives of the then-principal
stockholders, while the number of options granted to Messrs. Cole and Smith
under the 1993 Plan was determined on the basis of discussions with the Board of
Directors. The number of options granted to Messrs. Cole and Smith under the
1996 Plan was determined by the Compensation Committee in consultation with The
Hay Group. The number of options granted to other executive officers were
determined by Messrs. Cole and Smith and approved by the Board of Directors. We
anticipate following similar processes with respect to the Omnibus Plan.

BENEFIT PLANS. We maintain a variety of benefit plans designed to provide
an attractive package to our executive officers. We periodically re-evaluate the
nature and extent of the benefit plans in light of the plans available to
executives at competitors in the retail industry.

1993 TAX ACT. The Board of Directors' general philosophy is to "qualify"
future annual and long-term incentive plans for tax deductibility wherever
appropriate, recognizing that, under certain circumstances, the limit imposed by
Section 162(m) of the Internal Revenue Code may be exceeded.

The foregoing report has been furnished by the Board of Directors.

Jeffrey A. Cole
Timothy F. Finley
Irwin N. Gold
Peter V. Handal
Charles A. Ratner
Walter J. Salmon
Brian B. Smith

COMPENSATION COMMITTEE INTERLOCKS, INSIDER
PARTICIPATION AND CERTAIN TRANSACTIONS

Deliberations concerning compensation for fiscal 1997 generally involved
the Compensation Committee, the Special Compensation Committee and the full
Board of Directors, including Jeffrey A. Cole and Brian B. Smith, who are
employees of the Company.

The Company leases its headquarters office space in a building which is
owned by a partnership in which Jeffrey A. Cole currently has a 46.5% limited
partnership interest. Mr. Cole's interest in the partnership terminates May 1,
1998. We believe that the lease terms are equivalent to those that could have
been obtained pursuant to an arm's length transaction with unaffiliated parties.
Lease payments to the partnership totaled $347,339.92, net of payments made by
our subtenant, during fiscal 1997.

Mr. Ratner is the President, Chief Operating Officer and a director of
Forest City Enterprises, Inc. ("Forest City"). Forest City and its affiliates
are developers and managers of commercial real estate, including shopping malls
in which the Company's stores may operate. The Company's subsidiaries currently
operate 17 stores under leases with Forest City or its affiliates. Under such
leases, which are generally for multiple year periods of differing duration, the
Company's subsidiaries paid aggregate rent of $677,225 during fiscal 1997.
Additional common area charges, insurance charges, taxes and similar charges
were paid. We believe that the terms of our

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<PAGE> 23

leases with Forest City or its affiliates, as applicable, are equivalent to
those that could have been obtained pursuant to arm's length transactions with
unaffiliated parties.

Walter J. Salmon is currently retained as a consultant to the Company, and
receives compensation of $25,000 per year. In addition, under a deferred
compensation agreement entered into in 1979, Mr. Salmon is entitled to receive
annual payments of $5,500 for the period that commenced in 1996 and will end in
2004.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our Directors
and executive officers and persons who own more than 10 percent of a registered
class of our equity securities to file reports of ownership on Forms 3, 4 and 5
with the Securities and Exchange Commission. The Securities and Exchange
Commission requires this group to furnish us with copies of all such filings. We
periodically remind this group of its reporting obligation and assist in making
the required disclosure once we are notified that a reportable event has
occurred. We are required to disclose in this Proxy Statement any failure by any
of the above mentioned persons to make timely Section 16 reports.

Based upon its review of such forms received by the Company and written
representations from the Directors and executive officers that no other reports
were required, the Company is unaware of any instances of noncompliance, or late
compliance, with such filings during fiscal 1997 by its Directors, executive
officers or 10 percent stockholders, other than an inadvertent late filing of
Mr. Salmon's initial Form 3 report with respect to the shares held upon his
election to serve as Director.

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<PAGE> 24

STOCK PRICE PERFORMANCE

Shown below is a graph comparing the yearly percentage change in the
cumulative total stockholder return on our Common Stock from April 11, 1994 (the
date of our initial public offering) against the cumulative total return,
including reinvestment of dividends of the S&P 500 Stock Index and the S&P
Retail Stores Composite Index (formerly the S&P Retail Index) from March 31,
1994 (the nearest date for which total return data for each index are readily
available) through January 30, 1998 (the last trading day of our most recent
fiscal year, which ended January 31, 1998). The comparison assumes that the
value of the investment in the Common Stock at its initial public offering price
and in each index was $100 on April 11, 1994 and March 31, 1994, respectively.
The market price per share of Common Stock on April 28, 1998, was $36.5625,
which equates to an index price of $305 in the graph below.

COMPARISON OF THE COMMON STOCK,
S&P 500 STOCK INDEX AND S&P RETAIL STORES COMPOSITE INDEX

<TABLE>
<CAPTION>
S&P RETAIL
STORES
MEASUREMENT PERIOD COLE NATIONAL S&P 500 COMPOSITE
(FISCAL YEAR COVERED) CORPORATION STOCK INDEX INDEX(A)
<S> <C> <C> <C>
4/94 100.00 100.00 100.00
1/95 80.21 108.05 94.07
1/96 89.58 149.83 101.44
1/97 237.50 189.29 121.09
1/98 276.04 240.23 179.56
</TABLE>

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<PAGE> 25

1998 EQUITY AND PERFORMANCE INCENTIVE PLAN
ITEM NO. 2

Your Board of Directors recommends that you approve the 1998 Equity and
Performance Incentive Plan (the "Omnibus Plan"). The Board of Directors adopted
the Omnibus Plan on March 20, 1998, subject to your approval at the Annual
Meeting.

Key features of the Omnibus Plan include:

- authorization of 884,000 shares of Common Stock subject to the Omnibus
Plan;

- a prohibition against the repricing of options;

- limitations on the number of options that may be granted to any
individual during any consecutive three-year period;

- limitations on amendments to the Omnibus Plan.

We are basically out of options with only 34,500 shares available for grant
under our existing plans. Our last plan was put in place in January 1996, 2-1/2
years from when our new plan would go into effect. When the Board of Directors
approved the 1996 Plan, we had 8 senior executives and 64 other executives who
received option grants. Today, as a result of the explosive growth we have
enjoyed in our businesses, we have a total of 14 senior executives and 105 other
eligible executives who we anticipate will receive grants under the new plan.

Since we adopted our last stock option plan,

- Net revenues have almost doubled and net income (from continuing
operations before nonrecurring charges and extraordinary items) has
increased by 78%.

We strongly believe that long-term, stock-based compensation is an
essential part of our compensation, incentive and retention programs. Stock
options are a vital part of our management compensation packages as our
executives receive a significant part of their compensation through option
grants. We believe that options -- which gain value only as the Company itself
gains market value -- promote our results-oriented, entrepreneurial culture. We
believe that a substantial portion of our executives' compensation should be
tied to company and market performance -- our goal is that at least 50% of their
income should come from our annual incentive bonus
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<PAGE> 26

program and our long-term, stock-based incentive programs. And our philosophy is
that stock-based compensation means compensation related to the performance of
our stock -- we will not re-price options.

We believe that stock ownership and stock-based compensation are important
vehicles in aligning the interests of management with the interest of
stockholders. We encourage our managers to own shares of Company stock, and have
further encouraged stock ownership by paying part of our annual incentive
bonuses in restricted shares and by adding Company stock to our 401(k) plan
investment choices. Our Board of Directors has recently adopted guidelines for
our executives, including vice presidents and up -- approximately 40 people --
that establish stock ownership goals of shares worth 5x base compensation for
our Chief Executive Officer and Chief Operating Officer, 3x base compensation
for our other senior executives, and 1x base compensation at the vice president
level. Unexercised options will not count toward meeting the guideline amounts.
Achievement of these guideline amounts within a 5 to 7 year period will be an
important criteria used by the Board of Directors in determining eligibility for
the granting of additional stock options at such time. The Company's Board of
Directors have determined to lead by example and have adopted similar guidelines
for Nonemployee Directors to achieve stock ownership of 5 times their annual
directors' fees within the next five years.

Stock-based compensation is important to our ability to retain and attract
the qualified executives that we need as we continue to grow. If the Omnibus
Plan is not approved by the stockholders, we believe that we will be hindered in
our ability to retain and attract the qualified executives that we need to
continue our growth. Stock-based compensation is important to hiring and keeping
this talent in the highly competitive optical industry. Without an available
pool of stock options we believe we will be required to provide higher cash
compensation to attract and retain the quality executives essential to
accomplishing our long-term growth plans.

We believe that we have used stock options responsibly in the past. The
1996 Plan has been used the way we said it would at the time our stockholders
approved it. With minor exceptions, senior executives have not received grants
since 1996. We made annual grants to other executives in 1996 and 1997. Because
our growth in eligible executives has outstripped our available options, our
annual grants to lower level managers this year were lower than we believe are
appropriate. We need the Omnibus Plan to make grants to existing management and
to make grants to attract new executives. We believe that, under present
circumstances, at our present size the Omnibus Plan will provide an adequate
supply of options for the next three years.

SUMMARY DESCRIPTION

The following is a summary of the material elements of the Omnibus Plan and
should be read in conjunction with the complete text of the Omnibus Plan, which
is attached hereto as Exhibit A.

General. Under the Omnibus Plan, the Board of Directors is authorized to
make awards of (i) options to purchase shares of Common Stock ("Option Rights"),
(ii) performance stock and performance units ("Performance Units" or
"Performance Stock"), (iii) restricted stock ("Restricted Stock") or (iv)
deferred stock ("Deferred Stock"). The terms applicable to these various awards,
including those terms that may be established by the Board of Directors when
making or administering particular awards, are set forth in detail in the
Omnibus Plan. The Compensation Committee and Special Compensation Committee of
your Board of Directors will be authorized to oversee the Omnibus Plan and to
make awards and grants under the Omnibus Plan.

Shares Available Under the Omnibus Plan. The number of shares of Common
Stock that may be issued or transferred (i) upon the exercise of Option Rights,
(ii) as Restricted Stock and released from all substantial risks of forfeiture,
(iii) as Deferred Stock, (iv) in payment of Performance Stock or Performance
Units that have been earned, or (v) in payment of dividend equivalents paid with
respect to awards made under the Omnibus Plan, may

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<PAGE> 27

not exceed a total of 884,000, subject to certain adjustments pursuant to the
terms of the Omnibus Plan. Such shares of Common Stock may be original issue or
treasury shares or a combination of both.

Eligibility. Officers, key employees and consultants of the Company or any
of its subsidiaries, as well as any person who has agreed to begin serving in
such capacity within 30 days of the date of the grant are eligible to be
selected by the Board of Directors to receive benefits under the Omnibus Plan.
Your Board of Directors and/or the Compensation Committee or Special
Compensation Committee will select those who will receive grants on the basis of
performance objectives.

Option Rights. Option Rights entitle the optionee to purchase shares of
Common Stock at a predetermined price per share (which may not be less than the
market value at the date of grant, except for non-qualified stock options
granted in lieu of salary or bonus, which may be not less than 85% of the market
value at the date of grant). Each grant will specify whether the option price
will be payable (i) in cash at the time of exercise, (ii) by the transfer to the
Company of shares of Common Stock owned by the optionee for at least six months,
having a value at the time of exercise equal to the option price, (iii) if
authorized by the Board of Directors or the Compensation Committee prior to the
exercise of the option, the delivery of a promissory note or notes of the
optionee payable over not more than five years, (iv) if authorized by the Board
of Directors or the Compensation Committee, the delivery of shares of Restricted
Stock or other forfeitable shares, Deferred Stock, Performance Stock, other
vested Option Rights, or Performance Units, or (v) a combination of those
payment methods. Grants may provide for deferred payment of the option price
from the proceeds of sale through a broker on the date of exercise of some or
all of the shares of Common Stock to which the exercise relates.

No Option Rights may be exercisable more than ten years from the date of
grant. Each grant must specify the period of continuous employment with the
Company or any subsidiary that is required before the Option Rights become
exercisable. Grants may provide for earlier exercise of an Option Right in the
event of a "change in control" of the Company or other similar transaction or
event. Grants may also specify performance goals that must be achieved as a
condition to the exercise of the option. Successive grants may be made to the
same optionee whether or not previously granted Option Rights remain
unexercised.

Restricted Stock. An award of Restricted Stock involves the immediate
transfer of ownership of a specific number of shares of Common Stock by the
Company to a participant in consideration of the performance of services. The
participant is immediately entitled to voting, dividend and other ownership
rights in such shares. The transfer may be made without additional consideration
or in consideration of a payment by the participant that is less than current
market value, as the Board of Directors may determine. The Board of Directors
may condition the award on the achievement of specified performance goals.

Restricted Stock must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Internal Revenue Code for a period to be
determined by the Board of Directors. An example would be a provision that the
Restricted Stock would be forfeited if the participant ceased to serve the
Company as an officer or key employee during a specified period of years. If
service alone is the criterion for non-forfeiture, the period of service must be
at least three years; if other performance objectives are included,
non-forfeiture may occur one year from the date of grant. In order to enforce
these forfeiture provisions, the transferability of Restricted Stock will be
prohibited or restricted in a manner and to the extent prescribed by the Board
of Directors for the period during which the forfeiture provisions are to
continue. The Board of Directors may provide for a shorter period during which
the forfeiture provisions are to apply in the event of a change in control of
the Company or other similar transaction or event.

Deferred Stock. An award of Deferred Stock constitutes an agreement by the
Company to deliver shares of Common Stock to the participant in the future in
consideration of the performance of services. However, the Deferred Stock award
is subject to the fulfillment of certain conditions, such as performance goals,
during the
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<PAGE> 28

deferral period specified by the Board of Directors. During the deferral period,
the participant cannot transfer any rights in the award and has no right to vote
the shares of Deferred Stock, but the Board of Directors may, on or after the
date of the award, authorize the payment of dividend equivalents on such shares
on a current, deferred or contingent basis, either in cash or in additional
shares of Common Stock. Awards of Deferred Stock can be made without additional
consideration or in consideration of a payment by the participant that is less
than the market value per share on the date of award.

Deferred Stock must be subject to a deferral period of at least three
years. The Board of Directors determines the deferral period at the date of the
award, and may provide for a deferral period of less than three years in the
event of a change in control of the Company or other similar transaction or
event.

Performance Stock and Performance Units. Performance Stock and Performance
Units involve awards that become payable upon the achievement of specified
performance goals during a designated performance period (which must be at least
three years). Such performance period may be subject to earlier termination in
the event of death, retirement or a change in control of the Company or other
similar transaction or event. A minimum level of acceptable achievement may also
be established by the Board of Directors. If, by the end of the performance
period, the participant has achieved the specified performance goals, the
participant will be deemed to have fully earned the Performance Stock or
Performance Units. If the participant has not achieved the performance goals,
but has attained or exceeded the predetermined minimum, the participant will be
deemed to have partly earned the Performance Stock and/or Performance Units
(such part to be determined in accordance with a formula). To the extent earned,
the Performance Stock and/or Performance Units will be paid to the participant
at the time and in the manner determined by the Board of Directors in cash,
shares of Common Stock or in any combination thereof.

Each award of Performance Stock or Performance Units may be subject to
adjustment to reflect changes in compensation or other factors, so long as no
adjustment would result in the loss of an available exemption for the award
under Section 162(m) of the Internal Revenue Code. The Board of Directors or
Compensation Committee may provide for the payment of dividend equivalents to
the holder on a current, deferred or contingent basis, either in cash or in
additional Common Stock.

Performance Goals. The Omnibus Plan requires that the Board of Directors
establish performance goals for purposes of Performance Stock and Performance
Units. In addition, if the Board of Directors so chooses, Option Rights,
Restricted Stock and Deferred Stock may also specify performance goals.
Performance goals may be described either in terms of Company-wide objectives,
individual participant objectives, or objectives related to performance of the
division, subsidiary, department or function within the Company or a subsidiary
in which the participant is employed. Performance goals applicable to any award
include specified levels of or growth in (i) cash flow, (ii) earnings per share,
(iii) earnings before interest and taxes, (iv) earnings per share growth, (v)
net income, (vi) return on assets, (vii) return on equity, (viii) return on
invested capital, (ix) return on total capital, (x) revenue growth, (xi) stock
price, (xii) total return to stockholders, (xiii) value added, or any
combination thereof. If the Board of Directors determines that a change in the
business, operations, corporate structure or capital structure of the Company,
or the manner in which it conducts its business, or other events or
circumstances render the performance goals unsuitable, the Board of Directors
may modify the performance goals or the related minimum acceptable level of
achievement, in whole or in part, as the Board of Directors deems appropriate
and equitable, unless the result would be to make an award otherwise eligible
for an exemption under Section 162(m) of the Internal Revenue Code ineligible
for such an exemption.

Transferability. Except as otherwise determined by the Board of Directors,
no Option Right or other award under the Omnibus Plan is transferable by a
participant other than by will or the laws of descent and distribution, or
(except for incentive stock options) to the participant's immediate family or
trusts established solely for the

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<PAGE> 29

benefit of one or more members of the immediate family. Except as otherwise
determined by the Board of Directors, Option Rights are exercisable during the
optionee's lifetime only by him or her.

The Board of Directors may specify at the date of grant that part or all of
the shares of Common Stock that are (i) to be issued or transferred by the
Company upon exercise of Option Rights, upon termination of the deferral period
applicable to Deferred Stock or upon payment under any grant of Performance
Stock or Performance Units or (ii) no longer subject to the substantial risk of
forfeiture and restrictions on transfer referred to in Section 5 of the Omnibus
Plan, shall be subject to further restrictions on transfer.

Adjustments. The maximum number of shares of Common Stock covered by
outstanding Option Rights, Deferred Stock, and Performance Stock granted under
the Omnibus Plan, and the prices per share applicable thereto, are subject to
adjustment in the event of stock dividends, stock splits, combinations of
shares, recapitalizations, mergers, consolidations, spin-offs, reorganizations,
liquidations, issuances of rights or warrants, and similar events. In the event
of any such transaction, the Board of Directors is given discretion to provide a
substitution of alternative consideration for any or all outstanding awards
under the Omnibus Plan, as it in good faith determines to be equitable under the
circumstances, and may require the surrender of all awards so replaced. The
Board of Directors may also make or provide for adjustments in the numerical
limitations under the Omnibus Plan as the Board of Directors may determine
appropriate to reflect any of the foregoing transactions or events.

The Board of Directors is authorized to interpret the Omnibus Plan and
related agreements and other documents. The Board of Directors may make awards
to employees under any or a combination of all of the various categories of
awards that are authorized under the Omnibus Plan, or in its discretion, make no
awards. The Omnibus Plan may be amended from time to time by the Board of
Directors. However, any amendment that must be approved by the stockholders of
the Company in order to comply with applicable law or the rules of the principal
national securities exchange or quotation system upon which the Common Stock is
traded or quoted will not be effective unless and until such approval has been
obtained in compliance with such applicable law or rules. Such amendments would
include any increase in the number of shares issued or certain other increases
in awards available under the Plan (except for increases caused by adjustments
made pursuant to the Omnibus Plan). Presentation of the Omnibus Plan or any
amendment thereof for stockholder approval is not to be construed to limit the
Company's authority to offer similar or dissimilar benefits through plans that
are not subject to stockholder approval.

The Board of Directors may provide for special terms for awards to
participants who are foreign nationals or who are employed by the Company or any
of its subsidiaries outside the United States of America as the Board of
Directors may consider necessary or appropriate to accommodate differences in
local law, tax policy or custom.

The Board of Directors may not, without further approval of the
stockholders of the Company, authorize the amendment of any outstanding Option
Right to reduce the option price. Furthermore, no Option Right may be canceled
and replaced with awards having a lower option price without further approval of
the stockholders of the Company.

The Omnibus Plan does not confer on any participant a right to continued
employment with the Company or any subsidiary.

FEDERAL INCOME TAX CONSEQUENCES

Following is a brief summary of certain of the federal income tax
consequences of certain transactions under the Omnibus Plan based on federal
income tax laws in effect on January 1, 1998. This summary is not intended to be
exhaustive and does not describe state or local tax consequences.

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<PAGE> 30

Option Rights. In general, (i) no income will be recognized by an optionee
at the time an Option Right which is not an Incentive Stock Option is granted;
(ii) at exercise, ordinary income will be recognized by the optionee in an
amount equal to the difference between the option price paid for the shares and
the fair market value of the shares, if unrestricted, on the date of exercise;
and (iii) at sale, appreciation (or depreciation) after the date of exercise
will be treated as either short-term or long-term capital gain (or loss)
depending on how long the shares have been held.

Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an Incentive Stock Option. If shares of
Common Stock are issued to the optionee pursuant to the exercise of an Incentive
Stock Option, and if no disqualifying disposition of such shares is made by such
optionee within two years after the date of grant or within one year after the
transfer of such shares to the optionee, then upon sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss.

If shares of Common Stock acquired upon the exercise of an Incentive Stock
Option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of such shares at the time of exercise (or, if less, the amount realized
on the disposition of such shares if a sale or exchange) over the option price
paid for such shares. Any further gain (or loss) realized by the participant
generally will be taxed as short-term or long-term capital gain (or loss)
depending on the holding period.

Restricted Stock. The recipient of Restricted Stock generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Stock reduced by any amount paid by the participant at such time as
the shares are no longer subject to forfeiture or restrictions on transfer for
purposes of Section 83 of the Internal Revenue Code ("restrictions"). However, a
recipient who so elects under Section 83(b) of the Internal Revenue Code within
30 days of the date of transfer of the shares will have taxable ordinary income
on the date of transfer of the shares equal to the excess of the fair market
value of such shares (determined without regard to the restrictions) over the
purchase price if any, of such Restricted Stock. If a Section 83(b) election has
not been made, any dividends received with respect to Restricted Stock subject
to restrictions generally will be treated as compensation that is taxable as
ordinary income to the participant.

Deferred Stock. No income generally will be recognized upon the award of
Deferred Stock. The recipient of a Deferred Stock award generally will be
subject to tax at ordinary income rates on the fair market value of unrestricted
shares of Common Stock on the date that such shares are transferred to the
participant under the award, reduced by any amount paid by the participant, and
the capital gains/loss holding period for such shares will also commence on such
date.

Performance Stock and Performance Units. No income generally will be
recognized upon the grant of Performance Stock or Performance Units. Upon
payment with respect to Performance Stock or Performance Units earned, the
recipient generally will be required to include as taxable ordinary income in
the year of receipt an amount equal to the amount of cash received and the fair
market value of any unrestricted shares of Common Stock received.

Special Rules Applicable to Officers and Directors. In limited
circumstances where the sale of stock received as a result of a grant or award
could subject an officer or Director to suit under Section 16(b) of the
Securities Exchange Act of 1934, the tax consequences to the officer or Director
may differ from the tax consequences described above. In these circumstances,
unless a special election has been made, the principal difference usually will
be to postpone valuation and taxation of the stock received so long as the sale
of the stock received could subject the officer or Director to suit under
Section 16(b) of the Securities Exchange Act of 1934, but no longer than six
months.

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<PAGE> 31

Tax Consequences To Participant's Employer. To the extent that a
participant recognizes ordinary income in the circumstances described above, the
participant's employer will generally be entitled to a corresponding deduction,
provided, among other things, that such income meets the test of reasonableness,
does not, along with other income of the participant, exceed the limitation on
deductible compensation under Section 162(m) of the Internal Revenue Code, is an
ordinary and necessary business expense, and is not an "excess parachute
payment," and that any applicable withholding obligations are satisfied.

Compliance with Section 162(m) of the Internal Revenue Code. The Omnibus
Plan is intended to comply with rules for deductibility under Section 162(m) of
the Internal Revenue Code. Performance Units awarded to named executives will
provide for objective performance goals and are intended to qualify for
deductibility without regard to the limits of Section 162(m). The maximum number
of Option Rights of Common Stock that can be granted to any participant during
any period of three consecutive fiscal years is 350,000. The maximum number of
shares of Common Stock covered by awards of Restricted Stock, Deferred Stock or
Performance Stock under the Omnibus Plan cannot exceed 265,000 in the aggregate
and, during any period of three consecutive fiscal years, the maximum number of
shares of Common Stock covered by awards of Restricted Stock, Deferred Stock or
Performance Stock under the Omnibus Plan granted to any one participant cannot
exceed 125,000 shares of Common Stock. In addition, no participant, in any
period of one calendar year, may be granted Performance Units having an
aggregate maximum value greater than $1,000,000 on the date of the grant.

Withholding Taxes. To the extent that the Company is required to withhold
federal, state, local or foreign taxes in connection with any payment made or
benefit realized by a participant under the Omnibus Plan, and the amounts
available to the Company for such withholding are insufficient, it is a
condition to the receipt of such payment or the realization of such benefit that
the participant make arrangements satisfactory to the Company for payment of the
balance of such taxes required to be withheld, which arrangements (in the
discretion of the Board of Directors) may include relinquishment of a portion of
such benefit or any other benefit, or may be satisfied through loans by the
Company to the participant.

Accounting Treatment. Performance Shares and Performance Units will
require a charge against income of the Company periodically representing
increases in the value of the anticipated benefits. Such charge is based on the
dollar amount expected to be paid at the end of the performance period.
Restricted Stock and Deferred Stock will require a charge against income equal
to the fair market value of the awarded shares at the time of award less the
amount, if any, paid or payable by the awardee. Such charge is spread over the
earn-out period for the Restricted or Deferred Stock. Given the variety of
awards that may be made separately or in combination under the Omnibus Plan,
actual awards may result in periodic charges against income in certain other
circumstances.

PLAN BENEFITS

It is not possible to determine future awards that will be received by
participants in the Omnibus Plan.

REQUIRED VOTE

Approval of the Omnibus Plan requires (1) the affirmative vote of the
holders of a majority of shares of Common Stock present, or represented, and
entitled to vote on the matter at the Annual Meeting, and (2) that a majority of
shares of Common Stock cast a vote on the proposal (whether "for," "against" or
"abstain").

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE OMNIBUS PLAN.

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<PAGE> 32

APPOINTMENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

ITEM NO. 3

We ask that you ratify the appointment of Arthur Andersen LLP as
independent certified public accountants to audit the books and accounts for the
Company and its subsidiaries for the 1998 fiscal year. A representative of
Arthur Andersen LLP is expected to attend the Annual Meeting, will have the
opportunity to make a statement if he or she so desires, and will be available
to answer appropriate questions.

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS OF THE COMPANY AND ITS SUBSIDIARIES.

SUBMISSION OF STOCKHOLDER PROPOSALS

To be eligible for inclusion in our proxy statement and form of proxy for
our next annual meeting, your proposals must be received at our executive
offices on or before December 31, 1998. Under our By-Laws, no stockholder
proposal or nomination for director may be submitted less than 60 days prior to
a stockholder meeting for consideration at an annual meeting. If public notice
of the date of the annual meeting is not given at least 75 days prior to the
annual meeting, submissions must be delivered to the Company no later than 10
days following the public announcement of the meeting date. Such proposals
should be submitted by certified mail, return receipt requested, addressed to us
at 5915 Landerbrook Drive, Mayfield Heights, Ohio 44124, Attention: Secretary.

OTHER MATTERS

The Board of Directors knows of no other matters which are likely to be
brought before the meeting, but if other matters do properly come before the
meeting, the persons named in the enclosed proxy, or their substitutes, will
vote the proxy in accordance with their best judgment.

Leslie D. Dunn

Secretary

Mayfield Heights, Ohio
May 1, 1998

IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. IF YOU DO NOT PLAN
TO ATTEND THE MEETING, WE URGE YOU TO FILL OUT, DATE AND MAIL THE ENCLOSED FORM
OF PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.

30
<PAGE> 33

EXHIBIT A

COLE NATIONAL CORPORATION

1998 EQUITY AND PERFORMANCE INCENTIVE PLAN

1. PURPOSE. The purpose of the 1998 Equity and Performance Incentive Plan
is to attract, retain, and motivate consultants, officers and other key
employees of Cole National Corporation, a Delaware corporation, and its
Subsidiaries, to provide such persons incentives and rewards for superior
performance which share in the growth of the value of the Company, and to
promote ownership and holding of shares of Common Stock of the Company by such
persons, thereby reinforcing a mutuality of interest with other stockholders.

2. DEFINITIONS. As used in this Plan,

"BOARD" means the Board of Directors of the Company and, to the extent of
any delegation by the Board to a committee (or subcommittee thereof) pursuant to
Section 14 of this Plan, such committee (or subcommittee).

"CHANGE IN CONTROL" shall have the meaning provided in Section 10 of this
Plan.

"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.

"COMMON STOCK" means the Common Stock, par value $.001 per share, of the
Company or any security into which such Common Stock may be changed by reason of
any transaction or event of the type referred to in Section 10 of this Plan.

"COMPANY" means Cole National Corporation, a Delaware corporation.

"COVERED EMPLOYEE" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of Section
162(m) of the Code (or any successor provision).

"DATE OF GRANT" means the date specified by the Board on which a grant of
Option Rights, Performance Stock or Performance Units or a grant or sale of
Restricted Stock or Deferred Stock shall become effective (which date shall not
be earlier than the date on which the Board takes action with respect thereto).

"DEFERRAL PERIOD" means the period of time during which shares of Deferred
Stock are subject to deferral limitations under Section 6 of this Plan.

"DEFERRED STOCK" means an award made pursuant to Section 6 of this Plan of
the right to receive shares of Common Stock at the end of a specified Deferral
Period.

"DIRECTOR" means a member of the Board of Directors of the Company.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, as such law, rules and regulations may be
amended from time to time.

"IMMEDIATE FAMILY" has the meaning ascribed thereto in Rule 16a-1(e) under
the Exchange Act (or any successor rule to the same effect) as in effect from
time to time.

"INCENTIVE STOCK OPTIONS" means Option Rights that are intended to qualify
as "incentive stock options" under Section 422 of the Code or any successor
provision.

"MANAGEMENT OBJECTIVES" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Stock or Performance Units or, when so determined by the
Board, Option Rights, Restricted Stock and dividend credits pursuant to this
Plan.
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Management Objectives may be described in terms of Company-wide objectives or
objectives that are related to the performance of the individual Participant or
of the Subsidiary, division, department, region or function within the Company
or Subsidiary in which the Participant is employed. The Management Objectives
may be made relative to the performance of other corporations. The Management
Objectives applicable to any award to a Covered Employee shall be based on
specified levels of or growth in one or more of the following criteria:

<TABLE>
<S> <C>
cash flow; return on equity;
earnings per share; return on invested capital;
earnings before interest and taxes; return on total capital;
earnings per share growth; revenue growth;
net income; stock price;
total return to shareholders; and value
return on assets; added.
</TABLE>

If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Company, or the manner in which
it conducts its business, or other events or circumstances render the Management
Objectives unsuitable, the Committee may in its discretion modify such
Management Objectives or the related minimum acceptable level of achievement, in
whole or in part, as the Committee deems appropriate and equitable, except in
the case of a Covered Employee where such action would result in the loss of the
otherwise available exemption of the award under Section 162(m) of the Code. In
such case, the Committee shall not make any modification of the Management
Objectives or minimum acceptable level of achievement.

"MARKET VALUE PER SHARE" means, as of any particular date, (i) the closing
sale price per share of Common Stock as reported on the New York Stock Exchange
or, if applicable, the NASDAQ National Market System, on the Date of Grant, or
if there are no sales on such day, on the next preceding trading day during
which a sale occurred, or (ii) if clause (i) does not apply, the fair market
value per share of Common Stock as determined by the Board.

"NON-EMPLOYEE DIRECTOR" means a Director who is not an employee of the
Company or any Subsidiary.

"OPTIONEE" means the optionee named in an agreement evidencing an
outstanding Option Right.

"OPTION PRICE" means the purchase price payable on exercise of an Option
Right.

"OPTION RIGHT" means the right to purchase shares of Common Stock upon
exercise of an option granted pursuant to Section 4 or Section 8 of this Plan.

"PARTICIPANT" means a person who is selected by the Board to receive
benefits under this Plan and who is at the time a consultant, an officer or
other key employee of the Company or any one or more of its Subsidiaries, or who
has agreed to commence serving in any of such capacities within 30 days of the
Date of Grant.

"PERFORMANCE PERIOD" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 7 of this
Plan within which the Management Objectives relating to such Performance Share
or Performance Unit are to be achieved.

"PERFORMANCE SHARE" means a bookkeeping entry that records the equivalent
of one Common Share awarded pursuant to Section 7 of this Plan.

"PERFORMANCE UNIT" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 7 of this Plan.

"PLAN" means this Cole National Corporation 1998 Equity and Performance
Incentive Plan.

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<PAGE> 35

"RESTRICTED STOCK" means Common Stock granted or sold pursuant to Section
5 of this Plan as to which neither the substantial risk of forfeiture nor the
prohibition on transfers referred to in such Section 5 has expired.

"RULE 16B-3" means Rule 16b-3 under the Exchange Act (or any successor
rule to the same effect) as in effect from time to time.

"SPREAD" means the excess of the Market Value per Share on the date when
Option Rights are surrendered in payment of the Option Price of other Option
Rights, over the Option Price provided for in the related Option Right.

"SUBSIDIARY" means a corporation, company or other entity (i) more than 50
percent of whose outstanding shares or securities (representing the right to
vote for the election of directors or other managing authority) are, or (ii)
which does not have outstanding shares or securities (as may be the case in a
partnership, joint venture or unincorporated association), but more than 50
percent of whose ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or controlled,
directly or indirectly, by the Company except that for purposes of determining
whether any person may be a Participant for purposes of any grant of Incentive
Stock Options, "Subsidiary" means any corporation in which at the time the
Company owns or controls, directly or indirectly, more than 50 percent of the
total combined voting power represented by all classes of stock issued by such
corporation.

"VOTING POWER" means at any time, the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
Directors.

3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as provided
in Section 3(b) and Section 9 of this Plan, the number of shares of Common Stock
that may be issued or transferred (i) upon the exercise of Option Rights, (ii)
as Restricted Stock and released from substantial risks of forfeiture thereof,
(iii) as Deferred Stock, (iv) in payment of Performance Stock or Performance
Units that have been earned or (v) in payment of dividend equivalents paid with
respect to awards made under the Plan shall not exceed in the aggregate 884,000
shares of Common Stock, plus any shares described in Section 3(b). Such shares
may be shares of original issuance or treasury shares or a combination of the
foregoing.

(b) The number of shares available in Section 3(a) above shall be adjusted
to account for shares relating to awards that expire, are forfeited or are
transferred, surrendered or relinquished upon the payment of any Option Price by
the transfer to the Company of Common Stock or upon satisfaction of any
withholding amount. Upon payment in cash of the benefit provided by any award
granted under this Plan, any shares that were covered by that award shall again
be available for issue or transfer hereunder.

(c) Notwithstanding any other provision of this Plan to the contrary and
subject to adjustment as provided in Section 9 of this Plan,

(i) the aggregate number of shares of Common Stock actually issued or
transferred by the Company upon the exercise of Incentive Stock Options
shall not exceed 884,000 shares of Common Stock;

(ii) no Participant shall be granted Option Rights, in the aggregate,
for more than 350,000 shares of Common Stock during any period of three
consecutive fiscal years of the Company; and

(iii) the maximum number of shares of Common Stock covered by awards
of Restricted Stock, Deferred Stock or Performance Stock under this Plan
shall not exceed 265,000 in the aggregate, and, during any period of three
consecutive fiscal years of the Company the maximum number of shares of
Common Stock covered by awards of Restricted Stock, Deferred Stock or
Performance Stock under this Plan granted to any one Participant shall not
exceed 125,000 shares of Common Stock.
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<PAGE> 36

(d) Notwithstanding any other provision of this Plan to the contrary, in no
event shall any Participant in any fiscal year of the Company receive awards of
Performance Units having an aggregate maximum value as of the Date of Grant in
excess of $1,000,000.

4. OPTION RIGHTS. The Board may, from time to time and upon such terms and
conditions as it may determine, authorize the granting to Participants of
options to purchase shares of Common Stock. Each such grant may utilize any or
all of the authorizations, and shall be subject to all of the requirements
contained in the following provisions:

(a) Each grant shall specify the number of shares of Common Stock to
which it pertains subject to the limitations set forth in Section 3 of this
plan.

(b) Each grant shall specify an Option Price per share, which may not
be less than the Market Value per Share on the Date of Grant, provided,
however, that in the case of options other than Incentive Stock Options,
the Option Price shall not be less than 85% of the Market Value per Share
on the Date of Grant, if granted in lieu of salary or cash bonus.
Notwithstanding the foregoing, the Committee in its discretion, may
determine a price per share of Common Stock of less than the Market Value
per Share on the Date of Grant, if such grant is in substitution for a
stock option granted by an entity which has been merged with or acquired by
the Company or a Subsidiary and such substitute grant is made in connection
with such merger or acquisition.

(c) Each grant shall specify whether the Option Price shall be payable
(i) in cash, in the form of currency, or cashier's check or other cash
equivalent acceptable to the Company, (ii) by the actual or constructive
transfer to the Company of shares of Common Stock owned by the Optionee for
at least 6 months (or other consideration authorized pursuant to Section
4(d)) having a value at the time of exercise equal to the total Option
Price, (iii) if authorized by the Compensation Committee prior to the
exercise of the option, the delivery of a promissory note or notes of the
Optionee payable over not more than five years, or (iv) by a combination of
such methods of payment.

(d) The Board may determine, at or after the Date of Grant, that
payment of the Option Price of any Option Right (other than an Incentive
Stock Option) may also be made in whole or in part in the form of shares of
Restricted Stock or other Common Stock that are forfeitable or subject to
restrictions on transfer, Deferred Stock, Performance Stock (based, in each
case, on the Market Value per Share on the date of exercise), other Option
Rights (based on the Spread on the date of exercise) or Performance Units.
Unless otherwise determined by the Board at or after the Date of Grant,
whenever any Option Price is paid in whole or in part by means of any of
the forms of consideration specified in this Section 4(d), the Common Stock
received upon the exercise of the Option Rights shall be subject to such
risks of forfeiture or restrictions on transfer as may correspond to any
that apply to the consideration surrendered, but only to the extent,
determined with respect to the consideration surrendered, of (i) the number
of shares or Performance Stock, (ii) the Spread of any unexercisable
portion of Option Rights, or (iii) the stated value of Performance Units.

(e) Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a broker on a date satisfactory to the
Company of some or all of the shares to which such exercise relates.

(f) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain
unexercised.

(g) Each grant shall specify the period or periods of continuous
service by the Optionee with the Company or any Subsidiary that is
necessary before the Option Rights or installments thereof will become

A-4
<PAGE> 37

exercisable and may provide for the earlier exercise of such Option Rights
in the event of a Change in Control.

(h) Any grant of Option Rights may specify Management Objectives that
must be achieved as a condition to the exercise of such rights.

(i) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended
to qualify under particular provisions of the Code, (ii) options that are
not intended so to qualify, or (iii) combinations of the foregoing.

(j) No Option Right shall be exercisable more than 10 years from the
Date of Grant.

(k) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Company by an officer and delivered to the
Optionee and containing such terms and provisions, consistent with this
Plan, as the Board may approve.

5. RESTRICTED STOCK. The Board may also authorize the grant or sale of
shares of Restricted Stock to Participants. Each such grant or sale may utilize
any or all of the authorizations, and shall be subject to all of the
requirements, contained in the following provisions:

(a) Each such grant or sale shall constitute an immediate transfer of
the ownership of Common Stock to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture
and restrictions on transfer hereinafter referred to.

(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than Market Value per Share at the Date of Grant.

(c) Each such grant or sale shall provide that the shares of
Restricted Stock covered by such grant or sale shall be subject to a
"substantial risk of forfeiture" within the meaning of Section 83 of the
Code except (if the Board shall so determine) in the event of death,
retirement or disability of the Participant, or a Change in Control, for a
period to be determined by the Board at the Date of Grant. If the Board
conditions the nonforfeitability of shares of Restricted Stock upon service
alone, such nonforfeitability may not occur before three years from the
Date of Grant of such shares of Restricted Stock, and if the Board
conditions the nonforfeitability of shares of Restricted Stock upon
Management Objectives, such nonforfeitability may not occur before one year
from the Date of Grant of such shares of Restricted Stock.

(d) Each such grant or sale shall provide that during the period for
which such substantial risk of forfeiture is to continue, the
transferability of the shares of Restricted Stock shall be prohibited or
restricted in the manner and to the extent prescribed by the Board at the
Date of Grant (which restrictions may include, without limitation, rights
of repurchase or first refusal in the Company or provisions subjecting the
shares of Restricted Stock to a continuing substantial risk of forfeiture
in the hands of any transferee).

(e) Any grant of shares of Restricted Stock may specify Management
Objectives that, if achieved, will result in termination or early
termination of the restrictions applicable to such shares. Each grant may
specify in respect of such Management Objectives a minimum acceptable level
of achievement and may set forth a formula for determining the number of
shares of Restricted Stock on which restrictions will terminate if
performance is at or above the minimum level, but falls short of full
achievement of the specified Management Objectives.

A-5
<PAGE> 38

(f) Any such grant or sale of shares of Restricted Stock may require
that any or all dividends or other distributions paid thereon during the
period of such restrictions be automatically deferred and reinvested in
additional shares of Restricted Stock, which may be subject to the same
restrictions as the underlying award.

(g) Each grant or sale of shares of Restricted Stock shall be
evidenced by an agreement executed on behalf of the Company by any officer
and delivered to and accepted by the Participant and shall contain such
terms and provisions, consistent with this Plan, as the Board may approve.
Unless otherwise directed by the Board, all certificates representing
shares of Restricted Stock shall be held in custody by the Company until
all restrictions thereon shall have lapsed, together with a stock power or
powers executed by the Participant in whose name such certificates are
registered, endorsed in blank and covering such shares.

6. DEFERRED STOCK. The Board may also authorize the granting or sale of
Deferred Stock to Participants. Each such grant or sale may utilize any or all
of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:

(a) Each such grant or sale shall constitute the agreement by the
Company to deliver shares of Common Stock to the Participant in the future
in consideration of the performance of services, but subject to the
fulfillment of such conditions during the Deferral Period as the Board may
specify.

(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is
less than the Market Value per Share at the Date of Grant.

(c) Each such grant or sale shall be subject to a Deferral Period of
not less than 3 years, as determined by the Board at the Date of Grant
except (if the Board shall so determine) in the event of death, retirement
or disability of the Participant, or a Change in Control.

(d) During the Deferral Period, the Participant shall have no right to
transfer any rights under his or her award and shall have no rights of
ownership in the shares of Deferred Stock and shall have no right to vote
them, but the Board may, at or after the Date of Grant, authorize the
payment of dividend equivalents on such shares on either a current or
deferred or contingent basis, either in cash or in additional shares of
Common Stock.

(e) Each grant or sale of shares of Deferred Stock shall be evidenced
by an agreement executed on behalf of the Company by any officer and
delivered to and accepted by the Participant and shall contain such terms
and provisions, consistent with this Plan, as the Board may approve.

7. PERFORMANCE STOCK AND PERFORMANCE UNITS. The Board may also authorize
the granting of shares of Performance Stock and Performance Units that will
become payable to a Participant upon achievement of specified Management
Objectives. Each such grant may utilize any or all of the authorizations, and
shall be subject to all of the requirements, contained in the following
provisions:

(a) Each grant shall specify the number of shares of Performance Stock
or Performance Units to which it pertains, which number may be subject to
adjustment to reflect changes in compensation or other factors; provided,
however, that no such adjustment shall be made in the case of a Covered
Employee where such action would result in the loss of the otherwise
available exemption of the award under Section 162(m) of the Code.

(b) The Performance Period with respect to each share of Performance
Share or Performance Unit shall be such period of time (not less than 3
years, except (if the Board shall so determine) in the event of death,
retirement or disability of the Participant, or a Change in Control, for a
period to be determined by the Board at the Date of Grant.
A-6
<PAGE> 39

(c) Any grant of shares of Performance Stock or Performance Units
shall specify Management Objectives which, if achieved, will result in
payment or early payment of the award, and each grant may specify in
respect of such specified Management Objectives a minimum acceptable level
of achievement and shall set forth a formula for determining the number of
shares of Performance Stock or Performance Units that will be earned if
performance is at or above the minimum level, but falls short of full
achievement of the specified Management Objectives. The grant of shares of
Performance Stock or Performance Units shall specify that, before the
shares of Performance Stock or Performance Units shall be earned and paid,
the Board must certify that the Management Objectives have been satisfied.

(d) Each grant shall specify the time and manner of payment of shares
of Performance Stock or Performance Units that have been earned. Any grant
may specify that the amount payable with respect thereto may be paid by the
Company in cash, in shares of Common Stock or in any combination thereof
and may either grant to the Participant or retain in the Board the right to
elect among those alternatives.

(e) Any grant of shares of Performance Stock may specify that the
amount payable with respect thereto may not exceed a maximum specified by
the Board at the Date of Grant. Any grant of Performance Units may specify
that the amount payable or the number of shares of Common Stock issued with
respect thereto may not exceed maximums specified by the Board at the Date
of Grant.

(f) The Board may, at or after the Date of Grant of shares of
Performance Stock, provide for the payment of dividend equivalents to the
holder thereof on either a current or deferred or contingent basis, either
in cash or in additional Common Stock.

(g) Each grant of shares of Performance Stock or Performance Units
shall be evidenced by an agreement executed on behalf of the Company by any
officer and delivered to and accepted by the Participant, which agreement
shall state that such shares of Performance Stock or Performance Units are
subject to all the terms and conditions of this Plan, and contain such
other terms and provisions, consistent with this Plan, as the Board may
approve.

8. TRANSFERABILITY. (a) Except as otherwise determined by the Board, no
Option Right or other derivative security granted under the Plan shall be
transferable by a Participant other than by will or the laws of descent and
distribution. Except as otherwise determined by the Board, Option Rights shall
be exercisable during the Optionee's lifetime only by him or her or by his or
her guardian or legal representative.

(b) The Board may specify at the Date of Grant that part or all of the
shares of Common Stock that are (i) to be issued or transferred by the Company
upon the exercise of Option Rights, upon the termination of the Deferral Period
applicable to Deferred Stock or upon payment under any grant of Performance
Stock or Performance Units or (ii) no longer subject to the substantial risk of
forfeiture and restrictions on transfer referred to in Section 5 of this Plan,
shall be subject to further restrictions on transfer.

(c) Notwithstanding the provisions of Section 8(a), Option Rights (other
than Incentive Stock Options), Restricted Stock, Deferred Stock, Performance
Stock and Performance Units shall be transferable by a Participant, without
payment of consideration therefor by the transferee, to any one or more members
of the Participant's Immediate Family (or to one or more trusts established
solely for the benefit of one or more members of the Participant's Immediate
Family or to one or more partnerships in which the only partners are members of
the Participant's Immediate Family); provided, however, that (i) no such
transfer shall be effective unless reasonable prior notice thereof is delivered
to the Company and such transfer is thereafter effected in accordance with any
terms and conditions that shall have been made applicable thereto by the Company
or the Board and (ii) any such transferee shall be subject to the same terms and
conditions hereunder as the Participant.

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<PAGE> 40

9. ADJUSTMENTS. The Board may make or provide for such adjustments in the
numbers of Common Stock covered by outstanding Option Rights, Deferred Stock,
and Performance Stock granted hereunder, in the Option Price and in the kind of
shares covered thereby, as the Board, in its sole discretion, exercised in good
faith, may determine is equitably required to prevent dilution or enlargement of
the rights of Participants or Optionees that otherwise would result from (a) any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Company, or (b) any merger,
consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial
or complete liquidation or other distribution of assets, issuance of rights or
warrants to purchase securities, or (c) any other corporate transaction or event
having an effect similar to any of the foregoing. Moreover, in the event of any
such transaction or event, the Board, in its discretion, may provide in
substitution for any or all outstanding awards under this Plan such alternative
consideration as it, in good faith, may determine to be equitable in the
circumstances and may require in connection therewith the surrender of all
awards so replaced. The Board may also make or provide for such adjustments in
the numbers of shares specified in Section 3 of this Plan as the Board in its
sole discretion, exercised in good faith, may determine is appropriate to
reflect any transaction or event described in this Section 9; provided, however,
that any such adjustment to the number specified in Section 3(c)(i) shall be
made only if and to the extent that such adjustment would not cause any Option
intended to qualify as an Incentive Stock Option to fail so to qualify.

10. CHANGE IN CONTROL. For purposes of this Plan, a "Change in Control"
shall mean if at any time any of the following events shall have occurred:

(a) the Company merges into itself, or is merged or consolidated with,
another corporation and as a result of such merger or consolidation less
than 51% of the voting power of the then-outstanding voting securities of
the surviving or resulting corporation immediately after such transaction
are directly or indirectly beneficially owned in the aggregate by the
former stockholders of the Company immediately prior to such transaction;

(b) all or substantially all the assets accounted for on the
Consolidated Balance Sheet of the Company are sold or transferred to one or
more corporations or persons, and as a result of such sale or transfer less
than 51% of the voting power of the then-outstanding voting securities of
such corporation or person immediately after such sale or transfer is
directly or indirectly beneficially held in the aggregate by the former
stockholders of the Company immediately prior to such transaction or series
of transactions;

(c) A person, within the meaning of Section 3(a)(9) or 13(d)(3) (as in
effect on the date hereof) of the Securities Exchange Act of 1934, becomes
the beneficial owner (as defined in Rule 13d-3 of the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934) of (i)
15% or more but less than 35% of the voting power of the then-outstanding
voting securities of the Company without the prior approval by the Board,
or (ii) 35% or more of the voting power of the then-outstanding voting
securities of the Company; PROVIDED, HOWEVER, that the foregoing does not
apply to any such acquisition that is made by (w) any subsidiary of the
Company; (x) any employee benefit plan of the Company or any Subsidiary or
(y) any person or group of which employees of the Company or of any
Subsidiary control a greater than 25% interest unless the Board of
Directors of the Company determines that such person or group is making a
"hostile acquisition;"

(d) A majority of the members of the Board of Directors of the Company
or of any Subsidiary are not Continuing Directors, where a "Continuing
Director" is any member of the Board of Directors of the Company or, with
respect to a Subsidiary, of such Subsidiary who (x) was a member of the
Board of Directors of the Company or, with respect to a Subsidiary, of such
Subsidiary on the date hereof or (y) was

A-8
<PAGE> 41

nominated for election or elected to such Board of Directors with the
affirmative vote of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election.

11. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional shares of Common Stock pursuant to this Plan. The Board may provide
for the elimination of fractions or for the settlement of fractions in cash.

12. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment
of a portion of such benefit or any other benefit, or loans by the Company to
the Participant. The Company and a Participant or such other person may also
make similar arrangements with respect to the payment of any taxes with respect
to which withholding is not required.

13. FOREIGN EMPLOYEES. In order to facilitate the making of any grant or
combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America as the
Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the Board may approve such supplements to
or amendments, restatements or alternative versions of this Plan as it may
consider necessary or appropriate for such purposes, without thereby affecting
the terms of this Plan as in effect for any other purpose, and the Secretary or
other appropriate officer of the Company may certify any such document as having
been approved and adopted in the same manner as this Plan. No such special
terms, supplements, amendments or restatements, however, shall include any
provisions that are inconsistent with the terms of this Plan as then in effect
unless this Plan could have been amended to eliminate such inconsistency without
further approval by the shareholders of the Company.

14. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by the
Board, which may from time to time delegate all or any part of its authority
under this Plan to a committee of the Board (or subcommittee thereof) consisting
of not less than two Non-Employee Directors appointed by the Board. A majority
of the committee (or subcommittee) shall constitute a quorum, and the action of
the members of the committee (or subcommittee) present at any meeting at which a
quorum is present, or acts unanimously approved in writing, shall be the acts of
the committee (or subcommittee). To the extent of any such delegation,
references in this Plan to the Board shall be deemed to be references to any
such committee or subcommittee.

(b) The interpretation and construction by the Board of any provision of
this Plan or of any agreement, notification or document evidencing the grant of
Option Rights, Restricted Stock, Deferred Stock, Performance Stock or
Performance Units and any determination by the Board pursuant to any provision
of this Plan or of any such agreement, notification or document shall be final
and conclusive. No member of the Board shall be liable for any such action or
determination made in good faith.

15. AMENDMENTS, ETC. (a) The Board may at any time and from time to time
amend the Plan in whole or in part; provided, however, that any amendment which
must be approved by the shareholders of the Company in order to comply with
applicable law or the rules of the New York Stock Exchange or, if the Common
Stock are not traded on such Exchange, the principal national securities
exchange upon which the Common Stock are

A-9
<PAGE> 42

traded or quoted, shall not be effective unless and until such approval has been
obtained; and provided, further, that no such amendment shall:

(i) increase the maximum number of shares specified in Section 3(a);
Sections 3(c)(i), (ii) or (iii), or Section 3(d); or

(ii) otherwise materially increase the benefits accruing to
Participants under this Plan; without the further approval of shareholders
of the Company.

Presentation of this Plan or any amendment hereof for shareholder approval shall
not be construed to limit the Company's authority to offer similar or dissimilar
benefits under other plans without shareholder approval.

(b) The Board shall not, without the further approval of the shareholders
of the Company, authorize the amendment of any outstanding Option Right to
reduce the Option Price. Furthermore, no Option Right shall be canceled and
replaced with awards having a lower Option Price without further approval of the
shareholders of the Company. This Section 15(b) is intended to prohibit the
repricing of "underwater" Option Rights and shall not be construed to prohibit
the adjustments provided for in Section 9 of this Plan.

(c) The Board also may require Participants to, or may permit Participants
to elect to, defer the issuance of shares of Common Stock or the settlement of
awards in cash under the Plan pursuant to such rules, procedures or programs as
it may establish for purposes of this Plan. The Board also may provide that
deferred issuances and settlements include the payment or crediting of dividend
equivalents or interest on the deferral amounts.

(d) The Board may condition the grant of any award or combination of awards
authorized under this Plan on the surrender or deferral by the Participant of
his or her right to receive a cash bonus or other compensation otherwise payable
by the Company or a Subsidiary to the Participant.

(e) In case of termination of employment by reason of death, disability or
normal or early retirement, or in the case of hardship or other special
circumstances, of a Participant who holds an Option Right not immediately
exercisable in full, or any Restricted Stock as to which the substantial risk of
forfeiture or the prohibition or restriction on transfer has not lapsed, or any
Deferred Stock as to which the Deferral Period has not been completed, or any
Performance Stock or Performance Units which have not been fully earned, or who
holds Common Stock subject to any transfer restriction imposed pursuant to
Section 8(b) of this Plan, the Board may, in its sole discretion, accelerate the
time at which such Option Right may be exercised or the time at which such
substantial risk of forfeiture or prohibition or restriction on transfer will
lapse or the time when such Deferral Period will end or the time at which such
Performance Stock or Performance Units will be deemed to have been fully earned
or the time when such transfer restriction will terminate or may waive any other
limitation or requirement under any such award.

(f) This Plan shall not confer upon any Participant any right with respect
to continuance of employment or other service with the Company or any
Subsidiary, nor shall it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate such Participant's employment or
other service at any time.

(g) To the extent that any provision of this Plan would prevent any Option
Right that was intended to qualify as an Incentive Stock Option from qualifying
as such, that provision shall be null and void with respect to such Option
Right. Such provision, however, shall remain in effect for other Option Rights
and there shall be no further effect on any provision of this Plan.

16. OTHER MATTERS. Notwithstanding anything in this Plan to the contrary,
not more than 88,500 shares of Common Stock in the aggregate available under
this Plan may be subject to awards:

A-10
<PAGE> 43

(i) in the case of grants of shares of Restricted Stock, which do
not meet the requirements of the last sentence of Section 5(c) of this
Plan;

(ii) in the case of grants of Restricted Stock, as to which the
Committee may accelerate or waive any restrictions imposed under Section
5(d) of this Plan;

(iii) in the case of grants of Deferred Stock, which do not meet
the requirements of Section 6(c) of this Plan; or

(iv) in the case of grants of Performance Shares and Performance
Units, which do not meet the requirements of Section 7(b) of this Plan.

17. TERMINATION. No grant shall be made under this Plan more than 10 years
after the date on which this Plan is first approved by the shareholders of the
Company, but all grants made on or prior to such date shall continue in effect
thereafter subject to the terms thereof and of this Plan.

A-11
<PAGE> 44

COLE NATIONAL CORPORATION

PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Jeffrey A. Cole, Brian B. Smith and
Leslie D. Dunn, and each of them, with full power of substitution, and
hereby authorizes them to represent the undersigned and to vote all of
the shares of Common Stock in COLE NATIONAL CORPORATION ("Company") held
of record by the undersigned on April 20, 1998, at the Annual Meeting of
Stockholders of the Company to be held on Thursday, June 11, 1998, and
any adjournment(s) thereof as follows and in accordance with their
judgment upon any other matter properly presented:

1. THE ELECTION OF SEVEN DIRECTORS.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES LISTED BELOW.

<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>

Jeffrey A. Cole, Timothy F. Finley, Irwin N. Gold, Peter V. Handal,
Charles A. Ratner, Walter J. Salmon and Brian B. Smith

(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)

-------------------------------------------------------------------------

2. APPROVE THE 1998 EQUITY AND PERFORMANCE INCENTIVE PLAN ("OMNIBUS
PLAN").

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

(Continued and to be signed on reverse side)

(Continued from other side)

3. CONFIRM THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR 1998.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
[ ] FOR [ ] AGAINST [ ] ABSTAIN

This proxy when properly executed will be voted as directed by the
undersigned stockholder. If directions are not indicated, the proxy will
be voted to elect the nominees described in item 1 and for items 2 and 3.

Date: , 1998
-----------------

----------------------------
Signature

----------------------------
Signature (if held jointly)

IMPORTANT: Please sign as
your name appears hereon. If
shares are held jointly, all
holders must sign. When
signing as attorney,
executor, administrator,
trustee or guardian, please
give your full title. If a
corporation, please sign in
full corporate name by
president or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.