COLE NATIONAL GROUP INC, S-1, 1996-12-19

COLE NATIONAL GROUP INC
S-1, 1996-12-19
HOBBY, TOY & GAME SHOPS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1996

REGISTRATION STATEMENT NO. 333-
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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COLE NATIONAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
5995
(PRIMARY STANDARD
INDUSTRIAL CLASSIFICATION CODE NUMBER)
34-1744334
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)

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5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
(216) 449-4100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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WAYNE L. MOSLEY
Vice President and Controller
Cole National Corporation
5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
(216) 449-4100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:

DAVID P. PORTER, Esq.
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE

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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
<S> <C> <C> <C> <C>
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9 7/8% Senior Subordinated Notes due
2006.................................. $150,000,000 100% $150,000,000 $45,454.55

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<FN>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED DECEMBER 19, 1996

PROSPECTUS

[Cole LOGO] Cole National Group, Inc.

OFFER TO EXCHANGE ITS 9 7/8% SENIOR SUBORDINATED NOTES DUE 2006, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND ALL OF ITS OUTSTANDING 9 7/8%
SENIOR SUBORDINATED NOTES DUE 2006 ISSUED ON NOVEMBER 15, 1996

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997 UNLESS EXTENDED.

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

Cole National Group, Inc., a Delaware corporation (the "Company"), hereby
offers to exchange (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), up to $150,000,000 in aggregate
principal amount of the Company's new 9 7/8% Senior Subordinated Notes due 2006
(the "Exchange Notes"), for $150,000,000 in aggregate principal amount of the
Company's outstanding 9 7/8% Senior Subordinated Notes due 2006 (the "Original
Notes") originally issued on November 15, 1996. The Original Notes and the
Exchange Notes are sometimes referred to herein collectively as the "Notes."

The terms of the Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Original Notes for which they may be exchanged pursuant to this Exchange Offer,
except that (i) the Exchange Notes will be freely transferable by holders
thereof (other than as provided herein) and issued free of any covenant
restricting transfer absent registration and (ii) holders of the Exchange Notes
will not be entitled to certain rights of holders of the Original Notes under
the Registration Rights Agreement (as defined herein), which rights will
terminate upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Original Notes (which they replace) and will be
entitled to the benefits of an Indenture dated as of November 15, 1996 governing
the Original Notes and the Exchange Notes (the "Indenture"). For a complete
description of the terms of the Exchange Notes, see "Description of the Notes."
There will be no cash proceeds to the Company from the Exchange Offer.

The Original Notes were sold on November 15, 1996, by the Company, a wholly
owned subsidiary of Cole National Corporation (the "Parent"), in connection with
the consummation of the following transactions (collectively, the
"Transactions"): (i) the acquisition by the Parent (the "Parent's Acquisition of
Pearle") of the outstanding shares of Pearle, Inc. ("Pearle"), which has 347
company-owned and 339 franchised retail optical locations in North America and
the Caribbean; (ii) the sale of assets and/or outstanding shares of Pearle
Holdings B.V. ("Pearle Holdings"), which owns Pearle's European operations, in
transactions pursuant to which the Parent (and not the Company) retained a
minority interest in Pearle Holdings' business (the "Pearle Holdings
Disposition"); (iii) the sale of the outstanding shares of Pearle (excluding the
Parent's retained interest in the European operations) to the Company, as a
result of which Pearle became a wholly owned subsidiary of the Company (the
"Pearle Acquisition"); (iv) the repurchase from the Parent of $15.1 million of
Senior Notes (as defined herein); and (v) the financing of the Pearle
Acquisition through the proceeds of the offering of the Original Notes (the
"Offering").

Interest on the Notes will be payable in cash semi-annually on each December
31 and June 30, commencing June 30, 1997. The Notes are redeemable at the option
of the Company, in whole or in part, at any time on or after December 31, 2001,
at the redemption prices set forth herein, plus accrued and unpaid interest to
the date of redemption. In addition, the Company, at its option, may redeem in
the aggregate up to 35% of the original principal amount of the Notes at any
time and from time to time prior to December 31, 1999 at 109.875% of the
aggregate principal amount so redeemed plus accrued interest to the redemption
date, with the Net Proceeds (as defined herein) of one or more Qualified Equity
Offerings of the Company or the Parent to the extent such proceeds were
contributed to the Company as common equity, provided that at least $97.5
million of the principal amount of the Notes originally issued remain
outstanding immediately after the occurrence of any such redemption and that any
such redemption occurs within 90 days following the closing of any such
Qualified Equity Offering. See "Description of the Notes -- Optional
Redemption."

Upon a Change of Control (as defined herein), each holder of the Notes will
be entitled to require the Company to purchase such holder's Notes at 101% of
the principal amount thereof plus accrued interest to the purchase date. See
"Description of the Notes -- Change of Control Offer." In addition, the Company
is obligated in certain instances to make an offer to repurchase the Notes at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued interest to the date of repurchase with the net cash proceeds of certain
asset sales. See "Description of the Notes -- Certain Covenants -- Limitation on
Certain Asset Sales."

The Notes will be general unsecured obligations of the Company subordinate
in right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Company and senior in right of payment to any subordinated
indebtedness of the Company. As of November 2, 1996, on a pro forma basis, after
giving effect to the Transactions, the Company and its subsidiaries would have
had $166.9 million aggregate principal amount of Senior Indebtedness
outstanding. Substantially all of the Company's assets are held through
subsidiaries and the Notes will be effectively subordinated to the obligations
of such subsidiaries. As of November 2, 1996, on a pro forma basis, after giving
effect to the Transactions, subsidiaries of the Company had $142.5 million of
liabilities outstanding consisting primarily of trade payables and accrued
expenses. The Indenture governing the Notes will prohibit the incurrence of
additional indebtedness by any subsidiaries other than a limited amount of
purchase money indebtedness, capitalized lease obligations and other limited
indebtedness under a New Credit Facility (as defined herein). See "Description
of Notes -- Certain Covenants."

SEE "RISK FACTORS" COMMENCING ON PAGE 16 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF THE NOTES.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is December , 1996.

<PAGE> 3

The Original Notes were sold on November 15, 1996, in a transaction not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon an exemption provided in the Securities Act. Accordingly, the
Original Notes may not be offered, resold or otherwise pledged, hypothecated or
transferred in the United States unless registered under the Securities Act or
unless an exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered to satisfy the obligations of
the Company under the Registration Rights Agreement (as defined herein) relating
to the Original Notes. See "The Exchange Offer -- Purposes and Effects of the
Exchange Offer." Each holder receiving Exchange Notes, other than a
broker-dealer, will represent that the holder is not engaging in or intending to
engage in a distribution of such Exchange Notes. Exchange Notes issued pursuant
to the Exchange Offer in exchange for the Original Notes may be offered for
resale, resold or otherwise transferred by the holder thereof (other than any
holder that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "The Exchange Offer
- -- Purposes and Effects of the Exchange Offer" and "Plan of Distribution."
Broker-dealers may use this Prospectus, as amended or supplemented, in
connection with resales of the Exchange Notes received in exchange for the
Original Notes where such Original Notes were acquired by such broker-dealer as
a result of market making activities or other such trading.

The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Company will accept
for exchange any and all validly tendered Original Notes not withdrawn prior to
5:00 P.M., New York City time, on , 1997 unless extended by the
Company, in its sole discretion (the "Expiration Date"). Tenders of Original
Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is subject to certain customary conditions. See "The Exchange Offer
- -- Certain Conditions to the Exchange Offer." Original Notes may be tendered
only in integral multiples of $1,000. The Company will pay all expenses incident
to the Exchange Offer.

The Notes constitute securities for which there is no established trading
market. Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. The Company does not currently intend to list the Exchange
Notes on any securities exchange. To the extent that any Original Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Original Notes would be adversely affected. No assurances can be
given as to the liquidity of the trading market for either the Original Notes or
the Exchange Notes.

i
<PAGE> 4

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Exchange Notes offered by this Prospectus. For the purposes
hereof, the term Registration Statement means the original Registration
Statement and any and all amendments thereto, including the schedules and
exhibits to such Registration Statement or any such amendment. This Prospectus,
which forms a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, to which reference is
hereby made. Each statement made in this Prospectus concerning a document filed
as an exhibit to the Registration Statement is qualified in its entirety by
reference to such exhibit for a complete statement of its provisions.

Pursuant to the terms of the Senior Note Indenture (as defined herein), the
Company files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained at prescribed
rates by writing the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a Web site, located at
http://www.sec.gov., that contains reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the Commission.

Pursuant to the Indenture, the Company has agreed to furnish to the Trustee
and to registered holders of the Notes, without cost to the Trustee or such
registered holder, copies of all reports and other information that would be
required to be filed by the Company with the Commission under the Securities
Exchange Act of 1934 (the "Exchange Act"), whether or not the Company is then
required to file reports with the Commission. As a result of the Exchange Offer,
the Company will become subject to the periodic reporting and other
informational requirements of the Exchange Act. The Company has agreed that,
whether or not the Company is subject to filing requirements under Section 10 or
15(d) of the Exchange Act, and so long as any Notes remain outstanding, it will
file with the Commission (but only if the Commission at such time is accepting
such voluntary filings) and will send the Trustee copies of the financial
information, documents and reports that would have been required to be filed
with the Commission pursuant to the Exchange Act.

The principal address of the Company is 5915 Landerbrook Drive, Suite 300,
Mayfield Heights, Ohio 44124, telephone number (216) 449-4100.

ii
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
The consummation of the offering of the Original Notes occurred concurrently
with the consummation of (i) the Parent's Acquisition of Pearle; (ii) the Pearle
Holdings Disposition; and (iii) the Pearle Acquisition. See "The Transactions."
As used herein, unless the context otherwise indicates, references in this
Prospectus to "Pearle" refer to Pearle after the completion of the Pearle
Holdings Disposition. Unless the context otherwise indicates, references to the
"Company" refer to Cole National Group, Inc. and its wholly owned subsidiaries,
including, for periods following the consummation of the Transactions, Pearle,
and references to the "Parent" refer to Cole National Corporation. The Company's
fiscal year ends on the Saturday closest to January 31. Fiscal years are
identified according to the calendar year in which they begin. For example, the
fiscal year ended February 3, 1996 is referred to as "fiscal 1995." Unless
otherwise indicated, references herein to the number of stores for the Company
or Pearle are as of November 2, 1996.

This Prospectus contains certain forward-looking statements (including,
without limitation, statements that reflect beliefs or anticipations of future
operations, results or events) with respect to the business of the Company and
the industry in which it operates. These forward-looking statements are subject
to certain risks and uncertainties which may cause actual results to differ
materially from those stated in or suggested by such forward-looking statements.
See "Risk Factors."

THE COMPANY

The Company, a leading provider of eyewear products, optometric services
and personalized gifts, acquired Pearle on November 15, 1996. The combination of
the Company and Pearle creates the second largest optical retail company in the
United States, with over 1,800 locations in the United States, Canada and the
Caribbean. Pearle enjoys one of the most highly recognized brand names in the
optical retail industry. Pro forma for the Pearle Acquisition, the Company's
fiscal 1995 net sales and EBITDA were $873.7 million and $84.0 million,
respectively, with approximately 70% of the Company's net sales derived from its
optical business and the remaining 30% derived from its gift business. The
Company conducts its business through two principal operating units: (i) Cole
Optical, consisting of Cole Vision Corporation ("Cole Vision") and Pearle; and
(ii) Cole Gift, consisting of Things Remembered, Inc. ("Things Remembered") and
Cole Gift Centers, Inc. ("CGC").

Cole Vision operates 980 leased locations within Sears, Montgomery Ward and
other host stores and 75 freestanding "Sears Optical" stores, providing eyewear
products and optometric services throughout the United States. Cole Vision's
product line includes a broad selection of private label and brand name
prescription eyeglasses as well as contact lenses and eyewear accessories. Each
of Cole Vision's optical stores is linked by computer to Cole Vision's five
centralized manufacturing laboratories, which grind, cut and fit lenses to
order. Cole Vision provides next day delivery on most of the eyewear it offers
when requested by its customers. Cole Vision's managed vision care program is
its fastest growing component. Currently, managed vision care represents
approximately 30% of Cole Vision's sales and is expected to be an increasing
part of the Company's business in the future. As a leading provider of managed
vision care programs, Cole Vision is the exclusive contract provider to over 20
million participants and their dependents.

Pearle's operations consist of 347 company-owned and 339 franchised stores
located in freestanding, strip center and mall locations in the United States,
Canada and the Caribbean. In 1961, Pearle's first store was opened in Savannah,
Georgia by Dr. Stanley Pearle, an optometrist who sought to bring high-quality
eyecare products and services to his patients at a good value. Pearle's highly
recognized brand name and slogan, Nobody Cares For Eyes More Than Pearle, have
been used for over 15 years. Management believes that Pearle has historically
targeted a different customer base than Cole Vision. While Pearle's stores sell
a broad range of optical products, Pearle features well-recognized designer
brand names such as Armani, Calvin Klein, Laura Ashley and Polo, which appeal to
the more affluent and fashion-conscious consumer. Unlike Cole Vision, which
utilizes centralized laboratories for all of its manufacturing, Pearle produces
most of its spectacles at its in-store laboratories. Pearle also has been at the
forefront of changing consumer preferences and has pioneered many innovative
marketing practices including Buy One Get One Free and one-hour express service.

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<PAGE> 6

Cole Gift is the only national chain of personalized gift stores in the
United States. Total store locations of 1,302 include 797 Things Remembered
locations in enclosed shopping malls and 505 CGC leased locations operated in
Sears and other host stores. Cole Gift provides its customers value-added
personalization services including gift engraving, glass etching and
monogramming and custom embroidering of soft goods, as well as key duplicating.
Cole Gift's product offerings include distinctive private label merchandise and
branded gift items such as Cross and Parker writing instruments and clocks by
Bulova and Seiko. The selection of quality gifts offered in a broad price range
satisfy the Cole Gift customer's needs for all important gift-giving occasions.

The Company has operated each of its specialty service businesses for over
30 years. Over this period, the Company has refined its store formats to produce
a strong record of consistent growth in sales and EBITDA. Since 1983, combined
sales of Cole Vision and Cole Gift have grown at a compound annual rate of 8.8%,
reaching $577.1 million in fiscal 1995. During the same period, EBITDA has grown
at a compound annual rate of 10.7% to $61.6 million. During the first nine
months ended November 2, 1996, sales grew by 10.2%, including comparable store
sales increases of 6.3%, and EBITDA increased 16.0% over prior year levels. See
"Selected Historical Financial and Other Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."

THE PEARLE ACQUISITION

On September 24, 1996, the Parent and The Pillsbury Company signed a
definitive purchase agreement for the Parent's Acquisition of Pearle. Pearle
historically has maintained separate European operations. On November 15, 1996,
(i) assets and/or outstanding shares of Pearle Holdings, which owned Pearle's
European operations, were sold in transactions pursuant to which the Parent (and
not the Company) retained an indirect equity interest of approximately 20% in
Pearle Holdings, and (ii) the Parent sold the stock of Pearle to the Company for
approximately $154 million. Accordingly, Pearle became a wholly owned subsidiary
of the Company. In connection with the Pearle Acquisition, the Company also
repurchased (the "Senior Note Repurchase") from the Parent $15.1 million
principal amount of the Company's 11.25% Senior Notes due 2001 (the "Senior
Notes"), which the Parent purchased in the open market during fiscal 1996. The
Company financed the Pearle Acquisition and the Senior Note Repurchase through
(i) the proceeds from the offering of the Original Notes, (ii) cash on hand, and
(iii) intercompany borrowings from the Parent. The Senior Notes acquired through
the Senior Note Repurchase were retired upon receipt by the Company. See "The
Transactions."

The Company believes the Pearle Acquisition better positions it to meet the
increasing vision care needs of an aging population and to become a major
provider in the growing managed vision care industry. The Pearle Acquisition
complements and expands the Company's optical business by providing a highly
recognized brand name, enhancing its customer base and product lines, increasing
the number and types of store locations, and adding new growth opportunities.
The major benefits of the Pearle Acquisition are summarized as follows:

- - INCREASED PRESENCE IN GROWING OPTICAL RETAILING INDUSTRY. Pro forma for the
Pearle Acquisition, approximately 70% of the Company's sales will be derived
from its optical business. According to industry sources, the United States
optical industry grew from $11.4 billion to $13.8 billion between 1990 and
1995 and is expected to increase to $18 billion by the year 2000. The optical
retailing industry is expected to continue to benefit from the aging of the
United States population since approximately 95% of persons over age 45
require some form of corrective eyewear.

- - ENHANCED NAME RECOGNITION. Pearle provides the Company with an established
brand name well-known to optical customers, independent from the names of
Cole Vision's host stores. Pearle's slogan, Nobody Cares for Eyes More than
Pearle, has been used for over 15 years and commands strong consumer
recognition. Pearle's brand positioning of high quality eyecare products and
services at reasonable prices has been reinforced through an extensive
advertising and promotion program featuring Pearle's founder, Dr. Stanley
Pearle.

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<PAGE> 7

Vision's typical customers are value-oriented consumers who often shop at its
host stores, whereas Pearle's customers are often more affluent and
fashion-conscious shoppers who are attracted by Pearle's name and reputation.
Pearle offers higher price point, brand name merchandise from well-recognized
designers such as Armani, Calvin Klein, Laura Ashley and Polo, which is
currently unavailable at Cole Vision's stores.

- - INCREASED GEOGRAPHICAL PRESENCE AND NEW GROWTH OPPORTUNITIES. The Pearle
Acquisition increased the Company's optical locations to over 1,800 in 49
states, Canada and the Caribbean. Management believes that the Company's
increased geographical presence and number of locations will make its managed
vision care program more attractive to managed care providers and
corporations by significantly expanding its network and coverage base.
Furthermore, the Pearle network of company-owned and franchised stores offers
the Company a new outlet for growth independent of the expansion plans of the
Company's host stores. Management believes that the Parent's on-going
relationship with Pearle Holdings, which operates the Pearle Vision business
in Europe, may provide opportunities for future international expansion of
the Pearle business, as well as enhance the Pearle name worldwide.

BUSINESS STRATEGY

- - LEADERSHIP BY COLE VISION MANAGEMENT TEAM. The Company operates Pearle and
Cole Vision as two separate businesses under the general leadership of Cole
Vision's management team. The Company believes that its highly experienced
management team is an important asset for the successful integration of
Pearle. The Company believes that its success in the optical retailing
industry is attributable to Cole Vision's experienced group of senior
managers, who have an average tenure of more than ten years with the Company.
In contrast, the Company believes Pearle's performance has been hampered by
frequent changes in operating strategy and senior management. The Cole Vision
management team will help Pearle identify and execute more focused
operational and growth strategies.

- - FOCUS ON OPERATIONAL EFFICIENCIES TO IMPROVE OPERATING RESULTS. Cole Vision
historically has had higher operating margins than Pearle. The Company
intends to continuously evaluate the operations of Pearle and Cole Vision for
opportunities to effect operational efficiencies and reduce costs through the
integration of Pearle. The Company is evaluating several opportunities to
improve Pearle's operating results through revenue expansion, cost reductions
and consolidation of duplicative facilities and functions. For example,
management intends to introduce selling systems at Pearle that emphasize the
sale of higher margin products such as anti-reflective coatings and
polycarbonate lenses. Management believes that it can also improve Pearle's
operating results by introducing direct foreign sourcing of eyeglass frames,
which account for approximately 55% of Cole Vision's supply and provide
significant cost savings over purchases from domestic distributors. Another
potential strategy may be the removal of in-store laboratories in Pearle
locations where sales volume is insufficient to support the higher overhead.
Furthermore, management believes that economies of scale and other cost
saving opportunities exist, particularly in purchasing, advertising
efficiency and distribution.

- - EXPANSION OF FRANCHISE OPERATIONS; BUSINESS RATIONALIZATION. The Company
intends to expand Pearle's franchising operations. The Company has identified
strategies that it believes will improve the sales and operating results of
Pearle's franchisees, encourage expansion by current franchisees, and enable
the Company to attract new franchisees. The Company's management is closely
examining the geographic and demographic areas which favor Pearle's
franchised stores versus areas which favor company-owned stores. The Company
expects that future new store growth will facilitate a rationalization of
geographic coverage between company-owned and franchised stores in order to
permit more focused local promotional and advertising programs and to
streamline field organizations.

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<PAGE> 8

believes this component, which accounts for approximately 30% of Cole
Vision's sales, may increase to as much as 50% of its business over the next
five years. The acquisition of Pearle's store base increases the Company's
number of distribution points and geographical presence, thereby enhancing
the Company's appeal to large national corporations as well as regional
corporations and organizations. In addition, the Company expects that the
more fashion-oriented mix and broader selection of eyewear frames offered by
Pearle will increase managed vision care utilization. Currently, the Company
believes that Pearle's managed vision care program accounts for approximately
10% of its sales.

- - DEVELOPMENT OF NEW MERCHANDISING CONCEPTS. The Company continually seeks to
expand on its base business through innovative merchandising concepts.
Management's disciplined approach to new merchandising concepts is predicated
on initially test marketing each new concept with a small number of prototype
stores, thereby limiting capital outlays until operating results warrant
additional store roll-out. Cole Vision seeks to increase customer
satisfaction by offering a wide selection of innovative products and
services, most recently introducing a mail order contact lens service as well
as advanced anti-reflective coatings for eyeglasses. CGC is currently test
marketing seven "Personally Yours" stores in a major metropolitan area. These
stores are extensions of the Gift Centers at Sears and provide
personalization on hard and soft goods sold in other Sears departments as
well as on CGC's own merchandise. During 1995, CGC added a variety of soft
goods to its product lines including towels, bathrobes, pillows and blankets
for embroidering or monogramming, and also expanded its seasonal presentation
to include items such as gourmet food baskets.

- - CONTINUED NEW STORE OPENINGS. The Company is committed to the continued
growth of Cole Optical and Cole Gift through the development of new store
concepts and the opening of additional locations as well as selected store
acquisitions. The Company's new store concepts are almost exclusively
extensions of existing businesses. For example, Cole Vision has increased its
commitment to freestanding Sears Optical locations in strip shopping centers,
opening 63 new stores since the end of fiscal 1993. Cole Vision acquired 73
Sears Optical locations and two freestanding Vision Club stores in Canada in
November 1996. Cole Vision has also expanded through the development of new
host store relationships, including BJ's Wholesale Club and Target
Supercenter, adding 80 new locations since 1995. The Company's current plans
include the opening of both company-owned and franchised Pearle locations
throughout North America. Since fiscal 1993, Cole Gift has opened 80 Things
Remembered personalization superstores, which provide an attractive growth
vehicle for personalization sales.

4
<PAGE> 9

THE EXCHANGE OFFER

Purpose of the Exchange Offer.... The Original Notes were sold in a
transaction exempt from the registration
requirements of the Securities Act by the
Company on November 15, 1996 to CIBC Wood
Gundy Securities Corp., CS First Boston
Corporation, NationsBanc Capital Markets,
Inc. and Smith Barney Inc. (the "Initial
Purchasers"). In connection therewith, the
Company executed and delivered, for the
benefit of the holders of the Original
Notes, the Registration Rights Agreement
dated November 15, 1996 (the "Registration
Rights Agreement"), which is incorporated
by reference as an exhibit to the
Registration Statement of which this
Prospectus is a part, providing for, among
other things, the Exchange Offer so that
the Exchange Notes will be freely
transferable by the holders thereof without
registration or any prospectus delivery
requirements under the Securities Act,
except that a "dealer" or any of its
"affiliates" as such terms are defined
under the Securities Act, who exchanges
Original Notes held for its own account
will be required to deliver copies of this
Prospectus in connection with any resale of
the Exchange Notes issued in exchange for
such Original Notes. See "The Exchange
Offer -- Purposes and Effects of the
Exchange Offer" and "Plan of Distribution."

The Exchange Offer............... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Original Notes
that are properly tendered and accepted.
The Company will issue Exchange Notes on or
promptly after the Expiration Date. There
is $150,000,000 aggregate principal amount
of Original Notes outstanding. The Original
Notes and the Exchange Notes are
collectively referred to herein as the
"Notes." The terms of the Exchange Notes
are substantially identical in all respects
(including principal amount, interest rate
and maturity) to the terms of the Original
Notes for which they may be exchanged
pursuant to the Exchange Offer, except that
(i) the Exchange Notes are freely
transferable by holders thereof (other than
as provided herein), and are not subject to
any covenant restricting transfer absent
registration under the Securities Act and
(ii) holders of the Exchange Notes will not
be entitled to certain rights of holders of
the Original Notes under the Registration
Rights Agreement, which rights will
terminate upon the consummation of the
Exchange Offer. See "The Exchange Offer."

The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of
Original Notes being tendered for exchange.

Based on an interpretation by the staff of
the Commission set forth in no-action
letters issued to third parties, the
Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in
exchange for Original Notes may be offered
for resale, resold and otherwise
transferred by a

5
<PAGE> 10

holder thereof (other than (i) a
broker-dealer who purchases such Exchange
Notes directly from the Company to resell
pursuant to Rule 144A under the Securities
Act or any other available exemption under
the Securities Act or (ii) a person that is
an affiliate (as defined in Rule 405 under
the Securities Act) of the Company),
without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that the holder is
acquiring the Exchange Notes in the
ordinary course of its business and is not
participating, and has no arrangement or
understanding with any person to
participate, in the distribution of the
Exchange Notes. Each broker-dealer that
receives the Exchange Notes for its own
account in exchange for the Original Notes,
where such Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities,
must acknowledge that it will deliver a
prospectus in connection with any resale of
such Exchange Notes.

Registration Rights Agreement.... The Original Notes were sold by the Company
on November 15, 1996 to the Initial
Purchasers pursuant to a Securities
Purchase Agreement dated as of November 13,
1996 by and between the Company and the
Initial Purchasers (the "Purchase
Agreement"). Pursuant to the Purchase
Agreement, the Company and the Initial
Purchasers entered into the Registration
Rights Agreement which grants the holders
of the Original Notes certain exchange and
registration rights. See "The Exchange
Offer -- Termination of Certain Rights."
This Exchange Offer is intended to satisfy
such rights, which terminate upon the
consummation of the Exchange Offer. The
holders of the Exchange Notes are not
entitled to any exchange of registration
rights with respect to the Exchange Notes.

Expiration Date.................. The Exchange Offer will expire at 5:00
p.m., New York City time, on ,
1997, unless the Exchange Offer is extended
by the Company in its reasonable
discretion, in which case the term
"Expiration Date" shall mean the latest
date and time to which the Exchange Offer
is extended.

Accrued Interest on the Exchange
Notes and Original Notes...... Interest on the Exchange Notes will accrue
from (A) the last interest payment date on
which interest was paid on the Notes
surrendered in exchange therefor, or (B) if
no interest has been paid on the Notes,
from November 15, 1996. Holders whose
Original Notes are accepted for exchange
will be deemed to have waived the right to
receive any interest accrued on the
Original Notes.

Conditions to the
Exchange Offer................. The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company. See "The Exchange
Offer -- Certain Conditions to the Exchange
Offer." The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Original Notes being
tendered for exchange. The Company reserves
the right to

6
<PAGE> 11

terminate or amend the Exchange Offer at
any time prior to the Expiration Date upon
the occurrence of any such conditions.

Procedures for Tendering
Original Notes................. Each holder of Original Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal, or
a facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter
of Transmittal, or such facsimile, together
with the Original Notes and any other
required documentation to the exchange
agent (the "Exchange Agent") at the address
set forth herein. Original Notes may be
physically delivered, but physical delivery
is not required if a confirmation of a
book-entry of such Original Notes to the
Exchange Agent's account at The Depository
Trust Company ("DTC" or the "Depository")
is delivered in a timely fashion. By
executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the Exchange Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such
Exchange Notes, whether or not such person
is the holder, that neither the holder nor
any such other person is engaged in, or
intends to engage in, or has an arrangement
or understanding with any person to
participate in, the distribution of such
Exchange Notes and that neither the holder
nor any such other person is an
"affiliate," as defined under Rule 405 of
the Securities Act, of the Company. Each
broker or dealer that receives Exchange
Notes for its own account in exchange for
Original Notes, where such Original Notes
were acquired by such broker or dealer as a
result of market-making activities or other
trading activities, must acknowledge that
it will deliver a prospectus in connection
with any resale of such Exchange Notes. See
"The Exchange Offer -- Procedures for
Tendering" and "Plan of Distribution."

Special Procedures for
Beneficial Owners.............. Any beneficial owner whose Original Notes
are registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender
should contact such registered holder
promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such
owner must, prior to completing and
executing the Letter of Transmittal and
delivering his Original Notes, either make
appropriate arrangements to register
ownership of the Original Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time. See "The Exchange
Offer -- Procedures for Tendering."

Guaranteed Delivery Procedures... Holders of Original Notes who wish to
tender their Original Notes and whose
Original Notes are not immediately

7
<PAGE> 12

available or who cannot deliver their
Original Notes, the Letter of Transmittal
or any other documents required by the
Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, must tender
their Original Notes according to the
guaranteed delivery procedures set forth in
the "Exchange Offer -- Guaranteed Delivery
Procedures."

Acceptance of the Original Notes
and Delivery of the Exchange
Notes.......................... Subject to the satisfaction or waiver of
the conditions to the Exchange Offer, the
Company will accept for exchange any and
all Original Notes which are properly
tendered in the Exchange Offer prior to the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be
delivered on the earliest practicable date
following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange
Offer."

Withdrawal Rights................ Tenders of Original Notes may be withdrawn
at any time prior to the Expiration Date.
See "The Exchange Offer -- Withdrawal of
Tenders."

Exchange Agent................... Norwest Bank Minnesota, National
Association is serving as the Exchange
Agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange
Agent."

Effect on Holders of
the Original Notes............. As a result of the making of, and upon
acceptance for exchange of all validly
tendered Original Notes pursuant to the
terms of this Exchange Offer, the Company
will have fulfilled one of the covenants
contained in the Registration Rights
Agreement and, accordingly, there will be
no increase in the interest rate on the
Original Notes pursuant to the applicable
terms of the Registration Rights Agreement
due to the Exchange Offer. Holders of the
Original Notes who do not tender their
Original Notes will be entitled to all the
rights and limitations applicable thereto
under the Indenture between the Company and
Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"),
relating to the Original Notes and the
Exchange Notes, except for any rights under
the Indenture or the Registration Rights
Agreement, which by their terms terminate
or cease to have further effectiveness as a
result of the making of, and the acceptance
for exchange of all validly tendered
Original Notes pursuant to, the Exchange
Offer. All untendered Original Notes will
continue to be subject to the restrictions
on transfer provided for in the Original
Notes and in the Indenture. To the extent
that Original Notes are tendered and
accepted in the Exchange Offer, the trading
market for untendered Original Notes could
be adversely affected.

Use of Proceeds.................. There will be no cash proceeds to the
Company from the exchange pursuant to the
Exchange Offer.

THE NOTES

The Exchange Notes............... The Exchange Offer applies to $150,000,000
aggregate principal amount of the Original
Notes. The form and terms of

8
<PAGE> 13

the Exchange Notes are the same as the form
and terms of the Original Notes except that
(i) the exchange will have been registered
under the Securities Act and, therefore,
the Exchange Notes will not bear legends
restricting their transfer pursuant to the
Securities Act, and (ii) holders of the
Exchange Notes will not be entitled to
certain rights of holders of the Original
Notes under the Registration Rights
Agreement, which rights will terminate upon
consummation of the Exchange Offer. The
Exchange Notes will evidence the same debt
as the Notes (which they replace) and will
be issued under, and be entitled to the
benefits of, the Indenture. See
"Description of the Notes" for further
information and for definitions of certain
capitalized terms used below.

Issuer........................... Cole National Group, Inc.

Maturity Date.................... December 31, 2006.

Interest Rate.................... The Notes will bear interest at a rate of
9 7/8% per annum.

Interest Payment Dates........... Interest will be payable semi-annually on
each December 31 and June 30, commencing
June 30, 1997. Interest on the Notes will
be paid on the basis of a 360 day year and
twelve 30 day months.

Ranking.......................... The Notes will be general unsecured
obligations of the Company subordinate in
right of payment to all existing and future
Senior Indebtedness of the Company and
senior in right of payment to all
subordinated indebtedness of the Company.
As of November 2, 1996, on a pro forma
basis, after giving effect to the Pearle
Acquisition, the Company and its
subsidiaries would have had $166.9 million
aggregate principal amount of Senior
Indebtedness outstanding. Because the
Company's operations are conducted through
subsidiaries, the Notes will effectively
rank junior to all liabilities of the
Company's subsidiaries (which were $142.5
million as of November 2, 1996, on a pro
forma basis, after giving effect to the
Pearle Acquisition) consisting primarily of
trade payables and accrued expenses. The
Indenture pursuant to which the Original
Notes were issued will prohibit the
incurrence of additional indebtedness by
any subsidiaries other than up to $15
million in the aggregate of purchase money
indebtedness and capital leases, up to $3
million in the aggregate of guarantees of
franchisee obligations, and limited
indebtedness under the New Credit Facility
(as defined). The New Credit Facility will
initially be limited to $75 million.

Mandatory Redemption............. There will be no mandatory redemption
requirements with respect to the Notes.

Optional Redemption.............. The Notes will be redeemable at the option
of the Company, in whole or in part, at any
time on or after December 31, 2001, at the
redemption prices set forth herein plus
accrued interest to the date of redemption.
In addition, the Company, at its option,
may redeem in the aggregate up to 35% of
the original principal amount of the Notes
at any time and from

9
<PAGE> 14

time to time prior to December 31, 1999 at
a redemption price equal to 109.875% of the
principal amount thereof plus accrued
interest to the redemption date with the
Net Proceeds of one or more Qualified
Equity Offerings, provided that at least
$97.5 million principal amount of Notes
issued remain outstanding immediately after
the occurrence of any such redemption and
that any such redemption occurs within 90
days following the closing of any such
Qualified Equity Offering.

Change of Control................ In the event of a Change of Control, the
Company will be required to make an offer
to purchase all outstanding Notes at a
price equal to 101% of the principal amount
thereof plus accrued interest to the date
of repurchase. See "Description of the
Notes -- Change of Control Offer." There
can be no assurance that the Company will
have sufficient funds or will be
contractually permitted by outstanding
Senior Indebtedness to pay the required
purchase price for all Notes tendered by
holders upon a Change of Control.

Asset Sale Proceeds.............. The Company will be obligated in certain
instances to make offers to repurchase the
Notes at a purchase price in cash equal to
100% of the principal amount thereof plus
accrued interest to the date of repurchase
with the net cash proceeds of certain asset
sales. See "Description of the Notes --
Certain Covenants -- Limitation on Certain
Asset Sales."

Certain Covenants................ The Indenture contains covenants for the
benefit of the holders of the Notes that,
among other things, restrict the ability of
the Company and any Subsidiaries (as
defined herein) to: (i) incur additional
Indebtedness; (ii) pay dividends and make
distributions; (iii) issue stock of
subsidiaries; (iv) repurchase stock; (v)
create liens; (vi) enter into transactions
with affiliates; (vii) enter into sale and
leaseback transactions; (viii) merge or
consolidate the Company or any
subsidiaries; and (ix) transfer and sell
assets. These covenants are subject to a
number of important exceptions. See
"Description of the Notes -- Certain
Covenants."

RISK FACTORS

Prospective purchasers of the Notes should consider carefully the
information set forth under the caption "Risk Factors" and all other information
set forth in this Memorandum in evaluating an investment in the Notes.

10
<PAGE> 15

SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
COMPANY

The following table sets forth summary historical financial and other data
of the Company for (i) the fiscal years 1993 through 1995, which have been
derived from the Company's audited consolidated financial statements for those
years and (ii) the 39 weeks ended October 28, 1995 and November 2, 1996 which
have been derived from the Company's unaudited consolidated condensed financial
statements for those periods, which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the unaudited interim periods. Results for
the 39 weeks ended November 2, 1996 are not necessarily indicative of results
that may be expected for the entire year. Prior to the Initial Capitalization
(see "The Company"), all operations of the Company were conducted by
subsidiaries of the Parent. The summary historical financial and other data set
forth below for fiscal year 1993 are based on historical cost as if the Initial
Capitalization had occurred at the beginning of fiscal 1993 and the Company had
been in existence for that year. Accordingly, transactions of the Parent prior
to the Initial Capitalization on September 30, 1993, except for those relating
to the debt not assumed by the Company and the interest expense thereon, have
been included in the summary historical financial and other data below. The
Company's fiscal year ends on the Saturday closest to January 31. Fiscal years
are identified according to the calendar year in which they begin. For example,
the fiscal year ended February 3, 1996 is referred to as "fiscal 1995." Fiscal
1995 consisted of a 53-week period; all other fiscal years presented consisted
of 52-week periods. The information presented below is qualified in its entirety
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Selected Historical
Financial and Other Data" and the consolidated financial statements and notes
included elsewhere herein.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS ENDED
-------------------------------- --------------------
JAN. 29, JAN. 28, FEB. 3, OCT. 28, NOV. 2,
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING RESULTS:
Net sales................................................ $472,888 $528,049 $577,091 $401,999 $443,057
Gross profit............................................. 331,936 363,326 394,157 276,753 306,384
Operating expenses....................................... 281,149 305,470 332,540 242,269 266,385
Depreciation and amortization............................ 13,516 14,892 15,686 11,552 12,780
-------- -------- -------- -------- --------
Income from operations................................... 37,271 42,964 45,931 22,932 27,219
Interest expense......................................... 18,029 22,266 22,143 16,403 15,943
Interest income.......................................... (378) (443) (761) (531) (1,161)
Income tax provision (benefit)........................... 2,361 (3,703) 10,799 3,107 5,473
-------- -------- -------- -------- --------
Income from continuing operations........................ $ 17,259 $ 24,844 $ 13,750 $ 3,953 $ 6,964
======== ======== ======== ======== ========
OTHER DATA:
Gross margin............................................. 70.2% 68.8% 68.3% 68.8% 69.2%
EBITDA (a)............................................... $ 50,787 $ 57,856 $ 61,617 $ 34,484 $ 39,999
EBITDA margin (a)........................................ 10.7% 11.0% 10.7% 8.6% 9.0%
Capital expenditures..................................... $ 13,074 $ 18,527 $ 19,675 $ 14,042 $ 15,553
NUMBER OF UNITS (AT END OF PERIOD):
Cole Vision.............................................. 774 938 1,013 998 1,055
Things Remembered........................................ 737 760 778 775 797
Cole Gift Centers........................................ 586 589 587 588 505
-------- -------- -------- -------- --------
Total.................................................. 2,097 2,287 2,378 2,361 2,357
======== ======== ======== ======== ========
COMPARABLE STORE SALES GROWTH (B):
Cole Vision.............................................. 10.7% 9.8% 5.6% 7.4% 8.7%
Things Remembered........................................ 1.8% 0.1% 3.1% 4.3% 3.8%
Cole Gift Centers........................................ 31.6% 5.8% (4.8)% (4.8)% 0.7%
Total.................................................. 9.4% 5.5% 3.4% 5.0% 6.3%
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................. $298,990 $327,118
Long-term debt........................................... 180,218 180,033
Stockholder's equity..................................... 2,497 9,461
<FN>

- ---------------
(a) EBITDA is defined as income from operations before depreciation and
amortization and nonrecurring charges, if any. The Company has included
information concerning EBITDA here as it is relevant for covenant analysis
under the Indenture for the Notes and the Senior Notes and because it is
used by certain investors as a measure of a company's ability to service its
debt. EBITDA is not a performance measure under generally accepted
accounting principles and should not be considered more meaningful than
operating income or cash flows as an indicator of operating performance.
(b) Comparable store sales growth is calculated using sales for all stores open
at least twelve months, for the weeks that the stores were open in both the
previous and current periods. For the year ended January 29, 1994, the
growth in comparable store sales for Cole Gift Centers includes the addition
of greeting card merchandise to 171 locations in February 1993.
</TABLE>

11
<PAGE> 16

SUMMARY HISTORICAL FINANCIAL AND OTHER DATA (CONTINUED)
PEARLE

The following table sets forth summary historical financial and other data
of Pearle for the fiscal years 1993 through 1996, which have been derived from
Pearle's audited consolidated financial statements for those years. The summary
historical financial and other data of Pearle set forth below includes the
operating results and other data of Pearle Holdings presented in note (a) below.
Pearle Holdings was disposed of by the Parent prior to the Pearle Acquisition
although the Parent retains a minority interest in Pearle Holdings' business.
The information presented below is qualified in its entirety by, and should be
read in conjunction with, "Selected Historical Financial and Other Data" and the
consolidated financial statements and notes of Pearle included elsewhere herein.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1993 1994 1995 1996
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING RESULTS (a):
Revenues........................................................ $ 364,938 $ 336,018 $ 354,252 $ 366,024
Gross profit (b)................................................ 170,153 154,678 167,067 181,538
Selling, general and administrative expenses (c)................ 202,810 160,820 155,256 164,129
Restructuring and store closure costs (d)....................... 33,854 1,876 7,265 (2,083)
Royalty payments and other affiliate charges (e)................ 5,842 5,916 6,039 6,406
Amortization of intangible assets............................... 19,567 14,289 14,260 15,604
Provision for impairment of intangible assets and related costs
(f)........................................................... 22,146 -- -- 94,673
-------- -------- -------- --------
Operating loss.................................................. (114,066) (28,223) (15,753) (97,191)
Interest expense to Pearle's parent (g)......................... 15,670 17,309 15,769 15,461
Other interest income, net...................................... (3,545) (4,080) (4,829) (4,258)
Gain on sale of subsidiary (f).................................. -- -- (14,811) --
Income tax benefit.............................................. (34,716) (10,480) (12,845) (6,011)
-------- -------- -------- --------
Income (loss) before cumulative effect of accounting change..... $ (91,475) $ (30,972) $ 963 $(102,383)
======== ======== ======== ========
OTHER DATA (a):
Gross margin (b)................................................ 46.6% 46.0% 47.2% 49.6%
EBITDA (h)...................................................... $ 32,166 $ 28,621 $ 35,278 $ 37,696
EBITDA margin (h)............................................... 8.8% 8.5% 10.0% 10.3%
Capital expenditures............................................ $ 4,945 $ 6,083 $ 7,321 $ 13,558
NUMBER OF UNITS IN NORTH AMERICA (AT END OF PERIOD):
Company-owned stores............................................ 412 368 336 345
Franchised stores............................................... 433 387 361 340
-------- -------- -------- --------
Total........................................................... 845 755 697 685
======== ======== ======== ========
COMPARABLE STORE SALES GROWTH (U.S. LOCATIONS) (i):
Company-owned stores............................................ (6.6)% 4.4% 4.2% (1.2)%
Franchised stores............................................... (2.0)% 3.0% 2.1% 2.0%
<FN>

- ---------------
(a) Includes the following summary financial data of Pearle's European
operations owned and operated by Pearle Holdings:
</TABLE>

12
<PAGE> 17

margin will likely decline from its historical levels because Pearle is
expected to have a lower gross margin than the Company due to the higher
cost of in-store labs and lower margin wholesale sales to franchised stores
partially offset by franchise royalties, fees and interest income on
franchise notes receivable which have no corresponding cost of goods sold.

(c) During the year ended September 30, 1993 Pearle recorded a charge to
operations (included in selling, general and administrative expenses) of
approximately $19.5 million related to the disposal of obsolete retail and
laboratory equipment, the abandonment of certain leasehold improvements, the
elimination of unrecoverable capitalized software costs and costs associated
with the elimination of operations in Germany.

(d) During the year ended September 30, 1993 Pearle recorded a provision related
to restructuring its retail operations, including the costs of closing
certain unprofitable United States and all German retail locations. During
the years ended September 30, 1994 and 1995 Pearle recorded net provisions
for estimated costs, consisting primarily of future commitments under
operating leases, of closing unprofitable United States and international
retail locations. During the year ended September 30, 1996, $2.1 million of
the restructuring and store closure reserves was reversed.

(e) Represents amounts paid to an affiliated company pursuant to a licensing
agreement in connection with a 1989 acquisition for use of the predecessor's
trademark and for management fees. As a result of the Pearle Acquisition,
all future payment obligations will be cancelled.

(f) On October 27, 1994, Pearle entered into an agreement to sell all of the
capital stock of Ophthalmic Research Group International Company ("ORGIC")
to a third party for cash consideration of $14.8 million. During the year
ended September 30, 1993, the remaining book value of ORGIC of
approximately $22.1 million was written off since, in the opinion of
Pearle's management, the value of such assets was not recoverable. As a
result, the gain on sale in 1995 was equal to the cash consideration.

As a result of the sale of Pearle, a provision for impairment of the assets
of Pearle was determined to exist at September 30, 1996. Accordingly, a
provision for impairment of approximately $88.0 million was recorded to
reflect the assets of Pearle at their estimated fair value. The impairment
was recorded as a write-off of excess cost over fair value of net tangible
assets acquired. A charge of approximately $6.7 million was also recorded
for amounts which were paid or will be paid by a Pearle affiliate on behalf
of Pearle as a result of the sale.

(g) Interest expense related to intercompany balances which will be cancelled
and contributed to Pearle's capital at the closing of the Transactions.

(h) EBITDA is defined as income from operations before depreciation and
amortization and nonrecurring charges (including the items described in
notes (c), (d), (e) and (f) above) and includes interest income on franchise
notes receivable. The Company has included information concerning EBITDA
here as it is relevant for covenant analysis under the Indentures for the
Notes and the Senior Notes and because it is used by certain investors as a
measure of a company's ability to service its debt. EBITDA is not a
performance measure under generally accepted accounting principles and
should not be considered more meaningful than operating income or cash flows
as an indicator of operating performance.

(i) Comparable store sales growth is calculated using sales for all stores open
at least twelve months, for the weeks that the stores were open in both the
previous and current periods.

13
<PAGE> 18

SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION

The following sets forth summary unaudited pro forma condensed financial
information derived from the Unaudited Pro Forma Condensed Consolidated
Financial Data contained elsewhere herein. The summary unaudited pro forma
condensed financial information for the fiscal year ended February 3, 1996 and
the 39 weeks ended November 2, 1996, includes the results of Pearle's operations
and gives effect to the Transactions as if each had occurred at the beginning of
the respective periods. The summary pro forma balance sheet data presented below
presents the financial condition of the Company as if the Transactions had
occurred as of November 2, 1996. All data presented below excludes Pearle
Holdings, which will not be acquired by the Company.

The summary unaudited pro forma condensed financial information does not
purport to be indicative of the actual financial position or results of the
Company that would have actually been attained had the Transactions in fact
occurred on the dates specified, nor are they necessarily indicative of the
results of operations that may be achieved in the future. Furthermore, the
summary unaudited pro forma condensed financial information presented below does
not consider any future events which may occur after the Transactions have been
consummated. The Company believes revenue and operating expense synergies and
purchasing and other cost reductions of the combined operations of the Company
and Pearle will be realized after the Company has completed the Pearle
Acquisition and has installed its management controls, systems and merchandising
and marketing programs. However, for purposes of the Unaudited Pro Forma
Condensed Consolidated Statements of Income, these and other potential synergies
in overhead expenses have not been reflected because their realization cannot be
assured. Nor do the pro forma statements consider the incremental expenses,
capital or conversion costs which may be incurred as a result of the Pearle
Acquisition. Following the closing of the Transactions, integration and
consolidation charges may be incurred which could result in the Company
reporting a negative stockholder's equity. The Summary Unaudited Pro Forma
Condensed Financial Information is based on certain assumptions and adjustments
described in the notes to the Unaudited Pro Forma Condensed Consolidated
Financial Data and should be read in conjunction therewith.

<TABLE>
<CAPTION>
PRO FORMA COMBINED
-------------------------
FISCAL YEAR 39 WEEKS
FEB. 3, NOV. 2,
1996 1996
----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING RESULTS:
Net revenues.............................................................. $ 873,732 $683,544
Cost of goods sold and operating expenses (a)............................. 789,718 620,520
Restructuring charges, net (b)............................................ 8,775 (3,486)
Depreciation and amortization............................................. 32,181 23,642
-------- --------
Income from operations.................................................... 43,058 42,868
Interest expense.......................................................... 36,830 27,131
Interest income........................................................... (150) (579)
Income tax provision...................................................... 4,377 7,659
-------- --------
Net income................................................................ $ 2,001 $ 8,657
======== ========
OTHER DATA:
EBITDA (c)................................................................ $ 84,014 $ 63,024
Ratio of EBITDA to interest expense (c)................................... 2.3x 2.4x
NUMBER OF UNITS (AT END OF PERIOD):
Cole Vision............................................................... 1,055
Pearle owned stores....................................................... 347
Pearle franchised stores.................................................. 339
Things Remembered......................................................... 797
Cole Gift Centers......................................................... 505
--------
Total............................................................. 3,043
========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.............................................................. $531,531
Long-term debt............................................................ 313,984
Stockholder's equity...................................................... 9,202
</TABLE>

14
<PAGE> 19

(a) Gross profit and gross margin for Pearle are determined on a basis not
consistent with that of the Company. Pearle includes certain store occupancy
costs and depreciation in cost of goods sold, whereas the Company reports
such costs as operating expenses or depreciation and amortization. In
addition, Pearle includes payroll, supplies and other costs related to the
making of eyeglasses at its in-store labs in selling, general and
administrative expenses; the Company and Pearle both classify similar costs
of making eyeglasses at their central laboratories in cost of goods sold.
Information to reclassify Pearle's historical costs and expenses on a basis
consistent with the Company is not readily available. For the purposes of
the pro forma operating results presented above, depreciation normally
included in Pearle's cost of goods sold and operating expenses has been
reclassified to depreciation and amortization. As a result of the Pearle
Acquisition, the Company's consolidated gross margin will likely decline
from its historical levels because Pearle is expected to have a lower gross
margin than the Company due to the higher cost of in-store labs and lower
margin wholesale sales to franchised stores partially offset by franchise
royalties, fees and interest income on franchise notes receivable which have
no corresponding cost of goods sold.

(b) For the twelve months ended December 31, 1995, Pearle recorded a net
provision of approximately $8.8 million for estimated costs, consisting
primarily of future commitments under operating leases, of closing
unprofitable North American retail locations. During the nine months ended
September 30, 1996, Pearle recorded net adjustments of $3.5 million to the
restructuring reserves previously established.

(c) EBITDA is defined as income from operations before depreciation and
amortization and nonrecurring charges, including restructuring charges, net
shown above. The Company has included information concerning EBITDA here as
it is relevant for covenant analysis under the Indentures for the Notes and
the Senior Notes and because it is used by certain investors as a measure of
a company's ability to service its debt. EBITDA is not a performance measure
under generally accepted accounting principles and should not be considered
more meaningful than operating income or cash flows as an indicator of
operating performance. For the purposes of computing the ratio of EBITDA to
interest expense, interest expense excludes the amortization of deferred
financing costs. Amortization of deferred financing costs used to compute
the pro forma ratios of EBITDA to interest expense were $0.9 million and
$0.7 million for the fiscal year ended February 3, 1996 and the 39 weeks
ended November 2, 1996, respectively.

15
<PAGE> 20

RISK FACTORS

Prospective purchasers of the Notes should consider carefully the following
factors, as well as other information set forth in this Prospectus, before
making an investment in the Notes.

LEVERAGE

The Company is highly leveraged. Pro forma for the completion of the
Transactions, the Company's total indebtedness on November 2, 1996, would have
been $314.3 million. The consequences of such leverage include, but are not
limited to, the following: (i) the ability of the Company to obtain additional
financing for acquisitions, working capital, capital expenditures or other
purposes, if necessary, may be impaired or such financing may not be on terms
favorable to the Company; (ii) the Company will have significantly increased
cash requirements for debt service; (iii) financial and other covenants and
operating restrictions imposed by the terms of the indenture (the "Indenture")
entered into in connection with the Offering, along with the terms of the
existing indenture (the "Senior Note Indenture") relating to the Senior Notes
will limit, among other things, its ability to borrow additional funds or to
dispose of assets; (iv) the Company may be at a competitive disadvantage because
the Company will be more highly leveraged than some of its competitors; (v) a
downturn in the Company's business will have a more significant impact on its
results of operations and (vi) the Company had approximately $166.9 million
principal amount of indebtedness senior to the Notes immediately following the
issuance of the Notes.

The Company currently expects it will be able to service the principal
obligations on its indebtedness out of cash flow from operations. The Company's
indebtedness immediately following the consummation of the Transactions includes
$0.3 million of indebtedness outstanding under Industrial Revenue Bonds, $165.8
million principal amount of the Senior Notes, $0.8 million of capitalized
leases, and the $150.0 million principal amount of the Notes included in the
Offering. The ability of the Company to satisfy its obligations will be
primarily dependent upon the future financial and operating performance of the
Company's subsidiaries and upon the Company's ability to renew or refinance
borrowings or to raise additional equity capital. Each of these alternatives is
dependent upon financial, business and other general economic factors affecting
the Company's subsidiaries and the retailing business in particular, many of
which are beyond the control of the Company and its subsidiaries. If the Company
and its subsidiaries are unable to generate sufficient cash flow to meet their
debt service obligations, they will have to pursue one or more alternatives,
such as reducing or delaying capital expenditures, refinancing debt, or selling
assets. There can be no assurance that any such alternatives could be
accomplished on satisfactory terms or that such actions would yield sufficient
funds to retire the Notes and the indebtedness senior to the Notes. While the
Company believes that cash flow from operations will provide an adequate source
of long-term liquidity, a significant drop in operating cash flows resulting
from economic conditions, competition or other uncertainties beyond the
Company's control would increase the need for alternative sources of liquidity.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".

SUBORDINATION OF THE NOTES

The Notes are subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the Indenture) of the Company, including the
Senior Notes. The Notes are also structurally subordinated to all existing and
future liabilities of the Company's subsidiaries. In addition, under the
Indenture, provided certain incurrence tests are met, the Company is able to
borrow additional Senior Indebtedness. In the event of a bankruptcy, liquidation
or reorganization of the Company or in the event that any default in payment of,
or the acceleration of, any indebtedness occurs, holders of Senior Indebtedness
will be entitled to payment in full from the proceeds of all assets of the
Company prior to any payment of such proceeds to the holders of the Notes. In
addition, the Company may not make any principal or interest payments in respect
of the Notes if any payment default exists with respect to Senior Indebtedness
and the maturity of such indebtedness is accelerated, or in certain
circumstances prior to such acceleration for a specified period of time, unless,
in any case, such default has been cured or waived, any such acceleration has
been rescinded or such indebtedness has been repaid in full. Consequently, there
can be no assurance that the Company will have sufficient funds remaining after
such payments to make payments to the holders of the Notes. Because the assets
of the Company are and will be held by operating subsidiaries, the claims of
holders of the Notes (which are not

16
<PAGE> 21

guaranteed by the operating subsidiaries) are and will be structurally
subordinated to all existing and future liabilities and obligations (whether or
not for borrowed money), including trade payables, accrued expenses, litigation
costs and borrowings under a New Credit Facility (as defined herein) of such
subsidiaries. See "Description of the Notes -- Subordination" and "Description
of the Notes -- Certain Covenants -- Limitation on Additional Indebtedness."

ABSENCE OF GUARANTEE

The Original Notes were and the Exchange Notes are being issued solely by
the Company and none of the Company's subsidiaries or the Parent are or will be
a guarantor under the Exchange Notes or the Original Notes, and the Indenture
expressly provides that no person or entity other than the Company will have any
liability for any obligations of the Company under the Notes or such Indenture
or any claim based on, in respect of or by reason of such obligations, and that
by accepting the Notes, each holder of the Notes waives and releases such
liability, which waiver and release are part of the consideration for the Notes.
The operations of the Company are and will be conducted through its subsidiaries
and, therefore, the Company is and will be dependent on the cash flow of its
subsidiaries to meet its obligations. Pro forma for the Pearle Acquisition, as
of November 2, 1996, the subsidiaries of the Company had $142.5 million of
liabilities outstanding, consisting primarily of trade payables and accrued
expenses. The Indenture pursuant to which the Notes have been issued prohibits
the incurrence of additional indebtedness by the Company's subsidiaries other
than a limited amount of purchase money indebtedness, capital leases and
guarantees of franchisee obligations, as well as limited indebtedness under a
revolving credit facility. The Company has also entered into the New Credit
Facility (as defined herein), which includes restrictions on the activities of
the Company's subsidiaries, including restrictions on payments to the Company.
Such restrictions do not include restrictions on distributions to the Company
for the purpose of paying the interest and principal on the Notes or payments to
the Company for certain administrative and operating expenses. In the event of a
default under the New Credit Facility, the Company's subsidiaries may not be
allowed to make new cash borrowings under such facilities. Management believes
such restrictions will not have an adverse affect on the Company's or its
subsidiaries' operations. See "Description of Other Indebtedness -- New Credit
Facility."

FRAUDULENT TRANSFER CONSIDERATIONS

The Company incurred the indebtedness represented by the Original Notes in
a transaction involving the purchase of assets from the Parent. Under fraudulent
transfer law, if a court were to find, in a lawsuit by an unpaid creditor or
representative of creditors of the Company, that the Company received less than
fair consideration or reasonable equivalent value for incurring the indebtedness
represented by the Notes, and, at the time of such incurrence, the Company (i)
was insolvent or was rendered insolvent by reason of such incurrence, (ii) was
engaged or about to engage in a business or transaction for which its remaining
property constituted unreasonably small capital or (iii) intended to incur, or
believed or reasonably should have believed that it would incur, debts beyond
its ability to pay as such debts mature, such court could, among other things,
(a) void all or a portion of the Company's obligations to the holders of the
Notes and/or (b) subordinate the Company's obligations to the holders of the
Notes to other existing and future indebtedness of the Company, the effect of
which would be to entitle such other creditors to be paid in full before any
payment could be made on the Notes. The measure of insolvency for purposes of
determining whether a transfer is avoidable as a fraudulent transfer varies
depending upon the law of the jurisdiction which is being applied. Generally,
however, a debtor would be considered insolvent if the sum of all of its
liabilities were greater than the value of all of its property at a fair
valuation, or if the present fair salable value of the debtor's assets was less
than the amount required to repay its probable liability on its debts as they
become absolute and mature. There can be no assurance as to what standard a
court would apply in order to determine solvency. To the extent that proceeds
from the sale of the Notes were used to pay for the Pearle Acquisition or the
Senior Note Repurchase, a court may find that the Company did not receive fair
consideration or reasonably equivalent value for the incurrence of such
indebtedness if the value of Pearle or of the Senior Notes at the time of
transfer to the Company were found to be less than the aggregate consideration
paid by the Company.

17
<PAGE> 22

On the basis of its historical financial information, its recent operating
history as discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other factors, the Company believes
that, at the time of the consummation of the Pearle Acquisition, the Senior Note
Repurchase, the Offering and the incurrence of indebtedness under the New Credit
Facility, the Company was and will be solvent, had and will have sufficient
capital for the business in which it is engaged and did not and will not have
incurred debts beyond its ability to pay such debts as they mature. Further, as
the purchase price paid for Pearle was originally negotiated on an arms-length
basis with a third party, and the Senior Notes were transferred at a price below
the market value of such notes, the Company believes that it received fair
consideration and reasonably equivalent value. There can be no assurance,
however, that a court would necessarily agree with these conclusions.

POTENTIAL NEGATIVE NET WORTH

Pro forma for the Transactions, the Company had stockholder's equity of
$9.2 million as of November 2, 1996. As a result of the Pearle Acquisition, the
Company intends to closely evaluate the various operations of Pearle and Cole
Vision for opportunities to effect operational efficiencies. If, as a result of
such review, it is decided to eliminate any assets or operations of Pearle or of
Cole Vision, such decision could result in a charge for business integration and
consolidation costs that has the effect of reducing assets and the Company's net
worth, perhaps creating negative net worth for accounting purposes. In addition,
the Indenture and the Senior Note Indenture permit dividend payments to the
Parent of one-half of the Company's consolidated net income, provided that no
default or event of default has occurred under such Indenture and the Company
has satisfied a debt incurrence test under the applicable restrictive covenant.
Such payments, including $15.4 million available for restricted payments as of
November 2, 1996, if made, could reduce the Company's stockholder's equity,
perhaps creating negative net worth for accounting purposes.

CHANGE OF CONTROL

In the event of a "Change of Control" of the Company or of the Parent (as
defined in the Indenture and Senior Note Indenture), the Company will be
required to offer to repurchase all of the outstanding Senior Notes and Notes at
101% of the principal amount thereof plus any accrued and unpaid interest
thereon to the date of the purchase. A Change of Control under the Indenture or
Senior Note Indenture will result in a default under the New Credit Facility.
The exercise by the holders of the Senior Notes and the Notes of their right to
require the Company to repurchase the Senior Notes and the Notes upon a Change
of Control could also cause a default under other indebtedness of the Company
(including the New Credit Facility), even if the Change of Control itself does
not, because of the financial effect of such repurchase on the Company. The
Company's ability to pay cash to the holders of the Senior Notes and the Notes
upon a repurchase may be limited by the Company's then existing financial
resources. There can be no assurance that in the event of a Change of Control,
the Company will have, or will have access to, sufficient funds or will be
contractually permitted under the terms of outstanding indebtedness to pay the
required purchase price for all Senior Notes and Notes tendered by holders upon
a Change of Control. The obligations of the Company to offer to repurchase the
Notes are subject to its obligations to offer to repurchase the Senior Notes and
redeem amounts outstanding under the New Credit Facility. Even if the Company
can satisfy its obligations to the holders of the Senior Notes and under the New
Credit Facility, there can be no assurance that it would be able to fund the
repurchase of any Notes. See "Description of the Notes -- Change of Control
Offer" and "Description of Other Indebtedness -- New Credit Facility."

RESTRICTIVE DEBT COVENANTS

The New Credit Facility contains a number of covenants that, among other
things, limit the Company's ability to incur additional indebtedness, pay
dividends, prepay subordinated indebtedness, dispose of certain assets, create
liens, make capital expenditures, make certain investments or acquisitions and
otherwise restrict corporate activities. The New Credit Facility also requires
the Company to comply with certain financial ratios and tests, under which the
Company is required to achieve certain financial and operating results. The
ability of the Company to comply with such provisions may be affected by events
beyond its control. A breach of any of these covenants would result in a default
under the New Credit Facility. In the event of any such default, depending on
the actions taken by the lenders under the New Credit Facility, the Company
could be

18
<PAGE> 23

prohibited from making any payments on the Notes. In addition, such lenders
could elect to declare all amounts borrowed under the New Credit Facility,
together with accrued interest, to be due and payable. As a result of the
priority and security afforded the New Credit Facility, there can be no
assurance that the Company would have sufficient assets to pay indebtedness then
outstanding under the New Credit Facility and the Notes. Any refinancing of the
New Credit Facility is likely to contain similar restrictive covenants. See
"Description of Other Indebtedness--New Credit Facility."

INTEGRATION OF PEARLE

The Pearle Acquisition is the largest acquisition made by the Company or
the Parent. Acquisitions of the magnitude of the Pearle Acquisition are
inherently subject to significant risk. There can be no assurance that the
Company will be able to integrate the acquired Pearle operations successfully.
The full benefits of the integration of the acquired Pearle operations will
require some consolidation of Cole Vision's and Pearle's management, control and
administrative systems. These steps will require substantial attention from and
place substantial demands upon the senior management of Cole Vision and/or the
Company, as well as the cooperation of Pearle's management, employees and
franchisees. The demands on the Company's existing management caused by the
acquisition of Pearle may divert attention from and adversely impact their
ability to manage the Company's existing businesses.

As a result of the Pearle Acquisition, the Company's consolidated gross
margin will likely decline from its historical levels. This will likely result
because even after conforming Pearle's accounting methods to those of the
Company, Pearle is expected to have a lower gross margin than the Company due to
the higher costs of in-store laboratories and lower margin wholesale sales to
franchised stores partially offset by franchise royalties, fees and interest
income on franchise notes receivable which have no corresponding cost of goods
sold.

In addition, the Company has never operated as a franchisor and will be
required to operate such business in accordance with applicable franchise laws
and regulations. The Company's plans for Pearle depend, in part, on the
Company's ability to continue Pearle's franchised operations, to improve
Pearle's relationships with its franchisees, and to attract new franchisees. The
Company's flexibility in making changes to Pearle's franchisee operation is
limited by the terms of the agreements entered into with the franchisees, laws
and regulations governing the relationship with the franchisees and other
obligations. As a result, the ability of the Company to realize the benefits
from the Pearle Acquisition may be limited with respect to the Pearle franchise
operation. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General," and "Business -- Government Regulations."

NATURE OF STOCK PURCHASE AGREEMENT; LIMITED RECOURSE TO SELLER

The representations and warranties made by The Pillsbury Company and Pearle
in the Stock Purchase Agreement relating to Pearle and the business to be
acquired and the associated indemnities are limited and qualified. Although the
Company was not obligated to consummate the Pearle Acquisition if there are
changes in the business or assets of Pearle which would result in a "Material
Adverse Effect" (as defined and excluding matters arising in the ordinary course
of business), the Company's recourse to The Pillsbury Company after the
acquisition is limited. In addition, the Pearle Acquisition was consummated on a
rapid schedule, and the Company's ability to conduct due diligence was limited
by time constraints and other factors. Accordingly, unanticipated events or
liabilities related to Pearle's business could materially and adversely affect
the Company and the success of the Pearle Acquisition.

RELATIONSHIPS WITH HOST STORES

All of the CGC and the vast majority of Cole Vision locations are operated
under the names of their respective host stores under leases or licenses from
such host stores that are terminable upon 60-90 days notice. In addition, Cole
Vision operates its freestanding stores under the name "Sears Optical" pursuant
to a license agreement with Sears that is cancelable on 90 days notice. The
Company has enjoyed stable relationships with its major host stores for over 40
years and has never had a lease or license terminated, other than in connection
with a store closing, relocation or major remodeling. Although the Company
currently has stable relationships with its major host stores, there can be no
assurance that a major host store will not in the future terminate its
relationship with the Company, including the use of the host store's name, in
accordance

19
<PAGE> 24

with the terms and conditions of the lease or license between such host store
and the Company. There would be a material adverse effect on the Company's
financial position and results of operations if a major host store were to
terminate its relationship with the Company. See "Business -- Host
Relationships."

SEASONALITY

The Company's business historically has been seasonal with approximately
30% of the Company's sales and approximately 50% of its operating earnings
occurring in the fourth fiscal quarter. Although the acquisition of Pearle will
moderate the seasonality of the Company's business due to relatively lower
levels of optical product sales during the Christmas holiday season, the
Company's business will remain seasonal. See "Business -- Seasonality."

COMPETITION AND OTHER BUSINESS FACTORS

The Company operates in highly competitive businesses. Cole Vision and
Pearle each compete with other optical companies, private ophthalmologists,
optometrists, opticians and a growing number of health maintenance organizations
("HMOs"). Cole Gift competes generally with other retailers that sell gift
items. Some of the Company's competitors have greater financial resources than
the Company. See "Business -- Competition." The Company's future performance may
be subject to a number of factors beyond its control, including economic
downturns and cyclical variations in the retail areas it serves, the Company's
ability to select and stock merchandise attractive to customers, weather factors
affecting retail operations, its quality controls in optical manufacturing and
engraving, operating factors affecting customer satisfaction, the mix of goods
sold, pricing and other competitive factors, and the seasonality of the
Company's businesses. Moreover, the implementation of the Company's growth
strategies is subject to a number of factors, including general economic and
competitive conditions as well as on-going evaluation by the Company of its
opportunities for investment in its businesses. In addition, the optical retail
industry may be subject to new technological advances, such as alternative
surgical techniques. If such new advances were to provide a practical
alternative to vision correction, the demand for contact lenses and eyeglasses
may decrease.

ABSENCE OF PUBLIC MARKET

There is no existing trading market for the Notes, and the Company does not
intend to list any Notes on any securities exchange. Although the Company has
been advised that the Initial Purchasers currently intend to make a market in
the Notes, the Initial Purchasers are not obligated to do so and may discontinue
any such market making at any time without notice. In addition, any market
making activities in the Original Notes may be limited during the pendency of
the Exchange Offer. There can be no assurance that an active trading market for
the Notes will develop, or, if it develops, that it will continue. Future
trading prices for the Notes will depend on many factors, including, among other
things, the Company's operating results, the market for similar securities and
changes in prevailing interest rates.

CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES

Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon as a consequence of the offer or sale of the Original Notes pursuant to
an exemption from or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act or applicable state securities laws. The
Company does not currently expect that it will register the Original Notes under
the Securities Act. Based on interpretations by the staff of the Commission
issued in no-action letters to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Original
Notes may be offered for resale, resold or otherwise transferred by the Holder
thereof (other than any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business and
such Holder has no arrangement with any person to participate in the
distribution of such Exchange Notes. Such no-action letters are not binding
interpretations of the law. Any Holder of Original Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange

20
<PAGE> 25

Notes would not be acting consistently with such interpretation by the staff of
the Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Thus, any Exchange Notes acquired by such Holder will not be freely transferable
except in compliance with the Securities Act. Each Restricted Holder that
receives Exchange Notes for its own account in exchange for the Original Notes,
where such Original Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution."

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<PAGE> 26

THE EXCHANGE OFFER

PURPOSES AND EFFECTS OF THE EXCHANGE OFFER

The Original Notes were sold by the Company on November 15, 1996 (the
"Issue Date") to the Initial Purchasers pursuant to a Purchase Agreement dated
as of November 13, 1996. As a condition to the sale of the Original Notes, the
Company and the Initial Purchasers entered into the Registration Rights
Agreement on the Issue Date. Pursuant to the Registration Rights Agreement, the
Company agreed that, unless the Exchange Offer is not permitted by applicable
law or Commission policy, it would (i) file with the Commission a Registration
Statement under the Securities Act with respect to the Exchange Notes within 45
days after the Issue Date, (ii) use its best efforts to cause such Registration
Statement to become effective under the Securities Act within 120 days after the
Issue Date and (iii) upon effectiveness of the Registration Statement, commence
the Exchange Offer, keep the Exchange Offer open for at least 30 days (or a
longer period if required by law) and deliver to the Exchange Agent Exchange
Notes in the same aggregate principal amount at maturity as the Original Notes
that were tendered by holders thereof pursuant to the Exchange Offer. Under
existing Commission interpretations, the Exchange Notes would in general be
freely transferable after the Exchange Offer without further registration under
the Securities Act; provided, that in the case of broker-dealers, a prospectus
meeting the requirements of the Securities Act be delivered as required. The
Company has agreed to make available a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale of
any such Exchange Notes acquired as described below for such period of 180 days
after the Expiration Date. A broker-dealer that delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act, and will be bound by the
Registration Rights Agreement (including certain indemnification rights and
obligations). A copy of the Registration Rights Agreements has been incorporated
by reference as an exhibit to the Registration Statement of which this
Prospectus is a part. The Registration Statement of which this Prospectus is a
part is intended to satisfy certain of the Company's obligations under the
Registration Rights Agreement and the Purchase Agreement.

The Company is generally not required to file any registration statement to
register any outstanding Original Notes. Holders of Original Notes who do not
tender their Original Notes or whose Original Notes are tendered but not
accepted will have to rely on exemptions to registration requirements under the
securities laws, including the Securities Act, if they wish to sell their
Original Notes.

With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchanges Original Notes for Exchange Notes in
the ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires the Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in the distribution of the Exchange Notes or is a
broker-dealer, such holder cannot rely on the position of the staff of the
Commission enumerated in certain no-action letters issued to third parties and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Original Notes, where such
Original Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with the resales of Exchange Notes received in exchange for Original Notes where

22
<PAGE> 27

such Original Notes were acquired by such broker-dealer as a result of
market-making or other trading activities. Pursuant to the Registration Rights
Agreement, the Company has agreed to make this Prospectus, as it may be amended
or supplemented from time to time, available to broker-dealers for used in
connection with any resale for a period of 180 days after the Expiration Date.
See "Plan of Distribution."

REGISTRATION RIGHTS; ADDITIONAL INTEREST

In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the date of the
Registration Rights Agreement, the Company will, at its own expense, (a) as
promptly as practicable, file a shelf registration statement covering resales of
the Notes (the "Shelf Registration Statement"), (b) use its best efforts to
cause the Shelf Registration Statement to be declared effective under the Act,
and (c) use its best efforts to keep effective the Shelf Registration Statement
until three years after its effective date. The Company will, in the event of
the Shelf Registration Statement, provide to each holder of the Notes copies of
the prospectus which is a part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement for the Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Notes. A holder of the Notes that sells such Notes pursuant to
the Shelf Registration Statement generally would be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Act in connection with such sales, and will be bound by the provisions of
the Registration Rights Agreement which are applicable to such a holder
(including certain indemnification rights and obligations).

Although the Company intends to file one of the registration statements
described above, there can be no assurance that such registration statement will
be filed or, if filed, that it will become effective. If the Company fails to
comply with the above provisions or if such registration statement fails to
become effective, then, as liquidated damages, additional interest shall become
payable in respect of the Notes as follows:

If (i) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 45 days after the Issue Date;

(ii) an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 120 days after the Issue Date;
or

(iii) either (A) the Company has not exchanged the Exchange Notes for
all Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 60 days after the date on which the Exchange Offer
Registration Statement was declared effective or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
third anniversary of its effective date;

(each such event referred to in clauses (i) through (iii) above is a
"Registration Default"), then the sole remedy available to holders of the Notes
will be the immediate assessment of additional interest ("Additional Interest")
as follows: the per annum interest rate on the Notes will increase by 50 basis
points; and the per annum interest rate will increase by an additional 25 basis
points for each subsequent 90-day period during which the Registration Default
remains uncured, up to a maximum additional interest rate of 200 basis points
per annum in excess of the interest rate on the cover of this Prospectus. All
Additional Interest will be payable to holders of the Notes in cash on each
December 31 and June 30, commencing with the first such date occurring after any
such Additional Interest commences to accrue, until such Registration Default is
cured. After the date on which such Registration Default is cured, the interest
rate on the Notes will revert to the interest rate originally borne by the Notes
(as shown on the cover of this Prospectus).

The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration

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<PAGE> 28

Rights Agreement, which has been incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part, a copy of which will
be available upon request to the Company.

TERMS OF THE EXCHANGE OFFER

Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept any and
all Original Notes validly tendered and not withdrawn prior to the Expiration
Date. The Company will issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of outstanding Original Notes
surrendered pursuant to the Exchange Offer. Holders may tender some or all of
their Original Notes pursuant to the Exchange Offer; provided, however, that
Original Notes may be tendered only in integral multiples of $1,000. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount of
Original Notes being tendered for exchange.

The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes will be registered
under the Securities Act and, therefore, will not bear legends restricting their
transfer and (ii) holders of the Exchange Notes will not be entitled to the
certain rights of holders of Original Notes under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer. The Exchange Notes will evidence the same debt as the Original Notes
(which they replace) and will be issued under, and be entitled to the benefits
of, the Indenture, which also authorized the issuance of the Original Notes,
such that all outstanding Notes will be treated as a single class of debt
securities under the Indenture.

Interest on the Exchange Notes will accrue from the last interest payment
date on which interest was paid on the Original Notes surrendered in exchange
therefor or, if no interest has been paid, from November 15, 1996. Accordingly,
registered holders of Exchange Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the last interest payment date on which interest
was paid or, if no interest has been paid on the Notes, from November 15, 1996.
Original Notes accepted for exchange will cease to accrue interest from and
after the date of the consummation of the Exchange Offer. Holders whose Original
Notes are accepted for exchange will not receive any payment in respect of
interest on such Original Notes otherwise payable on any interest payment date,
the record date for which occurs on or after consummation of the Exchange Offer.

As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Original Notes are outstanding and registered in the name of Cede & Co.,
as nominee for the Depository Trust Company (the "Depository" or "DTC"). Only a
registered holder of the Original Notes (or such holder's legal representative
or attorney-in-fact) as reflected on the records of the Trustee under the
Indenture may participate in the Exchange Offer. There will be no fixed record
date for determining registered holders of the Original Notes entitled to
participate in the Exchange Offer.

Holders of the Original Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.

The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Original Notes for the purposes of receiving the Exchange Notes from
the Company.

If any tendered Original Notes are not accepted for exchange because of an
invalid tender, or due to the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Original Notes will be
returned without expense to the tendering holders thereof (or in the case of
Original Notes tendered by book-entry transfer, such Original Notes will be
credited to the account of such holder maintained at the Depository), as
promptly as practicable after the expiration or termination of the Exchange
Offer.

Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to

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<PAGE> 29

the exchange of Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes described below, in
connection with the Exchange Offer. See "The Exchange Offer -- Fees and
Expenses."

EXPIRATION DATE; EXTENSIONS; TERMINATION

The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1997 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.

In order to extend the Exchange Offer the Company will notify the Exchange
Agent of any extension by oral (promptly confirmed in writing) or written notice
and will make a public announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date of the Exchange Offer. Without limiting the manner in which the Company may
choose to make a public announcement of any delay, extension, amendment or
termination of the Exchange Offer, the Company shall have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by making a timely release to an appropriate news agency.

The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, (ii) to extend the Exchange Offer, (iii) if any
conditions set forth below under "-- Certain Conditions to the Exchange Offer"
shall not have been satisfied, to terminate the Exchange Offer by giving oral or
written notice of such delay, extension or termination to the Exchange Agent or
(iv) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of
Original Notes, and the Company will extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to such registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period. The rights
reserved by the Company in this paragraph are in addition to the Company's
rights set forth below under the caption "-- Certain Conditions to the Exchange
Offer."

If the Company extends the period of time during which the Exchange Offer
is open, or if it is delayed in accepting for exchange of, or in issuing and
exchanging the Exchange Notes for, any Original Notes, or is unable to accept
for exchange of, or issue Exchange Notes for, any Original Notes pursuant to the
Exchange Offer for any reason, then, without prejudice to the Company's rights
under the Exchange Offer, the Exchange Agent may, on behalf of the Company,
retain all Original Notes tendered, and such Original Notes may not be withdrawn
except as otherwise provided below in "-- Withdrawal of Tenders." The adoption
by the Company of the right to delay acceptance for exchange of, or the issuance
and the exchange of the Exchange Notes, for any Original Notes is subject to
applicable law, including Rule 14e-1(c) under the Exchange Act, which requires
that the Company pay the consideration offered or return the Original Notes
deposited by or on behalf of the holders thereof promptly after the termination
or withdrawal of the Exchange Offer.

PROCEDURES FOR TENDERING

Only a registered holder of Original Notes may tender such Original Notes
in the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or facsimile thereof, have the
signature thereon guaranteed if required by the Letter of Transmittal and mail
or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer of such
Notes, if such procedure is available, into the Exchange Agent's account at DTC
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below.

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<PAGE> 30

Any financial institution that is a participant in the Depository's
Book-Entry Transfer Facility system may make book-entry delivery of the Original
Notes by causing the Depository to transfer such Original Notes into the
Exchange Agent's account in accordance with the Depository's procedure for such
transfer. Although delivery of Original Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Depository, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
or confirmed by the Exchange Agent at its addresses set forth under "-- Exchange
Agent" below prior to 5:00 p.m., New York City time, on the Expiration Date.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY IN ACCORDANCE WITH ITS PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.

The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute a binding agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.

THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.

Any beneficial owner of the Original Notes whose Original Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owners's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Original Notes, either make appropriate
arrangements to register ownership of the Notes in such owner's name (to the
extent permitted by the Indenture) or obtain a properly completed assignment
from the registered holder. The transfer of registered ownership may take
considerable time.

If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes (which term includes any participants in
DTC whose name appears on a security position listing as the owner of the
Original Notes) or if delivery of the Exchange Notes is to be made to a person
other than the registered holder, such Original Notes must be endorsed or
accompanied by a properly completed bond power, in either case signed by such
registered holder as such registered holder's name appears on such Original
Notes with the signature on the Original Notes or the bond power guaranteed by
an Eligible Institution (as defined below).

Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution unless the Original Notes tendered pursuant thereto
are tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be made by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or another "Eligible Guarantor Institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (any of the foregoing,
an "Eligible Institution").

If the Letter of Transmittal or any Original Notes or assignments are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company,

26
<PAGE> 31

evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.

The Exchange Agent and the Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository's Automated Tender Offer Program to tender Original Notes.

All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Original Notes not properly tendered or any Original Notes, the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Original Notes must be cured within such time as the Company shall determine.
Although the Company intends to request the Exchange Agent to notify holders of
defects or irregularities with respect to tenders of Original Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Original Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived.

While the Company has no present plan to acquire any Original Notes which
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Original Notes which are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Original Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "-- Certain
Conditions to the Exchange Offer," to terminate the Exchange Offer and, to the
extent permitted by applicable law, purchase Original Notes in the open market,
in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.

By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Original
Notes in connection with the Exchange Offer are being acquired by the holder in
the ordinary course of business of the holder, (ii) the holder has no
arrangement or understanding with any person to participate in the distribution
of Exchange Notes, (iii) the holder acknowledges and agrees that any person who
is a broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Original Notes acquired
by such holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission, and (v) the holder is not an "affiliate," as defined in Rule 405 of
the Securities Act, of the Company. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Original Notes that
were acquired as a result of market-making activities or other trading
activities, the holder is required to acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the holder
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.

RETURN OF NOTES

If any tendered Original Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Original Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Original Notes
will be returned

27
<PAGE> 32

without expense to the tendering holder thereof (or, in the case of Original
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Depository pursuant to the book-entry transfer procedures described below, such
Original Notes will be credited to an account maintained with the Depository) as
promptly as practicable.

BOOK-ENTRY TRANSFER

The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Depository for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's system may make book-entry
delivery of Original Notes by causing the Depository to transfer such Original
Notes into the Exchange Agent's account at the Depository in accordance with the
Depository's procedures for transfer. However, although delivery of Original
Notes may be effected through book-entry transfer at the Depository, the Letter
of Transmittal or facsimile thereof, with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
by the Exchange Agent at the address set forth below under "-- Exchange Agent"
on or prior to the Expiration Date or pursuant to the guaranteed delivery
procedures described below.

GUARANTEED DELIVERY PROCEDURES

Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
Notes (or complete the procedures for book-entry transfer), the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:

(a) the tender is made through an Eligible Institution;

(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Original Notes (if
available) and the principal amount of Original Notes tendered, stating
that the tender is being made thereby guaranteeing that, within five New
York Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or a facsimile thereof) together with the certificate(s)
representing the Original Notes in proper form for transfer (or a
confirmation of a book-entry transfer into the Exchange Agent's account at
the Depository of Original Notes delivered electronically), and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and

(c) such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Original
Notes in proper form for transfer (or a confirmation of a book-entry
transfer into the Exchange Agent's account at the Depository of Original
Notes delivered electronically), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.

Upon request to the exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.

WITHDRAWAL OF TENDERS

Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to the Expiration Date.

To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original
Notes to be withdrawn (including the certificate number or numbers (if
applicable) and principal amount of such Original Notes), and (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such

28
<PAGE> 33

Original Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Original Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Original Notes so withdrawn are validly retendered. Properly withdrawn Notes
may be retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.

CERTAIN CONDITIONS TO THE EXCHANGE OFFER

Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Original Notes not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided herein before the acceptance of such Original
Notes, if any of the following conditions exist:

(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the reasonable judgment of the Company, might impair the ability of the Company
to proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company or there shall have
occurred any material adverse development in any existing action or proceeding
with respect to the Company or any of its subsidiaries; or

(b) there shall have been any material change, or development involving a
prospective change, in the business or financial affairs of the Company or any
of its subsidiaries which, in the reasonable judgment of the Company, could
reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated benefits
of the Exchange Offer to the Company; or

(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the judgment of the Company, could reasonably be
expected to materially impair the ability of the Company to proceed with the
Exchange Offer or materially impair the contemplated benefits of the Exchange
Offer to the Company; or

(d) any governmental approval which the Company shall, in its reasonable
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby shall not have been obtained.

If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Original
Notes and return all tendered Original Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Original Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Original Notes (see "-- Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Original Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Original Notes, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.

Holders may have certain rights and remedies against the Company under the
Registration Rights Agreement should the Company fail to consummate the Exchange
Offer, notwithstanding a failure of the conditions stated above. Such conditions
are not intended to modify those rights or remedies in any respect.

The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in the Company's reasonable discretion. The failure by the
Company at any time to exercise the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.

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<PAGE> 34

TERMINATION OF CERTAIN RIGHTS

All rights under the Registration Rights Agreement (including registration
rights) of holders of the Original Notes eligible to participate in this
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify the
holders (including any broker-dealers) and certain parties related to the
holders against certain liabilities (including liabilities under the Securities
Act), (ii) to provide, upon the request of any holder of a transfer-restricted
Original Note, the information required by Rule 144A(d)(4) under the Securities
Act in order to permit resales of such Original Notes pursuant to Rule 144A,
(iii) to use its best efforts to keep the Registration Statement effective to
the extent necessary to ensure that it is available for resales of transfer
restricted Notes by broker-dealers for a period of 180 days from the date on
which the Registration Statement is declared effective and (iv) to provide
copies of the latest version of the Prospectus to broker-dealers upon their
request for a period of 180 days from the date on which the Registration
Statement is declared effective. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

EXCHANGE AGENT

Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent for the Exchange Offer. All questions and requests for assistance as well
as all correspondence in connection with the Exchange Offer and the Letter of
Transmittal should be addressed to the Exchange Agent, as follows:

By Registered or Certified Mail:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
P.O. Box 1517
Minneapolis, MN 55480-1517

By Hand:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
Northstar East, 12th Floor
608 2nd Avenue
Minneapolis, MN 55479-0113

By Overnight Courier:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0113

By Facsimile:
Norwest Bank Minnesota, National Association
Corporate Trust Operations
(612) 667-4927
Confirm by telephone:
(612) 667-9764

Requests for additional copies of this Prospectus, the Letter of
Transmittal or the Notice of Guaranteed Delivery should be directed to the
Exchange Agent.

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<PAGE> 35

FEES AND EXPENSES

The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.

The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.

The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$200,000. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.

The Company will pay all transfer taxes, if any, applicable to the exchange
of Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes, or Original Notes for principal amounts not
tendered or acceptable for exchange, are to be delivered to, or are to be issued
in the name of, any person other than the registered holders of the Original
Notes tendered, or if tendered Original Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Original Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder of Original
Notes.

ACCOUNTING TREATMENT

The Exchange Notes will be recorded at the same carrying value as the
Original Notes as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.

CONSEQUENCE OF FAILURE TO EXCHANGE

Participation in the Exchange Offer is voluntary. Holders of the Original
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.

The Original Notes which are not exchanged for the Exchange Notes pursuant
to the Exchange Offer will remain restricted securities. Accordingly, such
Original Notes may be resold only (i) to a person whom the seller reasonably
believes is a qualified institutional buyer (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, (ii) in
a transaction meeting the requirements of Rule 144 under the Securities Act,
(iii) outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.

31
<PAGE> 36

THE COMPANY

The Company, a leading provider of eyewear products, optometric services
and personalized gifts, acquired Pearle on November 15, 1996. The combination of
the Company and Pearle creates the second largest optical retail company in the
United States with over 1,800 locations in the United States, Canada and the
Caribbean. Pearle enjoys one of the most highly recognized brand names in the
optical retail industry. Pro forma for the Pearle Acquisition, the Company's
fiscal 1995 net sales and EBITDA were $873.7 million and $84.0 million,
respectively, with approximately 70% of the Company's net sales derived from its
optical business and the remaining 30% derived from its gift business. The
Company conducts its business through two principal operating units: (i) Cole
Optical, consisting of Cole Vision and Pearle; and (ii) Cole Gift, consisting of
Things Remembered and CGC.

The Company, a wholly owned subsidiary of the Parent, is an intermediate
holding company that operates its businesses through subsidiaries. The Company
has no operations of its own. The Parent, a public company with common stock
trading on the New York Stock Exchange (symbol: CNJ), currently has no debt
obligations, other than $4.1 million of capitalized leases, and has minimal
operations besides those conducted through the Company.

The Company was incorporated in July 1993. Immediately prior to the
Company's issuance and sale of its Senior Notes on September 30, 1993, all of
the Parent's assets, except for the stock of the Company, were contributed to
the Company and the Company assumed all of the Parent's liabilities (the
"Initial Capitalization") other than $50.0 million of the Parent's obligations
under the Parent's 13% Senior Subordinated Notes, which were later retired.
Prior to the Initial Capitalization, all operations were conducted by
subsidiaries of the Parent.

32
<PAGE> 37

THE TRANSACTIONS

THE PARENT'S ACQUISITION OF PEARLE

On September 24, 1996, the Parent and The Pillsbury Company, a subsidiary
of Grand Metropolitan PLC ("GrandMet"), signed a purchase agreement (the "Pearle
Purchase Agreement") under which the Parent agreed to purchase from The
Pillsbury Company for an aggregate purchase price of approximately $220 million
(i) all of the issued and outstanding shares of Pearle Service Corporation
("PSC") capital stock, a subsidiary of Pearle, Inc. that holds certain assets
related to Pearle's Dallas headquarters, and (ii) following the distribution to
The Pillsbury Company of the proceeds from the purchase of the PSC capital
stock, all of the issued and outstanding shares of Pearle's capital stock. These
transactions were consummated on November 15, 1996. As a result, the Parent
owned all of the business operations and assets of Pearle, including its
European operations which were resold pursuant to the Pearle Holdings
Disposition.

THE PEARLE HOLDINGS DISPOSITION

On September 24, 1996, the Parent and HAL Investments B.V. ("HAL") signed a
definitive purchase agreement (the "BV Purchase Agreement"), pursuant to which a
new company to be formed by HAL and in which the Parent would purchase an equity
interest of approximately 20% ("Newco"), would purchase all of the issued and
outstanding shares of Pearle Holdings together with certain related assets for
an aggregate purchase price of approximately $62 million. Pearle's European
operations historically were conducted by Pearle Holdings. This transaction was
consummated on November 15, 1996. Under the BV Purchase Agreement, the Parent
and Newco agreed not to compete against each other in the optical services
business in the other party's territory for a period of five years following the
closing of the BV Purchase Agreement. Newco's territory is defined to include
generally all territories currently customarily referred to as Europe and the
Parent's territory is defined as the rest of the world.

THE PEARLE ACQUISITION

Pursuant to a transfer agreement (the "Transfer Agreement") between the
Parent and the Company, immediately following the Parent's Acquisition of
Pearle, the Company purchased from the Parent all of the issued and outstanding
shares of both PSC and Pearle for an aggregate purchase price of approximately
$154 million, net of transaction adjustments. Both PSC and Pearle became wholly
owned subsidiaries of the Company. Under the Transfer Agreement, the Parent
assigned all of its rights and obligations under the Pearle Purchase Agreement
except for those rights and obligations which are necessary for the Parent to
fulfill its obligations under the BV Purchase Agreement.

THE SENIOR NOTE REPURCHASE

During fiscal 1996, the Parent used a portion of the net proceeds from a
public offering of the Parent's Class A common stock, par value $.001 per share
(the "Common Stock") to purchase approximately $15.1 million of the Company's
outstanding Senior Notes in the open market. In connection with the Pearle
Acquisition, the Parent sold such Senior Notes to the Company for an aggregate
purchase price of $14.9 million which represents face value of $15.1 million
after deduction of unamortized discount. Such Senior Notes were retired upon
receipt by the Company. An aggregate of $165.8 million principal amount of the
Company's Senior Notes remain outstanding following the consummation of the
Transactions. The Senior Note Repurchase will reduce the Company's interest
expense by $1.7 million per year.

THE FINANCING

The Company financed the Pearle Acquisition, the Senior Note Repurchase and
estimated fees and expenses through (i) the proceeds from the Offering, (ii)
cash on hand, and (iii) intercompany borrowings from the Parent. Concurrently
with the consummation of the offering of the Original Notes, the Company entered
into a senior secured revolving line of credit in an aggregate principal amount
of $75.0 million (the "New Credit Facility") and all amounts outstanding under
the Company's existing $50.0 million revolving credit facility (the "Revolving
Credit Facility") were replaced by equivalent amounts under the New Credit
Facility. As of December 1, 1996, approximately $9.7 million of letters of
credit were outstanding under the Company's New Credit Facility.

33
<PAGE> 38

USE OF PROCEEDS

The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Original Notes in like principal amount, the terms of which are substantially
identical to the Exchange Notes. The Original Notes surrendered in exchange for
Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any increase in
the indebtedness of the Company.

The net proceeds to the Company from the sale of the Original Notes,
together with cash on hand and intercompany borrowings from the Parent, was used
to finance the Pearle Acquisition, the Senior Note Repurchase and estimated fees
and expenses. The sources and uses of funds are set forth below (dollars in
thousands).

<TABLE>
<S> <C>
Sources of funds:
Proceeds of Original Notes.......................................... $148,875
Cash on hand........................................................ 15,013
Borrowings from the Parent.......................................... 14,917
--------
Total sources of funds......................................... $178,805
========
Uses of funds:
The Pearle Acquisition.............................................. $154,000
The Senior Note Repurchase.......................................... 14,917
Estimated fees and expenses......................................... 9,888
--------
Total uses of funds............................................ $178,805
========
</TABLE>

34
<PAGE> 39

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at November 2, 1996 and as adjusted to reflect the Transactions. This
table should be read in conjunction with the information contained in "Use of
Proceeds," "Unaudited Pro Forma Condensed Consolidated Financial Data" and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" as well as the Company's and Pearle's consolidated
financial statements and notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
NOVEMBER 2, 1996
-------------------------
ACTUAL PRO FORMA
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Revolving credit facilities.................................... $ -- $ --
Senior Notes, net of discount.................................. 179,248 164,324(a)
Other secured indebtedness..................................... 1,085(b) 1,085(b)
Notes, net of discount......................................... -- 148,875(c)
--------- ---------
Total long-term debt........................................ 180,333(b) 314,284(b)
Stockholder's equity:
Common stock................................................... -- --
Paid-in capital................................................ 118,065 118,065
Accumulated deficit............................................ (108,604) (108,863)(d)
--------- ---------
Total stockholder's equity.................................. 9,461 9,202
--------- ---------
Total capitalization........................................ $ 189,794 $ 323,486
========= =========
<FN>

- ---------------
(a) Reflects purchase and cancellation by the Company of $15.1 million principal
amount of Senior Notes held by Parent, net of unamortized discount.

(b) Includes $300 of current maturities of long-term debt.

(d) Reflects the write-off of unamortized deferred financing costs from the
Revolving Credit Facility, net of the related income tax benefit.
</TABLE>

35
<PAGE> 40

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

The following Unaudited Pro Forma Condensed Consolidated Statements of
Income for the fiscal year ended February 3, 1996 and the 39 weeks ended
November 2, 1996 include the results of Pearle's operations and give effect to
the Transactions as if they had occurred at the beginning of the periods
presented. Pearle's results of operations exclude Pearle Holdings, which was not
acquired by the Company. The following Unaudited Pro Forma Condensed
Consolidated Balance Sheet presents the pro forma financial condition of the
Company as if the Transactions had occurred as of November 2, 1996 and includes
the financial position of Pearle's operations as of September 30, 1996, the end
of Pearle's most recent fiscal year. Pearle's financial position excludes Pearle
Holdings and certain assets and liabilities that were not purchased or assumed
in the Pearle Acquisition.

The purchase price of Pearle was determined based on arms-length
negotiations between the parties to the Pearle Purchase Agreement. The excess of
the purchase price of Pearle over the net identifiable assets and liabilities of
Pearle is reported as goodwill. The carrying values of Pearle's net assets are
assumed to equal their fair values for purposes of these pro forma financial
statements, unless indicated otherwise in the Notes to Unaudited Pro Forma
Condensed Consolidated Financial Data. These values are subject to revision
following the results of any appraisals. However, management does not believe
that the results of any such appraisals will yield materially different values
from the carrying values. The Unaudited Pro Forma Condensed Consolidated Balance
Sheet and Statements of Income were prepared reflecting:

(i) the Pearle Acquisition, which will be accounted for under the purchase
method of accounting;

(ii) the Senior Note Repurchase;

(iii) the Offering of the Notes; and

(iv) the New Credit Facility.

The pro forma information presented does not consider any future events
which may occur after the consummation of the Transactions. The Company believes
revenue and operating expense synergies and purchasing and other cost reductions
of the combined operations of the Company and Pearle will be realized after the
Company has installed its management controls, systems and merchandising and
marketing programs. However, for purposes of the Unaudited Pro Forma Condensed
Consolidated Statements of Income, these and other synergies in overhead
expenses have not been reflected because their realization cannot be assured.
Nor do the pro forma statements consider the incremental expenses, capital or
conversion costs which may be incurred as a result of the Pearle Acquisition.
Following the closing of the Transactions, integration and consolidation charges
may be incurred which could result in the Company reporting a negative
stockholder's equity.

The financial information is presented for informational purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred had the Transactions been consummated at the dates
indicated, nor is it necessarily indicative of future operating results or
financial position. The unaudited pro forma condensed consolidated financial
data should be read in conjunction with the financial statements of the Company
and Pearle and the related notes thereto included elsewhere herein.

36
<PAGE> 41

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF NOVEMBER 2, 1996

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------- --------------------------
COMPANY PEARLE (a) ADJUSTMENTS COMBINED
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and temporary cash
investments....................... $ 31,489 $ -- $ (15,013)(b) $ 16,476
Accounts and notes receivable,
prepaid expenses and other........ 25,870 24,162 -- 50,032
Inventories.......................... 103,778 28,955 -- 132,733
Deferred income tax benefits......... 10,616 9,118 1,750(c) 21,484
--------- --------- --------- ---------
Total current assets......... 171,753 62,235 (13,263) 220,725
Property and equipment, net............ 67,586 43,152 (5,000)(c) 105,738
Franchise notes receivable, excluding
current portion...................... -- 25,250 -- 25,250
Other assets........................... 8,294 809 6,689(d) 15,792
Cost in excess of net assets of
purchased businesses and other
intangible assets, net............... 79,485 117,281 (32,740)(e) 164,026
--------- --------- --------- ---------
Total assets........................... $ 327,118 $ 248,727 $ (44,314) $ 531,531
========= ========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.... $ 300 $ -- $ -- $ 300
Accounts payable..................... 39,896 18,723 -- 58,619
Payable to affiliates................ 25,394 -- 14,924(f) 40,318
Accrued liabilities.................. 66,644 33,107 (140)(g) 99,611
--------- --------- --------- ---------
Total current liabilities.... 132,234 51,830 14,784 198,848
Long-term debt, net of discount........ 180,033 -- 133,951(h) 313,984
Deferred income taxes and other........ 5,390 4,107 -- 9,497
Stockholder's equity:
Common stock and paid-in capital..... 118,065 642,449 (642,449)(i) 118,065
Accumulated deficit.................. (108,604) (452,163) 451,904(i) (108,863)
Foreign currency translation
adjustment........................ -- 2,504 (2,504)(i) --
--------- --------- --------- ---------
Total stockholder's equity... 9,461 192,790 (193,049) 9,202
--------- --------- --------- ---------
Total liabilities and stockholder's
equity............................... $ 327,118 $ 248,727 $ (44,314) $ 531,531
========= ========= ========= =========
</TABLE>

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet.

37
<PAGE> 42

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(a) For purposes of the Unaudited Pro Forma Condensed Consolidated Balance
Sheet, the financial position of Pearle is as of September 30, 1996, the end
of Pearle's most recent fiscal year. Pearle's financial position excludes
the financial position of Pearle Holdings and reflects the elimination of
certain assets and liabilities that were not purchased or assumed in the
Pearle Acquisition, primarily cash on hand, income taxes payable and
payables to parent and affiliated companies.

(b) Records the estimated portion of the purchase price and the fees and
expenses funded from cash on hand.

(c) Records estimated writedown of property and equipment and the related
deferred income taxes to reflect the adoption by Pearle of SFAS No.
121-Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of.

(d) Records the estimated professional fees and expenses associated with the
financing requirements of the Pearle Acquisition and the write-off of the
unamortized deferred financing costs related to the Company's Revolving
Credit Facility. A breakdown of the estimated costs and write-off follows
(in thousands):

<TABLE>
<S> <C>
Financing fees and debt issuance costs............................... $4,900
Legal and professional fees and other costs.......................... 2,188
Write-off of unamortized deferred financing costs.................... (399)
------
$6,689
======
</TABLE>

(e) Records the purchase price allocation to goodwill and other intangible
assets using the purchase method of accounting. The preliminary allocation
of the purchase price and related transaction costs is as follows (in
thousands):

<TABLE>
<S> <C>
Purchase price.................................................... $ 154,000
Transaction costs................................................. 2,800
Less equity acquired (adjusted for the estimated impact of SFAS
No. 121)........................................................ (189,540)
------
Purchase price allocation adjustments to goodwill and other
intangible assets............................................ (32,740)
Historical goodwill and other intangible assets................... 117,281
------
Pearle's pro forma goodwill and other intangible assets......... $ 84,541
======
</TABLE>

(f) Records increase in the payable to Parent in connection with financing the
Transactions.

(g) Records the benefit to accrued income taxes resulting from the write-off of
unamortized deferred financing costs related to the Company's Revolving
Credit Facility.

(h) Records the issuance of the Notes, net of discount, and the purchase and
cancellation by the Company of $15.1 million of Senior Notes held by the
Parent, net of unamortized discount.

(i) Eliminates the stockholder's equity of Pearle and records the write-off of
unamortized deferred financing costs, net of the related income tax benefit.

38
<PAGE> 43

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

FOR THE FISCAL YEAR ENDED FEBRUARY 3, 1996

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ -------------------------
COMPANY PEARLE (a) ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue................................... $577,091 $ 296,641 $ -- $ 873,732
Costs and expenses:
Cost of goods sold & operating expenses
(b)...................................... 515,474 274,244 -- 789,718
Restructuring charges, net (c).............. -- 8,775 -- 8,775
Royalty payments & other affiliate
charges.................................. -- 5,167 (5,167)(d) --
Depreciation and amortization............... 15,686 28,509 (12,014)(e) 32,181
-------- -------- -------- --------
Total costs and expenses............ 531,160 316,695 (17,181) 830,674
-------- -------- -------- --------
Income (loss) from operations................. 45,931 (20,054) 17,181 43,058
Gain on sale of subsidiary.................... -- (14,811) 14,811(g) --
Interest expense.............................. 22,143 16,354 (1,667)(h) 36,830
Interest income............................... (761) -- 611(i) (150)
-------- -------- -------- --------
Income (loss) before income taxes............. 24,549 (21,597) 3,426 6,378
Income tax provision (benefit)................ 10,799 (12,001) 5,579(j) 4,377
-------- -------- -------- --------
Net income (loss)............................. $ 13,750 $ (9,596) $ (2,153) $ 2,001
======== ======== ======== ========
Ratio of earnings to fixed charges (k)........ 1.8x 1.1x
EBITDA data (l):
Income (loss) from operations............... $ 45,931 $ (20,054) $ 17,181 $ 43,058
Restructuring charges, net.................. -- 8,775 -- 8,775
Royalty payments & other affiliate
charges.................................. -- 5,167 (5,167) --
Depreciation and amortization............... 15,686 28,509 (12,014) 32,181
-------- -------- -------- --------
EBITDA...................................... $ 61,617 $ 22,397 $ -- $ 84,014
Ratio of EBITDA to interest expense......... 2.8x 2.3x
</TABLE>

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Income.

39
<PAGE> 44

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

FOR THE 39 WEEKS ENDED NOVEMBER 2, 1996

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- -------------------------
COMPANY PEARLE (a) ADJUSTMENTS COMBINED
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue................................ $ 443,057 $ 240,487 $ -- $ 683,544
Costs and expenses:
Cost of goods sold & operating expenses
(b)................................... 403,058 217,462 -- 620,520
Restructuring charges, net (c)........... -- (3,486) -- (3,486)
Royalty payments & other affiliate
charges............................... -- 5,842 (5,842)(d) --
Depreciation and amortization............ 12,780 21,055 (10,193)(e) 23,642
Provision for impairment of intangible
assets and related costs.............. -- 94,673 (94,673)(f) --
--------- --------- --------- ---------
Total costs and expenses......... 415,838 335,546 (110,708) 640,676
--------- --------- --------- ---------
Income (loss) from operations.............. 27,219 (95,059) 110,708 42,868
Interest expense........................... 15,943 12,258 (1,070)(h) 27,131
Interest income............................ (1,161) -- 582(i) (579)
--------- --------- --------- ---------
Income (loss) before income taxes.......... 12,437 (107,317) 111,196 16,316
Income tax provision (benefit)............. 5,473 (6,996) 9,182(j) 7,659
--------- --------- --------- ---------
Net income (loss).......................... $ 6,964 $ (100,321) $ 102,014 $ 8,657
========= ========= ========= =========
Ratio of earnings to fixed charges (k)..... 1.5x 1.4x
EBITDA data (l):
Income (loss) from operations............ $ 27,219 $ (95,059) $ 110,708 $ 42,868
Provision for impairment of intangible
assets and related costs.............. -- 94,673 (94,673) --
Restructuring charges, net............... -- (3,486) -- (3,486)
Royalty payments & other affiliate
charges............................... -- 5,842 (5,842) --
Depreciation and amortization............ 12,780 21,055 (10,193) 23,642
--------- --------- --------- ---------
EBITDA................................... $ 39,999 $ 23,025 $ -- $ 63,024
Ratio of EBITDA to interest expense...... 2.5x 2.4x
</TABLE>

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements
of Income.

40
<PAGE> 45

NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(a) Pearle's most recent audited fiscal year ended on September 30, 1996. For
purposes of the Unaudited Pro Forma Condensed Consolidated Statement of
Income for the Company's fiscal year ended February 3, 1996, results of
operations for Pearle are for its four quarters ended December 31, 1995, and
exclude Pearle Holdings. For purposes of preparing the Unaudited Pro Forma
Condensed Consolidated Statement of Income for the Company's 39 weeks ended
November 2, 1996, the information for Pearle is the nine month period ended
September 30, 1996, Pearle's second, third and fourth fiscal quarters, and
excludes Pearle Holdings.

The results of operations of Pearle included in the Unaudited Pro Forma
Condensed Consolidated Statements of Income contain certain reclassification
entries in order to present financial information on a basis consistent with
the presentation used by the Company. These are (i) the inclusion in net
revenue of interest income on franchise notes receivable ($4.7 million for
the 12 months ending December 31, 1995 and $3.0 million for the nine months
ending September 30, 1996) and (ii) the presentation of depreciation and
amortization separately from cost of goods sold and operating expenses.

(b) Cost of goods sold and operating expenses have been combined in the
accompanying Unaudited Pro Forma Condensed Consolidated Statements of Income
because information is not readily available to classify Pearle's cost of
goods sold and selling, general and administrative expenses in a manner
consistent with the Company's presentation. Pearle includes certain store
occupancy costs and depreciation in cost of goods sold, whereas the Company
reports such costs as operating expenses or depreciation and amortization.
In addition, Pearle includes payroll, supplies and other costs related to
the making of eyeglasses at its in-store labs in selling, general and
administrative expenses; the Company and Pearle both classify similar costs
of making eyeglasses at their respective central laboratories in cost of
goods sold. As a result of the Pearle Acquisition, the Company's
consolidated gross margin will likely decline from its historical levels
because Pearle is expected to have a lower gross margin than the Company due
to the higher cost of in-store labs and lower margin wholesale sales to
franchised stores partially offset by franchise royalties, fees and interest
income on franchise notes receivable which have no corresponding cost of
goods sold.

(c) For the twelve months ended December 31, 1995, Pearle recorded a net
provision of approximately $8.8 million for estimated costs, consisting
primarily of future commitments under operating leases, of closing
unprofitable North American retail locations. During the nine months ended
September 30, 1996, Pearle recorded net adjustments of $3.5 million to the
restructuring reserves previously established.

(d) Reflects the elimination of amounts paid to an affiliated company pursuant
to a licensing agreement in connection with a 1989 acquisition for use of
the predecessor's trademark and for management fees. As a result of the
Pearle Acquisition, all future payment obligations were cancelled.

(e) The Pearle Acquisition will be accounted for by the purchase method of
accounting. Under purchase accounting, the total purchase price will be
allocated to the tangible and intangible assets and liabilities of Pearle
based upon their respective fair values as of the closing of the Pearle
Acquisition based on valuations and other studies which are not yet
available. A preliminary allocation of the purchase price has been made to
major categories of assets and liabilities in the accompanying Unaudited Pro
Forma Condensed Consolidated Financial Data based on available information
and certain assumptions that management believes to be reasonable. The
actual allocation of purchase price and the resulting effect on income from
operations may differ significantly from the pro forma amounts included
herein. Consequently, the amounts reflected in the Unaudited Pro Forma
Condensed Consolidated Financial Data are subject to change, and the final
amounts may differ substantially.

41
<PAGE> 46

The following reflects the effect of purchase adjustments on depreciation
and amortization expense based upon management's assumptions (in thousands):

<TABLE>
<CAPTION>
39 WEEKS FISCAL YEAR
ENDED ENDED
NOV. 2, 1996 FEB. 3, 1996
------------ ------------
<S> <C> <C>
Amortization of new goodwill and intangible assets over 40
years.................................................... $ 1,585 $ 2,114
Elimination of amortization of Pearle's historical goodwill
and intangible assets.................................... (11,778) (14,128)
------- --------
$(10,193) $(12,014)
======= ========
</TABLE>

(f) Reflects the elimination of the provision for impairment of intangible
assets and related costs that were nonrecurring incremental costs directly
attributable to the Pearle Acquisition. The impairment of approximately
$88.0 million was recorded as a write-off of excess cost over fair value of
net tangible assets acquired. The remaining charge of approximately $6.7
million reflected amounts paid or to be paid by a Pearle affiliate on
behalf of Pearle.

(g) On October 27, 1994, Pearle entered into an agreement to sell all of the
capital stock of Ophthalmic Research Group International Company ("ORGIC")
to a third party for cash consideration of $14.8 million. During the year
ended September 30, 1993, the remaining book value of ORGIC of
approximately $22.1 million was written off (included in amortization and
impairment of intangible assets) since, in the opinion of Pearle's
management, the value of such assets was not recoverable. As a result, the
gain on sale in 1995 was equal to the cash consideration.

(h) Reflects the effect on interest expense resulting from the adjustments
below (in thousands):

<TABLE>
<CAPTION>
39 WEEKS FISCAL YEAR
ENDED ENDED
NOV. 2, 1996 FEB. 3, 1996
------------ ------------
<S> <C> <C>
Interest on the Notes, including amortization of
discount................................................. $ 11,156 $ 14,874
Interest expense from pro forma borrowing under the New
Credit Facility.......................................... 20 324
Elimination of interest expense on the $15.1 million of
Senior Notes held by Parent to be purchased from and
cancelled by the Company................................. (1,286) (1,746)
Elimination of interest expense charged by Pearle's
parent................................................... (11,528) (15,872)
Amortization of financing costs of the New Credit Facility
and the Notes over their respective terms, less the
elimination of amortization of financing costs related to
the Company's Revolving Credit Facility.................. 568 753
------- --------
$ (1,070) $ (1,667)
======= ========
</TABLE>

(i) Reflects elimination of interest income on temporary cash investments used
to fund the Pearle Acquisition.

(j) Reflects the increase in income tax expense resulting from the combined pro
forma results of the Company and Pearle. Income tax expense includes the
provision for state, local and federal income taxes. The pro forma
effective tax rate differs from the federal statutory rate of 35%
principally because of state and local taxes and permanent differences
arising from amortization of the Company's existing goodwill and goodwill
associated with the Pearle Acquisition.

(k) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes and fixed charges. Fixed charges
consist of interest expense, including amortization of deferred debt
issuance costs, and one-third of minimum rental expense less sublease rental
income (the portion deemed representative of the interest factor).

42
<PAGE> 47

(l) EBITDA is defined as income from operations before depreciation and
amortization and nonrecurring charges including restructuring and store
closure costs. The Company has included information concerning EBITDA here
as it is relevant for covenant analysis under the Indentures for the Notes
and the Senior Notes and because it is used by certain investors as a
measure of a company's ability to service its debt. EBITDA is not a
performance measure under generally accepted accounting principles and
should not be considered more meaningful than operating income or cash flows
as an indicator of operating performance. For purposes of computing the
ratio of EBITDA to interest expense, interest expense excludes the
amortization of deferred financing costs. Amortization of deferred financing
costs used to compute the pro forma ratios of EBITDA to interest expense
were $0.9 million and $0.7 million for the fiscal year ended February 3,
1996 and the 39 weeks ended November 2, 1996, respectively.

43
<PAGE> 48

SELECTED HISTORICAL FINANCIAL AND OTHER DATA

COMPANY

The following table sets forth selected historical financial and other data
of the Company for (i) the fiscal years 1991 through 1995, which have been
derived from the Company's audited consolidated financial statements for those
years and (ii) the 39 weeks ended October 28, 1995 and November 2, 1996 which
have been derived from the Company's unaudited consolidated condensed financial
statements for those periods, which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the unaudited interim periods. Results for
the 39 weeks ended November 2, 1996 are not necessarily indicative of results
that may be expected for the entire year. Prior to the Initial Capitalization
(see "The Company"), all operations of the Company were conducted by
subsidiaries of the Parent. The selected historical financial and other data set
forth below for fiscal years 1991 through 1993 are based on historical cost as
if the Initial Capitalization had occurred at the beginning of fiscal 1991 and
the Company had been in existence for those periods. Accordingly, transactions
of the Parent prior to the Initial Capitalization on September 30, 1993, except
for those relating to the debt not assumed by the Company and the interest
expense thereon, have been included in the selected historical financial and
other data below. The Company's fiscal year ends on the Saturday closest to
January 31. Fiscal years are identified according to the calendar year in which
they begin. For example, the fiscal year ended February 3, 1996 is referred to
as "fiscal 1995." Fiscal 1995 consisted of a 53-week period; all other fiscal
years presented consisted of 52-week periods. The information presented below is
qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes included
elsewhere herein.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS ENDED
-------------------------------------------------------- --------------------
FEB. 1, JAN. 30, JAN. 29, JAN. 28, FEB. 3, OCT. 28, NOV. 2,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OPERATING RESULTS:
Net sales............................ $426,453 $428,066 $472,888 $528,049 $577,091 $401,999 $443,057
Gross profit......................... 305,582 304,012 331,936 363,326 394,157 276,753 306,384
Operating expenses................... 247,562 258,534 281,149 305,470 332,540 242,269 266,385
Depreciation and amortization........ 13,701 13,581 13,516 14,892 15,686 11,552 12,780
-------- -------- -------- -------- -------- -------- --------
Income from operations............... 44,319 31,897 37,271 42,964 45,931 22,932 27,219
Interest expense..................... 45,064 18,897 18,029 22,266 22,143 16,403 15,943
Interest income...................... (1,029) (127) (378) (443) (761) (531) (1,161)
Income tax provision (benefit)....... 3,073 6,161 2,361 (3,703) 10,799 3,107 5,473
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations (a)..................... $ (2,789) $ 6,966 $ 17,259 $ 24,844 $ 13,750 $ 3,953 $ 6,964
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Gross margin......................... 71.7% 71.0% 70.2% 68.8% 68.3% 68.8% 69.2%
EBITDA (c)........................... $ 58,020 $ 45,478 $ 50,787 $ 57,856 $ 61,617 $ 34,484 $ 39,999
EBITDA margin (c).................... 13.6% 10.6% 10.7% 11.0% 10.7% 8.6% 9.0%
Capital expenditures................. $ 9,816 $ 9,580 $ 13,074 $ 18,527 $ 19,675 $ 14,042 $ 15,553
Ratio of earnings to fixed charges
(b)................................ 1.0x 1.5x 1.7x 1.7x 1.8x 1.3x 1.5x
NUMBER OF UNITS (AT END OF PERIOD):
Cole Vision.......................... 751 769 774 938 1,013 998 1,055
Things Remembered.................... 697 717 737 760 778 775 797
Cole Gift Centers.................... 598 594 586 589 587 588 505
-------- -------- -------- -------- -------- -------- --------
Total......................... 2,046 2,080 2,097 2,287 2,378 2,361 2,357
======== ======== ======== ======== ======== ======== ========
COMPARABLE STORE SALES GROWTH (d):
Cole Vision.......................... (2.5)% (1.4)% 10.7% 9.8% 5.6% 7.4% 8.7%
Things Remembered.................... (1.4)% (0.7)% 1.8% 0.1% 3.1% 4.3% 3.8%
Cole Gift Centers.................... (1.4)% 1.8% 31.6% 5.8% (4.8)% (4.8)% 0.7%
Total......................... (1.9)% (0.7)% 9.4% 5.5% 3.4% 5.0% 6.3%
BALANCE SHEET DATA (AT END OF PERIOD)
(e):
Total assets......................... $237,302 $225,861 $257,945 $283,303 $298,990 $295,633 $327,118
Long-term debt....................... 513,388 190,556 188,299 184,388 180,218 184,722 180,033
Stockholder's equity (deficit)....... (420,150) (58,902) (29,793) 1,139 2,497 5,092 9,461
</TABLE>

44
<PAGE> 49

(a) Earnings per share and weighted average number of common shares outstanding
data for all periods have been omitted as the Company is a wholly owned
subsidiary of the Parent.

(b) Earnings used in computing the ratio of earnings to fixed charges consist of
income (loss) before income taxes plus fixed charges. Fixed charges consist
of interest on indebtedness, amortization of deferred financing fees and the
portion minimum rent expense less sublease rental income that represents
interest.

(c) EBITDA is defined as income from operations before depreciation and
amortization and nonrecurring charges, if any. The Company has included
information concerning EBITDA here as it is relevant for covenant analysis
under the Indentures for the Notes and the Senior Notes and because it is
used, by certain investors as a measure of a company's ability to service
its debt. EBITDA is not a performance measure under generally accepted
accounting principles and should not be considered more meaningful than
operating income or cash flows as an indicator of operating performance.

(d) Comparable store sales growth is calculated using sales for all stores open
at least twelve months, for the weeks that the stores were open in both the
previous and current periods. For the year ended January 29, 1994, the
growth in comparable store sales for Cole Gift Centers includes the addition
of greeting card merchandise to 171 locations in February 1993.

(e) The balance sheet data for the fiscal year ended February 1, 1992 reflect
historical amounts for the Parent and not the Company. In fiscal 1992, the
Parent exchanged a significant portion of long-term debt (including
redeemable preferred stock) for equity resulting in a reduction of the
Parent's long-term debt and stockholders' deficit.

45
<PAGE> 50

SELECTED HISTORICAL FINANCIAL AND OTHER DATA (CONTINUED)

PEARLE

The following table sets forth selected historical financial and other data
of Pearle for the fiscal years 1993 through 1996, which have been derived from
Pearle's audited consolidated financial statements for those years. The selected
historical financial and other data of Pearle below includes the operating
results and other data of Pearle Holdings presented in note (a) set forth below.
Pearle Holdings was disposed of by the Parent prior to the Pearle Acquisition
although the Parent retains a minority interest in Pearle Holdings' business.
The information presented below is qualified in its entirety by, and should be
read in conjunction with, the consolidated financial statements and notes of
Pearle included elsewhere herein.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1993 1994 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING RESULTS (a):
Revenues............................................. $ 364,938 $ 336,018 $ 354,252 $ 366,024
Gross profit (b)..................................... 170,153 154,678 167,067 181,538
Selling, general and administrative expenses (c)..... 202,810 160,820 155,256 164,129
Restructuring and store closure costs (d)............ 33,854 1,876 7,265 (2,083)
Royalty payments and other affiliate charges (e)..... 5,842 5,916 6,039 6,406
Amortization of intangible assets.................... 19,567 14,289 14,260 15,604
Provision for impairment of intangible assets and
related costs (f).................................. 22,146 -- -- 94,673
-------- -------- -------- --------
Income (loss) from operations........................ (114,066) (28,223) (15,753) (97,191)
Interest expense to Pearle's parent (g).............. 15,670 17,309 15,769 15,461
Other interest income, net........................... (3,545) (4,080) (4,829) (4,258)
Gain on sale of subsidiary (f)....................... -- -- (14,811) --
Income tax benefit................................... (34,716) (10,480) (12,845) (6,011)
-------- -------- -------- --------
Income (loss) before cumulative effect of
accounting change.................................. $ (91,475) $ (30,972) $ 963 $(102,383)
======== ======== ======== ========
OTHER DATA (a):
Gross margin (b)..................................... 46.6% 46.0% 47.2% 49.6%
EBITDA (h)........................................... $ 32,166 $ 28,621 $ 35,278 37,696
EBITDA margin (h).................................... 8.8% 8.5% 10.0% 10.3%
Capital expenditures................................. $ 4,945 $ 6,083 $ 7,321 $ 13,558

NUMBER OF UNITS IN NORTH AMERICA (AT END OF PERIOD):
Company-owned stores................................. 412 368 336 345
Franchised stores.................................... 433 387 361 340
-------- -------- -------- --------
Total............................................ 845 755 697 685
======== ======== ======== ========
COMPARABLE STORE SALES GROWTH (U.S. LOCATIONS) (i):
Company-owned stores................................. (6.6)% 4.4% 4.2% (1.2)%
Franchised stores.................................... (2.0)% 3.0% 2.1% 2.0%
<FN>

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

(a) Includes the following selected financial data of Pearle's European
operations owned and operated by Pearle Holdings:
</TABLE>

46
<PAGE> 51

(b) Gross profit and gross margin for Pearle are determined on a basis not
consistent with that of the Company. Pearle includes certain store occupancy
costs and depreciation in cost of goods sold, whereas the Company reports
such costs as operating expenses or depreciation and amortization. In
addition, Pearle includes payroll, supplies and other costs related to the
making of eyeglasses at its in-store labs in selling, general and
administrative expenses; the Company and Pearle both classify similar costs
of making eyeglasses at their central laboratories in cost of goods sold.
Information to reclassify Pearle's historical costs and expenses on a basis
consistent with the Company is not readily available. As a result of the
Pearle Acquisition, the Company's consolidated gross margin will likely
decline from its historical levels because Pearle is expected to have a
lower gross margin than the Company due to the higher cost of in-store labs
and lower margin wholesale sales to franchised stores partially offset by
franchise royalties, fees and interest income on franchise notes receivable
which have no corresponding cost of goods sold.

(d) During the year ended September 30, 1993 Pearle recorded a provision related
to restructuring its retail operations, including the costs of closing
certain unprofitable United States and all German retail locations. During
the years ended September 30, 1994 and 1995 Pearle recorded net provisions
for estimated costs, consisting primarily of future commitments under
operating leases, of closing unprofitable United States and international
retail locations. During the year ended September 30, 1996 $2.1 million of
the restructuring and store closure reserves was reversed.

(f) On October 27, 1994, Pearle entered into an agreement to sell all of the
capital stock of Ophthalmic Research Group International Company ("ORGIC")
to a third party for cash consideration of $14.8 million. During the year
ended September 30, 1993, the remaining book value of ORGIC of
approximately $22.1 million was written off (included in amortization and
impairment of intangible assets) since, in the opinion of Pearle's
management, the value of such assets was not recoverable. As a result, the
gain on sale in 1995 was equal to the cash consideration.

As a result of the sale of Pearle, an impairment of the assets of Pearle was
determined to exist at September 30, 1996. Accordingly, an impairment of
approximately $88.0 million was recorded to reflect the assets of Pearle at
their estimated fair value. The impairment was recorded as a write-off of
excess cost over fair value of net tangible assets acquired. A charge of
approximately $6.7 million was also recorded for amounts which were paid or
will be paid by a Pearle affiliate on behalf of Pearle as a result of the
sale.

(g) Interest expense related to intercompany balances which will be cancelled
and contributed to Pearle's capital at the closing of the Transactions.

(i) Comparable store sales growth is calculated using sales for all stores open
at least twelve months, for the weeks that the stores were open in both the
previous and current periods.

47
<PAGE> 52

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company is a direct wholly owned subsidiary of the Parent. The
following discussion should be read in conjunction with the Selected Historical
Financial and Other Data and the Unaudited Pro Forma Condensed Consolidated
Financial Data and the notes thereto.

Except as otherwise indicated, the following discussion relates to the
Company on a historical basis without giving effect to the Pearle Acquisition.
Any discussion of Pearle's historical operating results is inclusive of the
operations of Pearle Holdings except where indicated.

GENERAL

The Company is a leading provider of eyewear products, optometric services
and personalized gifts. The Pearle Acquisition creates the second largest vision
care company in the United States, and with Cole Gift, results in the Company,
on a pro forma basis for fiscal 1995, reaching $873.7 million in annual net
revenues and $84.0 million in EBITDA. See "Unaudited Pro Forma Condensed
Consolidated Financial Data."

The Company has produced a record of consistent growth in sales and EBITDA.
During the three-year period ended February 3, 1996, the Company's net revenues
increased from $472.9 million to $577.1 million, representing a compound annual
growth rate of 10.5%. Over the same time period, EBITDA has increased from $50.8
million to $61.6 million, representing a compound annual growth rate of 10.1%.
The Company's growth has been driven by its increased managed vision care
business, the introduction of new merchandising concepts, new store openings and
selected acquisitions. Cole Vision acquired 73 Sears Optical locations and two
freestanding Vision Club stores in Canada in November 1996 for a purchase price
of approximately $2.5 million. These locations had sales of approximately $15
million during 1995.

The Pearle Acquisition

Dr. Stanley Pearle opened Pearle's first store in Savannah, Georgia in
1961. Through a period of broad expansion over the next 20 years, Pearle became
the first nationwide retail eyecare chain. From 1988 to 1990, Pearle expanded by
adding 170 stores through six acquisitions and by opening approximately 123
company-owned and franchised stores. Pearle has maintained a franchise program
since 1980. As of November 2, 1996, 49% of Pearle's North American and Caribbean
stores were franchised. In 1985, Pearle was acquired by GrandMet, under whose
ownership Pearle experienced frequent changes in both operating strategy and
senior management. Beginning in fiscal 1993, Pearle embarked on a major
restructuring program. Since 1994, Pearle closed 129 stores worldwide, of which
119 were in the United States. In addition, Pearle wrote off obsolete retail and
laboratory equipment, unrecoverable capitalized software and the purchase of
Ophthalmic Research Group International Company, a lens equipment manufacturer
whose assets were deemed unrecoverable by Pearle.

Pearle's restructuring program has resulted in the closure of unprofitable
locations, staff reductions in administration and manufacturing and the
reduction of inventory. A new management team, which was put in place during
1994 and 1995, has worked to improve Pearle's franchisee and professional
relationships, reemphasized managed care, refocused Pearle's advertising budget
to assist the franchisees with additional local advertising and reintroduced Dr.
Stanley Pearle through television advertising in order to enhance the Pearle
Vision brand awareness. Pearle's new management has also begun opening new
locations, including 13 company-owned and eleven franchised locations in the
year ended September 30, 1996. During Pearle's fiscal 1995, consolidated net
sales grew by 5.4% to $354.3 million, which included comparable store sales
increases of 4.2% for company-owned stores. Pearle's fiscal 1995 consolidated
EBITDA, excluding nonrecurring items, was $35.3 million, a 23.3% increase over
1994 levels, driven primarily by lower costs resulting from store closures,
comparable store sales growth and other cost containment efforts. In Pearle's
fiscal 1996, consolidated net sales increased 3.3% to $366.0 million, which
included a comparable store sales decrease of 1.2% for company-owned stores.
Consolidated EBITDA for fiscal 1996, excluding nonrecurring items, increased
6.9% to $37.7 million.

48
<PAGE> 53

Certain Effects of the Pearle Acquisition

The Pearle Acquisition is the most significant strategic development for
the Company in the last ten years. The Company believes that the Pearle
Acquisition will create economies of scale and synergies that, in conjunction
with the utilization of the best historical practices of each of the Company and
Pearle, will result in increased revenue and improved operating results and
enable the Company to better serve its customers. Cole Vision historically has
had higher operating margins than Pearle. The Company will evaluate several
opportunities to improve Pearle's operating results through revenue expansion,
cost reductions and consolidation of duplicative facilities and functions.
Although the acquisition of Pearle will moderate the seasonality of the
Company's business due to relatively lower levels of optical product sales
during the Christmas holiday season, the Company's business will remain
seasonal.

Potential Revenue Enhancements. The Company believes that there are
opportunities for revenue enhancement in its combined operations. The Pearle
Acquisition positions the Company for growth through the expansion of Pearle's
network of company-owned and franchised stores. The Company expects that future
new store growth will facilitate a rationalization of geographic coverage
between company-owned and franchised stores in order to permit more focused
local promotional and advertising programs and to streamline field
organizations. The Pearle Acquisition enhances the Company's ability to compete
effectively in the rapidly expanding managed vision care component of the
optical industry by increasing the Company's number of distribution points and
geographical presence and broadening its merchandise selection. Furthermore,
management intends to introduce selling systems at Pearle that emphasize the
sale of higher margin products such as anti-reflective coatings, polycarbonate
lenses, and eyeglass warranties.

Certain Cost Savings. The Company intends to continuously evaluate the
operations of Pearle and Cole Vision for opportunities to effect operational
efficiencies and reduce costs through the integration of Pearle. For example,
management believes that it can improve Pearle's operating results by
introducing direct foreign sourcing of eyeglass frames, which account for
approximately 55% of Cole Vision's supply and provide significant cost savings
over purchases from domestic distributors. Another potential strategy may be the
removal of in-store laboratories in Pearle locations where sales volume is
insufficient to support the higher overhead. Furthermore, management believes
that economies of scale and other cost saving opportunities exist, particularly
in purchasing, advertising efficiency and distribution.

Certain Costs Associated with the Pearle Acquisition. The Company expects
that the Pearle Acquisition will increase its need for letters of credit drawn
on working capital facilities. Accordingly, the Company replaced its former $50
million Revolving Credit Facility with the New Credit Facility, which provides a
maximum available line of $75 million. See "Description of Other
Indebtedness -- New Credit Facility." In addition, the Company intends to
closely evaluate the various operations of Pearle and Cole Vision for
opportunities to effect operational efficiencies. If, as a result of such
review, it is decided to eliminate any assets or operations of Pearle or of Cole
Vision, such decision could result in a charge for business integration and
consolidation costs that has the effect of reducing assets and the Company's net
worth, perhaps creating negative net worth for accounting purposes. See "Risk
Factors -- Potential Negative Net Worth."

Following the Pearle Acquisition, the Company's consolidated gross margin
will likely decline from its historical levels. This will likely result because
even after conforming Pearle's accounting methods to those of the Company,
Pearle is expected to have a lower gross margin than the Company due to the
higher costs of in-store laboratories and lower margin wholesale sales to
franchised stores partially offset by franchise royalties, fees and interest
income on franchise notes receivable which have no corresponding cost of goods
sold.

RESULTS OF OPERATIONS

NINE MONTHS ENDED NOVEMBER 2, 1996 COMPARED TO NINE MONTHS ENDED OCTOBER 28,
1995

Net sales for the first nine months of fiscal 1996 increased 10.2% to
$443.1 million from $402.0 million for the same period a year ago. The increase
in consolidated sales for the first nine months of fiscal 1996 was due to a
comparable store sales increase of 6.3% and to the opening of additional Cole
Gift and Cole Vision units, partially offset by the closing of 95 low-volume
Cole Gift departments. Comparable store sales increased

49
<PAGE> 54

primarily as a result of successful eyewear promotions and growth in the managed
vision care program at Cole Vision, along with the roll-out of monogrammed
softgoods and introduction of new merchandise at Cole Gift. At November 2, 1996,
the Company operated 2,357 specialty service retail units compared to 2,361 at
October 28, 1995. The decline in stores operated was a result of the closing of
low-volume locations (whose aggregate sales in fiscal 1995 represented less than
one percent of Cole Gift's sales) in Sears, Venture and Montgomery Ward stores
as part of an expense reduction program.

For the first nine months, gross profit increased to $306.4 million in
fiscal 1996 from $276.8 million for the same period a year ago. Gross margins
for the first nine months in fiscal 1996 and fiscal 1995 were 69.2% and 68.8%,
respectively. The increase in the gross margin percentage was the result of
lower product costs, improved optical lab productivity and a higher level of
personalization in the sales mix at Things Remembered.

For the first nine months of fiscal 1996, operating expenses increased
10.0% to $266.4 million from $242.3 million for the same period in fiscal 1995.
As a percentage of sales, operating expenses decreased to 60.1% for the first
nine months of fiscal 1996 from 60.3% for the same period in fiscal 1995. The
operating expense increase compared to last year was primarily due to higher
advertising expenditures, payroll costs and store occupancy expenses.
Advertising expenditures at Cole Vision were increased for optical promotions to
encourage continued sales growth above the prior year's promotions. Payroll
costs increased because of more higher-volume retail units open in 1996,
including an increased number of Things Remembered personalization superstores,
and additional payroll to support increased sales. Store occupancy expenses
increased primarily as a result of the increased number of Things Remembered
personalization superstores and higher percentage rents caused by increased
comparable store sales. Fiscal 1996 depreciation and amortization expense of
$12.8 million in the first nine months was $1.2 million more than the same
period in fiscal 1995 reflecting an increase in capital expenditures beginning
in the latter part of fiscal 1993.

Income from operations increased 18.7% to $27.2 million in the first nine
months primarily because of increased sales at Cole Vision and Things
Remembered.

Net interest expense decreased $1.1 million to $14.8 million in the first
nine months. The decrease for the nine months was primarily due to the
retirement of $5.0 million of Senior Notes in November 1995, the elimination of
working capital borrowings and increased interest income from an increase in
temporary cash investments.

Income tax provisions were recorded in the first nine months of fiscal 1996
and fiscal 1995 using the Company's estimated annual effective tax rate of 44%.

For the first nine months of fiscal 1996, net income increased to $7.0
million from $4.0 million for that same period last year, due to the improvement
in income from operations and the decrease in net interest expense.

The Company's business historically has been seasonal with approximately
30% of its sales and approximately 50% of its income from operations occurring
in the fourth fiscal quarter because of the importance of gift sales during the
Christmas retailing season. Therefore, results of operations for interim periods
are not necessarily indicative of full year results.

FISCAL 1995 COMPARED TO FISCAL 1994

Net sales increased 9.3% to $577.1 million in fiscal 1995 from $528.0
million in fiscal 1994. The increase in consolidated sales was due to a
comparable store sales increase of 3.4%, sales for the 53rd week of
approximately $9.3 million and additional Things Remembered and Cole Vision
units open in fiscal 1995. Comparable store sales increased primarily as a
result of successful eyewear promotions and growth in the managed vision care
program at Cole Vision and expanded gift and softgoods merchandise at Things
Remembered locations. Fourth quarter comparable store sales were even with last
year as the retail industry in general experienced a very difficult Christmas
season and severe weather conditions in many major geographic areas. At February
3, 1996, the Company operated 2,378 specialty service retail locations versus
2,287 at the end of the prior year. The net increase in retail units includes
the acquisition by Cole Vision on May 21, 1995,

50
<PAGE> 55

of 59 optical departments located in BJ's Wholesale Club stores and the sale of
the Company's 39 Sunspot fashion sunglass kiosks as of April 29, 1995.

Gross profit increased to $394.2 million in fiscal 1995 from $363.3 million
in fiscal 1994. Gross margins for fiscal 1995 and fiscal 1994 were 68.3% and
68.8%, respectively. The decrease in gross margin percentage was primarily due
to an increase in the sales of lower margin optical products, including
disposable contact lenses, and a lower mix of higher margin merchandise,
primarily keys, at CGC. Gross margin in the fourth quarter of fiscal 1995,
however, improved to 67.1% from 66.9% in fiscal 1994, benefitting from fiscal
1994 and 1995 investments aimed at increasing optical laboratory capacity and
production efficiency and from reduced material costs for spectacles.

Operating expenses increased 8.9% to $332.5 million in fiscal 1995 from
$305.5 million for the prior year. As a percentage of sales, operating expenses
decreased to 57.6% in fiscal 1995 from 57.8% in fiscal 1994. Operating expenses
increased primarily because of higher payroll costs, store occupancy expenses
and advertising expense due, in part, to the 53rd week. The higher payroll costs
were also the result of more retail units in fiscal 1995 and additional payroll
to support the higher level of sales. Partially offsetting the payroll increases
were savings from outsourcing the Company's data processing operations in fiscal
1995. Store occupancy expense increased because of the increased number of
retail units and higher percentage rents due to increased comparable store
sales. Advertising costs increased primarily as a result of additional efforts
to support eyewear promotions. Also included in operating expenses in fiscal
1995 was a $0.2 million provision for the closing of approximately 90 low volume
leased key and gift departments in the first quarter of fiscal 1996. Fiscal 1995
depreciation and amortization expense of $15.7 million was $0.8 million more
than fiscal 1994 reflecting an increase in capital expenditures that began in
the latter part of fiscal 1993.

Income from operations increased 6.9% to $45.9 million in fiscal 1995 from
$43.0 million the prior year. The increase was primarily attributable to the
increased sales. The lower gross margin percentage was partially offset by
improved leveraging of operating expenses.

Net interest expense for fiscal 1995 of $21.4 million was $0.4 million less
than that of the prior year. This decrease was primarily due to an increase in
interest income and lower borrowings on the Senior Notes.

The income tax provision of $10.8 million for fiscal 1995 represents an
effective tax rate of 44.0%. This rate reflects the significant impact of
non-deductible amortization of goodwill. The income tax benefit of $3.7 million
in fiscal 1994 included the effects of utilizing all of the Company's net
operating loss carryforwards and the reversal of a valuation allowance on net
deferred tax assets in the fourth quarter.

Net income in fiscal 1994 of $24.7 million included a loss on early
extinguishment of debt of $0.1 million to reflect the payment of premiums, the
write-off of unamortized debt discount and other costs associated with retiring
the debt in connection with the Parent's initial public offering ("IPO").

FISCAL 1994 COMPARED TO FISCAL 1993

Net sales increased 11.7% to $528.0 million in fiscal 1994 from $472.9
million in fiscal 1993. The increase in consolidated sales was due to a
comparable store sales increase of 5.5% and additional Things Remembered and
Cole Vision units opened in fiscal 1994. Comparable store sales increased
primarily as a result of successful eyeglass promotions and growth in managed
vision care sales at Cole Vision, which continued to take advantage of the
general improvement within the optical industry. Comparable store sales gains
from increased gift and greeting card sales at Cole Gift Center locations were
offset for the most part by soft fourth quarter sales at Things Remembered which
experienced the general sales weakness that affected many enclosed mall
retailers during the Christmas selling season. At January 28, 1995, the Company
operated 2,287 specialty service retail locations versus 2,097 at the end of the
prior year. The net increase in retail units includes the acquisition by Cole
Vision of 107 optical departments located in Montgomery Ward stores as of
January 30, 1994.

Gross profit increased to $363.3 million in fiscal 1994 from $331.9 million
in fiscal 1993. Gross margins for fiscal 1994 and fiscal 1993 were 68.8% and
70.2%, respectively. The decrease in gross margin percentage

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<PAGE> 56

was primarily attributable to Cole Vision as the optical promotions delivered
lower average retails and encouraged the sale of higher cost products, combined
with an increased mix of lower margin contact lenses.

Operating expenses increased 8.7% to $305.5 million in fiscal 1994 from
$281.1 million the prior year. As a percentage of sales, operating expenses
decreased to 57.8% in fiscal 1994 from 59.5% in fiscal 1993. Operating expenses
increased primarily due to higher payroll costs and store occupancy expenses
partially offset by a reduction in advertising expense. The higher payroll costs
were due to more retail units in fiscal 1994 and additional payroll to support
the higher level of sales, offset in part by lower benefits and incentive
compensation costs. Store occupancy expense increased because of the increased
number of retail units and higher percentage rents caused by increased
comparable store sales. Advertising expenditures were reduced this year
primarily because of a television advertising test at Things Remembered during
the prior year's Christmas retail season and advertising efficiencies at Cole
Vision. Fiscal 1994 depreciation and amortization expense of $14.9 million was
$1.4 million more than fiscal 1993 reflecting an increase in capital
expenditures beginning in the latter part of fiscal 1993 and the acquisition of
the Montgomery Ward optical departments.

Income from operations increased 15.3% to $43.0 million in fiscal 1994 from
$37.3 million the prior year. The increase was primarily attributable to the
increased comparable store sales. The lower gross margin percentage was more
than offset by improved leveraging of operating expenses which resulted from the
lower payroll costs and advertising expenditures as a percentage of sales.

Net interest expense for fiscal 1994 of $21.8 million was $4.2 million more
than that of the prior year. This increase was primarily a result of the higher
effective interest rates on outstanding debt following completion of the
offering of the Senior Notes on September 30, 1993. Partially offsetting this
was a reduction in interest expense resulting from the early extinguishment of
debt in connection with the IPO.

The income tax benefit of $3.7 million in fiscal 1994 includes the effects
of utilizing all of the Company's net operating loss carryforwards and the
reversal of a valuation allowance on net deferred tax assets in the fourth
quarter of fiscal 1994. Based on the complete utilization of the net operating
loss carryforwards, the Company's historic levels of income from operations and
expected levels of future taxable income, the Company believes that it is more
likely than not that net deferred tax assets can be realized and, thus, no
valuation allowance is needed. The income tax provision of $2.4 million for
fiscal 1993 consisted of only state income taxes.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of liquidity is funds provided from operations
of its operating subsidiaries. In addition, the Company's principal operating
subsidiaries have available to them working capital commitments of $75.0 million
under the New Credit Facility, reduced by commitments under letters of credit.
The New Credit Facility replaced, contemporaneous with the consummation of the
Pearle Acquisition, the existing $50.0 million Revolving Credit Facility. There
were no working capital borrowings outstanding under the Revolving Credit
Facility as of November 2, 1996 and the maximum amounts outstanding during
fiscal 1995 and fiscal 1994 were $3.5 million and $13.0 million, respectively.
There were no working capital borrowings during the first nine months of fiscal
1996. The maximum amount outstanding during the first nine months of fiscal 1995
was $3.5 million.

The New Credit Facility contains covenants restricting the ability of the
Company's operating subsidiaries to, among other things, pay dividends or make
other restricted payments to the Company. The New Credit Facility permits the
Company's subsidiaries to pay dividends to the Company to the extent necessary
to permit it to pay all interest and principal on the Senior Notes and the Notes
when due.

At November 2, 1996, the Company had outstanding $180.9 million of Senior
Notes. The Senior Notes bear interest at a rate of 11.25% per annum, payable
semi-annually on each April 1 and October 1. During the

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<PAGE> 57

second quarter of fiscal 1996, the Parent completed a public offering of
1,437,500 shares of Common Stock at an offering price of $19.25 per share. The
net proceeds from the offering were $26.2 million. A portion of the net proceeds
was used to purchase in the open market $15.1 million principal amount of the
Company's Senior Notes plus accrued interest thereon. The $15.1 million
aggregate principal amount of the Senior Notes were retired through the Senior
Note Repurchase. The Senior Note Repurchase will result in a reduction of
interest expense of $1.7 million annually. After the Transactions, $165.8
million in principal amount of the Senior Notes is outstanding.

The Company has no significant principal payment obligations under any of
its outstanding indebtedness until the Senior Notes mature in 2001. The ability
of the Company and its subsidiaries to satisfy that obligation and its
obligations under the Notes will be primarily dependent upon future financial
and operating performance of the subsidiaries and upon the Company's ability to
renew or refinance borrowings or to raise additional equity capital.

Pro forma for the Offering, as of November 2, 1996, the Company had an
intercompany payable to affiliates of $40.3 million. Such payable arose
primarily from the Parent's loan to the Company of proceeds from the Parent's
1996 public offering of common stock and cash that had earlier been received as
dividends from the Company and subsequently borrowed by the Company.

Operations for the first nine months provided cash of $9.8 million in
fiscal 1996 compared to $5.2 million provided in 1995. The increase in cash
provided by operations resulted from an increase in net income and favorable
changes in accounts receivable, prepaid expenses, accounts payable and accrued
liabilities. These favorable changes were partially offset by unfavorable
changes in inventory in fiscal 1996 as compared to fiscal 1995.

Operations generated net cash of $36.2 million in fiscal 1995, $19.1
million in fiscal 1994 and $33.3 million in fiscal 1993. The $17.1 million
increase in cash provided by operations in fiscal 1995 compared to fiscal 1994
was primarily due to a $2.5 million reduction in inventory, despite a 9.3%
increase in sales, compared to an $8.7 million increase in inventory the prior
year. Also, income from operations in fiscal 1995 was higher by $3.0 million and
interest expense was lower by $0.4 million than in fiscal 1994. The $14.3
million decrease in cash provided from operations in fiscal 1994 compared to
fiscal 1993 was primarily the result of the following: a $5.7 million increase
in fiscal 1994 income from operations offset by a $2.9 million decrease in
noncash interest expense and a decrease in accrued liabilities in fiscal 1994
compared to the substantial increase in accrued liabilities that occurred in
fiscal 1993 (primarily accrued interest and incentive compensation).

Net capital additions were $15.5 million and $14.0 million for the first
nine months of fiscal 1996 and fiscal 1995, respectively, and were $19.7
million, $18.5 million and $13.1 million in fiscal 1995, 1994 and 1993,
respectively. In addition, the Company used $0.8 million for the purchase of the
BJ's Wholesale Club optical departments in fiscal 1995, $4.7 million for the
purchase of the Montgomery Ward optical departments in fiscal 1994 and $3.2
million for the acquisition of a mail order contact lens business in fiscal
1993. The majority of the capital additions were for store fixtures, equipment
and leasehold improvements for new stores and the remodeling of existing stores.
For the balance of fiscal 1996, the Company expects to continue to expand the
number of stores as well as remodel and relocate stores. The Company currently
estimates capital expenditures in fiscal 1996 will exceed $20.0 million and that
for 1997 including Pearle will exceed $30.0 million.

The Company has acquired land to construct a new warehouse and distribution
facility for Cole Gift that is expected to improve distribution efficiencies.
The facility, which the Company expects will be completed in fiscal 1997, will
most likely be financed through a sale and lease-back transaction or through
conventional secured real estate financing. The Company estimates the cost for
this facility to be approximately $10 million.

The Company believes that funds provided from operations along with funds
available under the New Credit Facility will provide adequate sources of
long-term liquidity to allow the Company's operating subsidiaries, including
Pearle, to continue to expand the number of stores. The Pearle Acquisition and
consummation of the Offering involve a wide variety of risk factors that may
adversely affect the Company.

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<PAGE> 58

See "Risk Factors -- Leverage;" "-- Integration of Pearle;" and "-- Competition
and Other Business Factors."

This Prospectus contains and incorporates by reference certain statements
that are "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Those statements include,
among other things, the discussions of the Company's business strategy and
expectations concerning the Company's position in the industry, future
operations, margins, profitability, liquidity and capital resources, as well as
statements concerning the integration of the Pearle Acquisition and achievement
of cost savings and other efficiencies in connection therewith. Investors in the
Notes offered hereby are cautioned that reliance on any forward-looking
statement involves risks and uncertainties, and that although the Company
believes that the assumptions on which the forward-looking statements contained
herein are based are reasonable, any of those assumptions could prove to be
inaccurate, and as a result, the forward-looking statements based on those
assumptions also could be materially incorrect. The uncertainties in this regard
include, but are not limited to, those identified in the risk factors discussed
above. In light of these and other uncertainties, the inclusion of a
forward-looking statement herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved.

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<PAGE> 59

BUSINESS

GENERAL

The Company, a leading provider of eyewear products, optometric services
and personalized gifts, acquired Pearle on November 15, 1996. The combination of
the Company and Pearle creates the second largest optical retail company in the
United States, with over 1,800 locations in the United States, Canada and the
Caribbean. Pearle enjoys one of the most highly recognized brand names in the
optical retail industry. Pro forma for the Pearle Acquisition, the Company's
fiscal 1995 net sales and EBITDA were $873.7 million and $84.0 million,
respectively, with approximately 70% of the Company's net sales derived from its
optical business and the remaining 30% derived from its gift business. As a
result of the Pearle Acquisition, the Company conducts its business through two
principal operating units: (i) Cole Optical, consisting of Cole Vision and
Pearle; and (ii) Cole Gift, consisting of Things Remembered and CGC.

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<PAGE> 60

THE PEARLE ACQUISITION

On September 24, 1996, the Parent and The Pillsbury Company signed a
definitive purchase agreement for the Parent's Acquisition of Pearle. Pearle
historically has maintained separate European operations. On November 15, 1996,
(i) assets and/or outstanding shares of Pearle Holdings, which owned Pearle's
European operations, were sold in transactions pursuant to which the Parent (and
not the Company) retained an indirect equity interest of approximately 20% in
Pearle Holdings, and (ii) the Parent sold the stock of Pearle to the Company for
approximately $154 million. Accordingly, Pearle became a wholly owned subsidiary
of the Company. In connection with the Pearle Acquisition, the Company also
repurchased from the Parent $15.1 million principal amount of the Senior Notes,
which the Parent purchased in the open market during fiscal 1996. The Company
financed the Pearle Acquisition and the Senior Note Repurchase through (i) the
proceeds from the offering of the Original Notes, (ii) cash on hand, and (iii)
intercompany borrowings from the Parent. The Senior Notes acquired through the
Senior Note Repurchase were retired upon receipt by the Company. See "The
Transactions."

- - INCREASED PRESENCE IN GROWING OPTICAL RETAILING INDUSTRY. Pro forma for the
Pearle Acquisition, approximately 70% of the Company's sales are derived
from its optical business. According to industry sources, the United States
optical industry grew from $11.4 billion to $13.8 billion between 1990 and
1995 and is expected to increase to $18 billion by the year 2000. The
optical retailing industry is expected to continue to benefit from the aging
of the United States population since approximately 95% of persons over age
45 require some form of corrective eyewear.

- - EXPANDED CUSTOMER BASE AND BROADER PRODUCT LINES. The Company believes there
exists little overlap between the Pearle and Cole Vision customer base since
each appeals to a different type of consumer. Cole Vision's typical
customers are value-oriented consumers who often shop at its host stores,
whereas Pearle's customers are often more affluent and fashion-conscious
shoppers who are attracted by Pearle's name and reputation. Pearle offers
higher price point, brand name merchandise from well-recognized designers
such as Armani, Calvin Klein, Laura Ashley and Polo, which is currently
unavailable at Cole Vision's stores.

- - INCREASED GEOGRAPHICAL PRESENCE AND NEW GROWTH OPPORTUNITIES. The Pearle
Acquisition increased the Company's optical locations to over 1,800 in 49
states, Canada and the Caribbean. Management believes that the Company's
increased geographical presence and number of locations will make its
managed vision care program more attractive to managed care providers and
corporations by significantly expanding its network and coverage base.
Furthermore, the Pearle network of company-owned and franchised stores
offers the Company a new outlet for growth independent of the expansion
plans of the Company's host stores. Management believes that the Parent's
on-going relationship with Pearle Holdings, which operates the Pearle Vision
business in Europe, may provide opportunities for future international
expansion of the Pearle business, as well as enhance the Pearle name
worldwide.

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<PAGE> 61

BUSINESS STRATEGY

- - LEADERSHIP BY COLE VISION MANAGEMENT TEAM. The Company operates Pearle and
Cole Vision as two separate businesses under the general leadership of Cole
Vision's management team. The Company believes that its highly experienced
management team is an important asset for the successful integration of
Pearle. The Company believes that its success in the optical retailing
industry is attributable to Cole Vision's experienced group of senior
managers, who have an average tenure of more than ten years with the
Company. In contrast, the Company believes Pearle's performance has been
hampered by frequent changes in operating strategy and senior management.
The Cole Vision management team will help Pearle identify and execute more
focused operational and growth strategies.

- - FOCUS ON OPERATIONAL EFFICIENCIES TO IMPROVE OPERATING RESULTS. Cole Vision
historically has had higher operating margins than Pearle. The Company
intends to continuously evaluate the operations of Pearle and Cole Vision
for opportunities to effect operational efficiencies and reduce costs
through the integration of Pearle. The Company is evaluating several
opportunities to improve Pearle's operating results through revenue
expansion, cost reductions and consolidation of duplicative facilities and
functions. For example, management intends to introduce selling systems at
Pearle that emphasize the sale of higher margin products such as
anti-reflective coatings and polycarbonate lenses. Management believes that
it can also improve Pearle's operating results by introducing direct foreign
sourcing of eyeglass frames, which account for approximately 55% of Cole
Vision's supply and provide significant cost savings over purchases from
domestic distributors. Another potential strategy may be the removal of
in-store laboratories in Pearle locations where sales volume is insufficient
to support the higher overhead. Furthermore, management believes that
economies of scale and other cost saving opportunities exist, particularly
in purchasing, advertising efficiency and distribution.

- - EXPANSION OF FRANCHISE OPERATIONS; BUSINESS RATIONALIZATION. The Company
intends to expand Pearle's franchising operations. The Company has
identified strategies that it believes will improve the sales and operating
results of Pearle's franchisees, encourage expansion by current franchisees,
and enable the Company to attract new franchisees. The Company's management
is closely examining the geographic and demographic areas which favor
Pearle's franchised stores versus areas which favor company-owned stores.
The Company expects that future new store growth will facilitate a
rationalization of geographic coverage between company-owned and franchised
stores in order to permit more focused local promotional and advertising
programs and to streamline field organizations.

- - EMPHASIS ON MANAGED VISION CARE. The Pearle Acquisition enhances the
Company's ability to compete effectively in the rapidly expanding managed
vision care component of the optical industry. The Company believes this
component, which accounts for approximately 30% of Cole Vision's sales, may
increase to as much as 50% of its business over the next five years. The
acquisition of Pearle's store base increases the Company's number of
distribution points and geographical presence, thereby enhancing the
Company's appeal to large national corporations as well as regional
corporations and organizations. In addition, the Company expects that the
more fashion-oriented mix and broader selection of eyewear frames offered by
Pearle will increase managed vision care utilization. Currently, the Company
believes that Pearle's managed vision care program accounts for
approximately 10% of its sales.

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<PAGE> 62

services, most recently introducing a mail order contact lens service as
well as advanced anti-reflective coatings for eyeglasses. CGC is currently
test marketing seven "Personally Yours" stores in a major metropolitan area.
These stores are extensions of the Gift Centers at Sears and provide
personalization on hard and soft goods sold in other Sears departments as
well as on CGC's own merchandise. During 1995, CGC added a variety of soft
goods to its product lines including towels, bathrobes, pillows and blankets
for embroidering or monogramming, and also expanded its seasonal
presentation to include items such as gourmet food baskets.

- - CONTINUED NEW STORE OPENINGS. The Company is committed to the continued
growth of Cole Optical and Cole Gift through the development of new store
concepts and the opening of additional locations as well as selected store
acquisitions. The Company's new store concepts are almost exclusively
extensions of existing businesses. For example, Cole Vision has increased
its commitment to freestanding Sears Optical locations in strip shopping
centers, opening 63 new stores since the end of fiscal 1993. Cole Vision
acquired 73 Sears Optical locations and two freestanding Vision Club stores
in Canada in November 1996. Cole Vision has also expanded through the
development of new host store relationships, including BJ's Wholesale Club
and Target Supercenter, adding 80 new locations since 1995. The Company's
current plans include the opening of both company-owned and franchised
Pearle locations throughout North America. Since fiscal 1993, Cole Gift has
opened 80 Things Remembered personalization superstores, which provide an
attractive growth vehicle for personalization sales.

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<PAGE> 63

COLE OPTICAL

GENERAL

Pro forma for the Pearle Acquisition, Cole Optical contributed 70% of the
Company's sales for the year ended February 3, 1996. With the addition of
Pearle, the Company became the second largest retailer (by revenues) of eyewear
products and optometric services in the United States, with over 1,800 locations
in the United States, Canada and the Caribbean. The Company operates Cole Vision
and Pearle as two principal operating units under the general leadership of Cole
Vision's management team.

The following table sets forth the number of Cole Vision and Pearle stores
by state:
<TABLE>
<CAPTION>
NO. OF STORES
--------------------------------------
PEARLE
COLE -------------------
STATE VISION OWNED FRANCHISED TOTAL
- ------------------- ------ ----- ---------- -----
<S> <C> <C> <C> <C>
UNITED STATES:
Alabama 10 1 10 21
Alaska 2 0 0 2
Arizona 19 2 2 23
Arkansas 1 2 2 5
California 110 25 0 135
Colorado 22 4 8 34
Connecticut 5 2 6 13
Delaware 4 3 1 8
Florida 70 14 19 103
Georgia 26 15 12 53
Idaho 4 1 0 5
Illinois 65 12 39 116
Indiana 30 5 1 36
Iowa 14 12 1 27
Kansas 13 1 0 14
Kentucky 4 4 0 8
Louisiana 12 0 0 12
Maine 2 0 1 3
Maryland 42 6 23 71
Massachusetts 33 6 22 61
Michigan 41 1 0 42
Minnesota 21 3 20 44
Mississippi 5 0 0 5
Missouri 22 9 5 36
Montana 0 1 4 5
Nebraska 3 2 8 13
Nevada 3 0 0 3

<CAPTION>
NO. OF STORES
--------------------------------------
PEARLE
COLE -------------------
STATE VISION OWNED FRANCHISED TOTAL
- ------------------- ------ ----- ---------- -----
<S> <C> <C> <C> <C>
New Hampshire 8 3 2 13
New Jersey 30 12 21 63
New Mexico 4 2 2 8
New York 63 18 28 109
North Carolina 17 3 3 23
North Dakota 0 0 4 4
Ohio 63 20 4 87
Oklahoma 0 1 0 1
Oregon 14 0 0 14
Pennsylvania 67 46 19 132
Rhode Island 3 0 0 3
South Carolina 9 3 0 12
South Dakota 2 1 2 5
Tennessee 13 4 18 35
Texas 87 23 25 135
Utah 8 4 1 13
Vermont 1 0 1 2
Virginia 33 18 12 63
Washington 27 9 0 36
West Virginia 11 1 2 14
Wisconsin 12 5 2 19
Wyoming 0 1 0 1
CANADA 75 * 18 0 93 *
CARIBBEAN:
Puerto Rico 0 24 5 29
Virgin Islands 0 0 4 4
------ ----- --- -----
Total 1,130 347 339 1,816
<FN>

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

* Cole Vision acquired 73 Sears Optical locations and two freestanding Vision
Club stores in Canada in November 1996.
</TABLE>

Operating principally under the names "Sears Optical," "Montgomery Ward
Vision Center," "BJ's Optical Department" and "Target Optical," Cole Vision
operated 1,055 locations in 45 states, including 672 departments on the premises
of Sears department stores, 214 departments in Montgomery Ward stores, 75
departments in BJ's Wholesale Clubs, five departments in Target Supercenters, 14
departments located in three other retailers and 75 freestanding "Sears Optical"
stores. Cole Vision's optical departments within host stores are generally
operated under a lease or license arrangement through which the host store
collects the sales receipts, retains an agreed upon percentage of sales as rent
and remits the remainder to Cole Vision on a weekly basis. Pearle operated 686
stores under the "Pearle Vision Center" name, 347 of which were company-owned
and 339 of which were franchised. Pearle has maintained a franchise program
since 1980 and the Company expects Pearle's franchise network to be an
attractive vehicle for future growth. Both Cole Vision's and Pearle's stores
are, in most cases, full-service retail eyecare stores offering brand name and
private label prescription eyeglasses, contact lenses and accessories with an
on-premises doctor of optometry who performs complete eye examinations and
prescribes eyeglasses and contact lenses.

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<PAGE> 64

OPTICAL INDUSTRY OVERVIEW

Based on industry sources, United States optical retail sales, encompassing
prescription glasses and contact lenses, grew to $13.8 billion in 1995, a 7%
increase over the prior year. This growth is expected to continue over the next
several years as the "baby-boomer generation" continues to age, since
approximately 95% of people over the age of forty-five require some form of
corrective eyewear. According to industry estimates, by the year 2000 the total
United States optical industry will grow to $18 billion with more than 168
million eyewear users.

AGE BREAKDOWNS OF U.S. EYEWEAR CONSUMERS IN 1995

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
AGE GROUP POPULATION USERS POPULATION
- --------------------- ---------- ---------- ----------
(IN MILLIONS) (IN MILLIONS)

<S> <C> <C> <C>
14 and under......... 57.5 8.9 15%
15-24................ 35.9 15.0 42%
25-44................ 83.4 52.4 63%
45-64................ 52.2 49.6 95%
65 and over.......... 33.6 31.2 93%
----- ----- --
262.8 157.2 60%
===== ===== ==
</TABLE>

Despite rapid growth by retail chains such as Cole Vision and Pearle in the
late 1980's, the United States eyecare industry remains highly fragmented with
retail chains accounting for only 37% of United States eyecare sales nationwide
in 1995. According to industry estimates, there are nine optical retailers in
the United States with sales above $100 million. Some operate or franchise
freestanding stores, while the others lease space in existing stores, such as
Sears, JC Penney and Wal-Mart. In addition, many regional and local chains with
as few as three stores exist throughout the United States. In 1995, the top ten
chains were estimated to have a combined share of 17.8% of the United States
retail eyecare products sales.

With the introduction of eyewear by many leading designers, including
Giorgio Armani, Calvin Klein, Ralph Lauren and Donna Karan, eyeglasses have
evolved from a corrective device into a fashion accessory.

MANAGED VISION CARE

One of the fastest growing areas of the United States optical industry is
the managed vision care segment. The expansion of managed health care in
general, which has been driven by efforts to control rising medical costs, has
been the strongest influence behind this growth. According to industry surveys
done in early 1995, 63% of employees receive health care benefits through some
form of managed care, up from 52% in the previous year. Managed vision care
encompasses a wide variety of delivery systems including HMOs, preferred
provider organizations ("PPOs"), employer-sponsored plans, "private" third party
plans and physician-owned networks. Vision benefits have traditionally been
provided through a basic indemnity insurance plan but are now routinely provided
through a managed vision care plan. Vision care benefits have also seen
increasing coverage within Medicare and Medicaid programs, as these programs
move closer to a managed care delivery system.

Vision care's popularity within managed care is due to several factors. It
is a relatively low-cost, "well" benefit that people can utilize while in good
health. In addition, regular vision exams may reveal the early onset of systemic
diseases such as diabetes and glaucoma and fit well with managed care's emphasis
on prevention and early, low-cost treatment. Cole Vision believes that
escalating health care costs are leading benefit plan sponsors to seek
relatively low-cost benefits such as vision care in order to partially
compensate for reductions or limitations placed on traditional health and
hospitalization coverage.

In the last several years, Cole Vision has introduced and expanded its
managed vision care program that provides low-cost, comprehensive benefits
marketed directly to employers, other employee benefit plan sponsors and
insurance companies, primarily under the name "Vision One." Cole Vision's
managed vision care program gives participants access to a network of both
company-owned and third-party optical locations.

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<PAGE> 65

The Vision One basic program gives employers the opportunity to offer their
employees a group discount at the managed vision care network with minimal
direct cost to the employer. An enhanced Vision One program allows employers to
provide employees with prepaid eye examinations as well as pricing discounts or
reimbursements on purchases of eyeglasses or contact lenses. Cole Vision's
managed vision care program is currently the contract provider of vision care
benefits to over 20 million members and their dependents. Direct employer
accounts include more than 350 companies, approximately 120 of which have in
excess of 10,000 employees.

Managed vision care contracts often require a minimum number of locations
in a given region based upon the number of lives covered. The acquisition of
Pearle's store base increases the Company's number of distribution points and
geographical presence, thereby enhancing the Company's appeal to large national
corporations as well as regional corporations and organizations. In addition,
the more fashion-oriented mix of eyewear frames offered by Pearle significantly
broadens the merchandise selection that the Company is able to offer the managed
care recipient, increasing the likelihood of network utilization. Historically,
Pearle's managed vision care strategy has been to offer eye exams to plan
participants at the optical professional's office space adjacent to the Pearle
Vision store in order to increase sales volume. Although Pearle participates in
most forms of managed vision care offerings, Pearle has focused on contracts in
which the member must buy products and services from a Pearle Vision store and
its associated eyecare professional to be entitled to full benefit coverage.
Currently, the Company believes that Pearle's managed vision care program
accounts for approximately 10% of its sales.

In order to continue the growth of its managed vision care business, Cole
Vision is focusing on expanding the size of its network, increasing plan
participant utilization rates and adding new contracts. During 1996, Cole Vision
began testing a program whereby independent eyecare professionals are able to
join Cole Vision's managed care network. Cole Vision anticipates that this
program, if successful, could significantly enlarge its managed vision care
network over the next two years. Furthermore, the Pearle Acquisition will add
305 United States based company-owned stores to Cole Vision's managed vision
care network, and the Company believes that Pearle's franchisees will react
favorably to the opportunity to join Cole Vision's managed vision care program.
In order to increase plan participant utilization rates, and thereby increase
the Company's optical sales, Cole Vision has focused on selling enhanced Vision
One programs, which include free eye examinations to encourage plan utilization.

STORE OPERATIONS

COLE VISION. Most Cole Vision optical departments operate with a doctor of
optometry, a department manager, and from one to seven opticians depending on
store sales volume. Cole Vision also operates approximately 84 optical
departments that carry a full line of products but that operate in states that
do not permit doctors of optometry to be located in retail stores. Approximately
80% of the doctors of optometry are independent, as is often required by state
law, with the remainder being employed by Cole Vision. The independent doctors
sublease space and equipment from Cole Vision where permitted by law, or from
the host, and retain their examination fees. Cole Vision has established an
optometric advisory council of doctors of optometry that assists Cole Vision's
management in providing quality service and product selection to its customers
and believes that its relations with its independent doctors of optometry are
good. Cole Vision strives to provide its customers with exceptional patient care
and value by combining the personal service typically associated with a private
doctor of optometry with the broad product selection and cost benefits of a
large optical retailer.

Each optical department utilizes a proprietary retail information system
that captures sales and customer information such as prescription data. This
system allows Cole Vision to better monitor sales and merchandise trends and
provides an automated customer file that allows for subsequent follow-up with
patients.

In contrast to most Pearle Vision locations, as well as those of many other
optical retailers, Cole Vision stores do not maintain in-store laboratories. All
eyeglasses are produced at Cole Vision's five centralized laboratories and are
sent to the store for delivery to the customer. Cole Vision provides next day
delivery on most of the eyewear it offers when requested by its customers.

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<PAGE> 66

PEARLE. All Pearle Vision stores operate in either an "Express" or
"Mainline" store format. The Express stores contain a full surfacing lab that
can manufacture most glasses in approximately one hour. The Mainline stores can
manufacture over 50% of prescriptions on-site in approximately one hour. Other
prescriptions have to be sent to a nearby Express location or to the main
laboratory located at Pearle's Dallas Support Center. The main laboratory
generally is able to complete orders for next day delivery if requested. As of
November 2, 1996, 267 of the company-owned stores and 121 of the franchised
stores were Express, with the balance being Mainline.

The Express stores typically are located in high traffic freestanding,
strip center, and mall locations with most stores averaging 3,000 square feet.
The Express stores are usually staffed with two managers and a support staff of
four to eight people. Mainline stores have an average size of 1,730 square feet
and also are located in freestanding buildings, or in smaller strip or regional
centers. Mainline stores generally carry a smaller assortment of inventory than
Express stores and are usually staffed with one manager and two to three
associates. Most Pearle Vision stores have a doctor of optometry on site with
approximately 80% leasing space from Pearle on an independent basis and the
remaining being direct employees of Pearle.

Pearle has 18 company-owned Pearle Vision stores in British Columbia and
Alberta, including eight Express stores. Pearle currently has doctors in only
four Canadian locations as it has traditionally been difficult to lease doctor
services in British Columbia and Alberta because of province regulation. Pearle
has 33 stores in the Caribbean, with 24 company-owned and five franchised
locations in Puerto Rico, and two franchised locations in each of St. Thomas and
St. Croix. Pearle recently entered into a franchise agreement for a location in
Tortola (British Virgin Islands). Pearle's locations in the Caribbean operate
generally on a stand-alone basis using the in-store laboratories of 18 Express
stores, with limited support from Pearle's Dallas Support Center.

FRANCHISE OPERATIONS

Pearle has maintained a franchise program since 1980. As of November 2,
1996, 330 or approximately 52% of the Pearle Vision stores in the United States
were franchised. A majority of franchisees have been franchisees for at least
eight years. Franchises are concentrated in the upper Midwest, Northeast and
Southeastern United States. Many of the franchised stores are single franchise
operations, with no franchisee operating more than five stores.

The majority of Pearle's franchised stores are either former company-owned
Pearle stores that were purchased by a franchisee, or franchisee-developed new
stores. The investment needed to purchase an existing franchise operation ranges
from $130,000 to $2.5 million, depending on the location and the size of the
existing customer base. A typical new Express store, fully-equipped, costs
approximately $350,000. Depending on the type of franchise, the down payment
will range from 10% to 15% of the total purchase price. With the proper
financial approvals, a franchise purchase can be financed through Pearle.
Currently, Pearle offers financing over seven to ten years at a rate of prime
plus three points adjusted quarterly.

Each franchisee is required to enter into a Franchise Agreement. The
initial franchise fee Pearle charges can range from $15,000 to $30,000. The term
of the typical franchise agreement is equal to the earlier of ten years or the
expiration or termination of the underlying base lease. If necessary, the fee is
prorated accordingly. Royalty and advertising contributions typically are based
on a percentage of the franchisee's gross revenues and/or professional fee
revenues. Gross revenues are those revenues generated or received by the retail
operation of the franchised business. Professional fee revenues consist of
non-surgical professional fee revenues generated or received by the optometry or
ophthalmologic office adjacent to the Pearle location. In most cases, the
current monthly royalty rate is 7.5% of the franchisee's monthly gross revenues
and, unless prohibited by law, 4.0% of the franchisee's monthly professional fee
revenues. In most cases, the current monthly advertising contribution is equal
to 9.0% of the franchisee's gross revenues and professional fee revenues. The
total monthly advertising contribution is distributed between Pearle's
system-wide advertising fund (up to 7.0%) and the local co-op market advertising
fund (no less than 2.0%).

The Company expects to pursue an aggressive growth strategy for Pearle's
franchise operations. The Company anticipates that it will engage in discussions
with Pearle's franchisees in an effort to improve the

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<PAGE> 67

sales and operating results of the franchisees, to encourage expansion by
current franchisees, and to rebuild the Pearle franchise system, which once had
more than 650 locations. The Company's efforts to accomplish these goals will be
subject to a variety of contractual and regulatory restrictions, as well as
potential individual franchisee issues. See "Risk Factors -- Integration of
Pearle."

MERCHANDISING

COLE VISION. Cole Vision offers a broad assortment of eyeglass frames
consisting of name brands such as Gant, Van Heusen, Bugle Boy, Stetson, Cheryl
Tiegs and Linda Evans as well as private label lines such as Headhugger, which
features spring hinges to ensure a comfortable fit. Cole Vision purchases all of
the frames and lenses used in its eyeglasses from outside suppliers, and imports
approximately 55% of its frames. Cole Vision carries a full selection of men's,
women's and children's frames, a complete line of contact lenses supplied by all
of the major contact lens manufacturers and ancillary products for eyeglasses
and contact lenses. Eyeglasses accounted for nearly 80% of Cole Vision's sales
in fiscal 1995.

As one of the largest retailers of eyewear in the United States, Cole
Vision purchases significant quantities of frames, lenses and contact lenses
from its suppliers. Cole Vision's relationships with its vendors have frequently
enabled it to be the first to offer new products. The selection of frames
offered by Cole Vision is generally broader than that carried by private
optometrists, but is not as broad as that carried by optical superstores. Cole
Vision's opticians receive extensive training in educating patients about
eyecare and the benefits and value of available products and services. For
example, lightweight, virtually unbreakable polycarbonate lenses offer better
comfort and safety. Scratch resistant coatings provide longer lasting lenses.
Anti-reflective coatings on eyeglass lenses reduce glare and eyestrain, improve
visual clarity and are cosmetically more appealing. Disposable contact lenses
virtually eliminate the daily or weekly care and supplies required for most
contact lenses.

PEARLE. Pearle offers a broad array of merchandise, which includes frames,
sunglasses, lenses and contacts. In the early 1990's, Pearle's management
focused its merchandising efforts on brand names that strengthened the Pearle
Vision name. As a result, a large component of Pearle's frame merchandise is
comprised of well-recognized designer brand names such as Armani, Calvin Klein,
Laura Ashley and Polo, many of which are not available at Cole Vision stores.
Pearle is also the exclusive licensee for Wrangler ophthalmic frames in the
United States and has recently begun selling Harley Davidson and Nautica frames.
In addition, Pearle offers value-priced brands, including Mainstreet and
Boulevard. Brands of sunglasses include Ellen Tracy, Polo, Ray-Ban and
Serengeti. Pearle currently buys virtually all of its optical products from
producers or distributors in the United States, even for foreign-sourced goods.
The Company intends to increase Pearle's direct foreign sourcing of products.

Unlike the frame segment, there exists little consumer awareness with
respect to differences in lens brands because of the lack of advertising to
consumers. The absence of a strong brand in the lens marketplace has provided
Pearle with the opportunity to develop its own polycarbonate lens brands:
Microthin and Kidsafe. Microthin and Kidsafe are polycarbonate lenses that offer
added value features to the consumer at a competitive price relative to
traditional plastic lenses. Such features include ultra violet ray protection,
shatter resistance and lightweight material. As technology progresses and new
lenses are developed, Pearle seeks to aggressively associate these new brands
with Pearle in the consumer's mind. The Transitions Lens, a light-sensitive
plastic lens that changes from clear to dark depending on variance in sunlight,
is an example of one such lens.

MANUFACTURING AND DISTRIBUTION

COLE VISION. Cole Vision operates five centralized optical laboratories, in
Memphis, Tennessee; Richmond, Virginia; Salt Lake City, Utah and two in
Knoxville, Tennessee, that manufacture all of Cole Vision's prescription
eyeglasses. The Memphis laboratory produces all of Cole Vision's next-day
delivery prescriptions, serves as a distribution center for the other
laboratories and stores and is the site of Cole Vision's central contact lens
warehouse. Cole Vision selected the Memphis location due to its proximity to an
air express hub that affords significant transportation efficiencies and cost
savings. Orders are electronically transmitted from

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<PAGE> 68

each retail location to Cole Vision's central computer system and then assigned
by computer to the appropriate laboratory designated for that product or
service. Many standard prescriptions can be manufactured by cutting and edging a
prefinished lens to fit the frames selected. More complex prescriptions require
a highly technical process that grinds the lenses to fit the prescription. Cole
Vision uses a state-of-the-art computer system that not only reduces the
production time but also enhances the accuracy of the manufacturing process and
reduces production waste. Cole Vision provides next day delivery on most of the
eyewear it offers when requested by its customers.

Management believes that its centralized processing laboratories provide
Cole Vision with several operational, product quality and cost advantages
relative to competitors that process lenses at each retail location. First, Cole
Vision is able to utilize its labor more efficiently, resulting in significantly
lower costs per prescription than its competitors who utilize in-store
laboratories. Second, because all processing is centralized at a limited number
of locations, Cole Vision believes that it is better able to monitor and control
the quality of the products being produced. Third, the centralized laboratory
format allows Cole Vision to carry significantly lower inventory at each of its
retail locations, since only display and sample items are needed at the store
level. In addition, Cole Vision is able to add new retail units at a relatively
low cost, as new stores do not have to be equipped with expensive and
duplicative manufacturing equipment or high levels of inventory. Finally, Cole
Vision believes that the centralized laboratory format provides it with greater
flexibility in developing and adapting to new product technologies.

PEARLE. Unlike Cole Vision, Pearle currently relies primarily on its
in-store laboratories, for production of most complete sets of eyeglasses, with
support from a single central laboratory located at Pearle's Dallas
headquarters. An anti-reflective coating laboratory recently has been added to
Pearle's Dallas headquarters, with the anticipation that sales of such coatings
may increase. The Company anticipates that, following the Pearle Acquisition, it
will evaluate the potential benefits of reducing the number of in-store
laboratories in lower volume stores, in favor of greater centralized production.

A freestanding warehouse unit at Pearle's headquarters inventories and
distributes a comprehensive product line including frames, eyeglass lenses,
contact lenses, optical supplies, and eyewear accessories to company-owned and
franchised locations. During the last three years, Pearle has developed its
warehouse management system that incorporates a state-of-the-art real time bar
code driven system, using handheld radio frequency devices to manage the flow of
products into and out of the distribution center. Pearle believes that it now
has one of the most advanced distribution and warehouse management systems in
the optical industry.

MARKETING

COLE VISION. Cole Vision conducts a variety of marketing and promotional
efforts to build and maintain its customer base. Cole Vision's advertising is
targeted at the consumer who is seeking a positive price-to-value relationship.
Cole Vision primarily uses host store advertising, newspaper, direct mail and
yellow pages. Host advertising includes the placement of promotional material
within sales circulars or credit card billings sent out by the host store to its
customers. Cole Vision also promotes its next day service as "Eyewear Express."

Cole Vision utilizes a wide variety of other promotional techniques,
including paid-for examinations and free frames with an eyeglass order. One such
program includes an offer to pay for a patient's eye examination if the patient
makes a purchase at a Cole Vision location. This program is designed to increase
awareness of the availability of doctors of optometry at Cole Vision locations
and to create strong customer loyalty. This type of promotion has been run in
conjunction with National Eye Exam Month, a successful Cole Vision sponsored
"event."

PEARLE. Pearle's marketing strategy employs a wide range of media at both
the national and local levels. The franchised and company-owned stores each
contribute a percentage of revenues to Pearle's marketing budget with
approximately half of Pearle's marketing expenditures devoted to television in
fiscal 1995.

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<PAGE> 69

Pearle's brand positioning of high quality eyecare products and services
has been reinforced by an aggressive advertising and promotions program.
Pearle's advertising tag line, Nobody Cares For Eyes More Than Pearle, has been
used for over fifteen years and has positioned Pearle as a highly recognized,
quality leader in the optical retail industry. Pearle's name recognition was
further enhanced in January 1995, when Pearle introduced its founder, Dr.
Stanley Pearle, to the general public in a series of TV commercials that
emphasize his compassion and trustworthiness. Pearle has developed extensive
"Partnership Programs" which offer sales promotion incentives and group
discounts through Pearle's Seniors Choice program with the AARP and alliances
with major organizations nationwide, including AT&T, AAA, Visa, Discover,
Citibank and A&P. Sales under these Partnership Programs approximated $26
million in fiscal 1995.

STORE OPENINGS

COLE VISION. Cole Vision has grown from 751 to 1,055 locations over the
past five years. Cole Vision made two significant acquisitions during this
period, including 107 locations in Montgomery Ward stores acquired January 30,
1994, and 59 locations in BJ's Wholesale Club stores acquired May 21, 1995. In
addition, Cole Vision acquired 73 Sears Optical locations and two freestanding
Vision Club stores in Canada prior to the consummation of the Transactions. Cole
Vision reviews new store opportunities based primarily on the sales volume and
traffic of the proposed host store location. Sears has historically offered Cole
Vision the opportunity to open an optical department in virtually all new Sears
stores opened. The cost of opening new Cole Vision leased departments is
relatively low, with initial capital expenditures and working capital investment
approximating $50,000 per location.

Since fiscal 1990, Cole Vision has opened 75 freestanding Sears Optical
stores, which are a variation of its traditional in-store optical department.
These optical stores, which require a capital and working capital investment of
approximately $100,000, typically are located near major shopping areas or in
strip shopping centers that do not have a Sears store but have a high Sears
credit card penetration. Sears Optical stores are typically opened in geographic
areas where Cole Vision has other in-store Sears Optical departments, allowing
Cole Vision to attract new customers while taking advantage of advertising
leverage and existing field organizations. The Company expects to open
approximately 20 freestanding stores in fiscal 1996.

The following table sets forth the historical openings and closings of Cole
Vision's stores during the last five fiscal years and for the 39 weeks ended
November 2, 1996:

<TABLE>
<CAPTION>
FISCAL YEAR 39 WEEKS ENDED
----------------------------------------- NOVEMBER 2,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ----- ---------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period... 734 751 769 774 938 1,013
Opened.............. 28 25 24 184* 115** 55
Closed.............. (11) (7) (19) (20) (40)*** (13)
--- --- --- --- ----- -----
End of Period......... 751 769 774 938 1,013 1,055
=== === === === ===== =====
<FN>

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

* Includes 107 locations within Montgomery Ward stores acquired effective
January 30, 1994.

** Includes 59 locations within BJ's Wholesale Club stores acquired effective
May 21, 1995.

*** Includes 39 "Sunspot" fashion sunglass kiosks sold on April 29, 1995.
</TABLE>

The Company anticipates that Cole Vision will open approximately 68
locations and close approximately 15 locations in fiscal 1996.

PEARLE. Pearle locations, including franchises, have been reduced from 845
to 686 over the past three years as Pearle has implemented its restructuring
program. See "Management's Discussion and Analysis of Financial Condition" and
"Results of Operations -- General -- The Pearle Acquisition." Of the locations
closed, 67 company-owned stores were closed in fiscal 1994, 46 company-owned
locations were closed during fiscal 1995, and 18 company-owned locations were
closed during fiscal 1996. Pearle historically has reviewed new store
opportunities based primarily on the sales volume and traffic potential of a new
location. In fiscal 1996, Pearle opened 25 new locations, including
company-owned and franchised locations. Pearle's cost of

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<PAGE> 70

opening new company-owned Express stores, including initial capital expenditures
and working capital investment, approximated $390,000 per store in 1996. As part
of the Company's evaluation of Pearle's operations, the Company will investigate
opportunities to reduce the capital investment necessary to open new Pearle
stores. The following table sets forth the historical openings and closings of
Pearle's stores during the last four fiscal years and the interim period ended
November 2, 1996:

<TABLE>
<CAPTION>
INTERIM PERIOD
ENDED
FISCAL YEARS --------------
---------------------------------- NOVEMBER 2,
1993 1994 1995 1996 1996
---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
FRANCHISED STORES:
Beginning of Period.......... 471 433 387 361 340
Opened..................... 6 14 10 11 0
Existing Stores
Franchised.............. 24 5 7 3 0
Franchise Takebacks*....... (35) (27) (16) (17) (1)
Stores Closed.............. (33) (38) (27) (18) 0
--- --- --- ---
End of Period................ 433 387 361 340 339
=== === === ===
COMPANY-OWNED STORES:
Beginning of Period.......... 429 412 368 336 345
Opened..................... 0 1 5 13 1
Existing Stores
Franchised.............. (24) (5) (7) (3) 0
Franchise Takebacks*....... 35 27 16 17 1
Stores Closed.............. (28) (67) (46) (18) 0
--- --- --- ---
End of Period................ 412 368 336 345 347
=== === === ===
TOTAL PEARLE STORES........ 845 755 697 685 686
=== === === ===
<FN>

- ---------------
* Franchise takebacks are the conversion of franchised locations into
company-owned stores.
</TABLE>

COLE GIFT

GENERAL

Cole Gift, which pro forma for the Pearle Acquisition generated 30% of the
Company's net sales in fiscal 1995, is comprised of personalization gift stores
operated by Things Remembered and CGC. Cole Gift provides its customers
value-added personalization services including gift engraving, glass etching and
monogramming and custom embroidering of soft goods, as well as key duplicating.
As of November 2, 1996, Things Remembered operated 797 retail locations in
enclosed shopping malls, while CGC operated 505 locations in Sears and other
host stores. Cole Gift offers a successful combination of retail and service
formats that no other company is employing on a national scale. Things
Remembered and CGC each offers a wide assortment of engravable gift items,
including Cross and Parker writing instruments and clocks by Bulova and Seiko.
Cole Gift achieves operational efficiencies and reduces costs through a
computerized carousel system at its central distribution facility and computer
engravers at many of its stores. Although the Pearle Acquisition has reduced the
size of Cole Gift in relation to the consolidated Company, Cole Gift remains an
important part of the Company's operations and growth strategies.

THINGS REMEMBERED. Things Remembered contributed approximately 75% of Cole
Gift's sales in fiscal 1995. Things Remembered operated 797 stores and kiosks
generally located in large, enclosed shopping malls in 44 states. Each location
carries a wide assortment of engravable items and provides "while you shop"
personalization and engraving services for any occasion including holiday,
business and special occasion gift events. Things Remembered offers engraving
for items purchased at the store as well as for items purchased elsewhere.
Things Remembered benefits from all gift giving occasions including Christmas,
Valentine's Day, Mother's Day, Father's Day, graduations, weddings, birthdays
and anniversaries.

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<PAGE> 71

Merchandise sold at Things Remembered stores consists of a broad assortment
of gift categories and items that can be personalized at prices generally
ranging from $10 to $75. Things Remembered sells high quality merchandise, often
made of pewter, silver or brass. Things Remembered's broad offering of gifts
includes writing instruments, clocks, music boxes, picture frames and albums,
executive desk sets and accessories, ID bracelets, glassware, lighters, keys and
key rings, door knockers and Christmas ornaments. Things Remembered features
brand name merchandise such as Cross and Parker writing instruments, Bulova and
Seiko clocks, Speidel and 1928 jewelry, Disney music boxes and Mikasa crystal,
as well as higher margin private label merchandise.

In 1993, Things Remembered began a new retail concept by opening
"personalization superstores" that combine engraved gifts with personalized soft
goods in a large store format. The Company had tested the personalized soft
goods concept on a stand-alone basis over the previous four years in two mall
stores under the name "Monograms Etc." The Company utilizes sophisticated
computer-controlled embroidery equipment for the personalization of merchandise
such as throws, sweaters, bathrobes, jackets, baseball caps, towels and baby
blankets. The personalization superstores concept has added the color and
brightness of soft goods to the traditional display of a Things Remembered
store. Although they retain the gift merchandise concept, the soft goods have
attracted new types of customers shopping for different gift giving occasions.
The personalization superstores operating in malls that previously contained
Things Remembered locations have averaged more than a 50% sales increase in
their first year after conversion. The Company plans to open or convert
approximately 25 personalization superstores in fiscal 1996. In addition, the
Company recently added soft goods to most of Things Remembered's other locations
with monogramming services for these stores occurring at a central facility.

Things Remembered operated 362 stores and 355 kiosks. The typical store
consists of about 1,000 square feet, while kiosks, which are units located in
the center of the common mall area, are typically 200 square feet in size. In
addition, Things Remembered operates 80 personalization superstores which
average 2,200 square feet. The three store formats give Things Remembered
flexibility to locate its retailing outlets in the most advantageous space in a
variety of retailing environments and to exploit various leasing opportunities.

COLE GIFT CENTERS. CGC, the Company's original business, contributed
approximately 25% of Cole Gift's sales in fiscal 1995. CGC operated 505 leased
locations in 44 states including 455, 36 and 13 locations in Sears, Venture and
Montgomery Ward stores, respectively. CGC stores are generally operated under a
lease or license arrangement under which the host store collects the sales
receipts, retains an agreed upon percentage of sales, which is reported as rent
expense by the Company, and remits the remainder to CGC on a weekly basis.

CGC locations sell gifts and gift engraving and other services similar to
those offered by Things Remembered, in addition to key duplicating and watch
repair services. As of November 2, 1996, 104 of the CGC locations in operation
were standard format shops occupying approximately 150 square feet. Since 1989,
CGC has also operated greeting card locations in Sears stores and combined them
with the CGC operations in such stores. Locations in this enhanced format, which
numbered 70 as of November 2, 1996, average approximately 1,000 square feet in
size. CGC also operates 50 key shops, of approximately 80 square feet in size,
that provide key duplicating and key related products only, and 281 gift
centers. The gift centers, which occupy approximately 1,200 square feet of
space, typically carry a substantially expanded line of engravable and
non-engravable gifts along with greeting cards.

In 1995, CGC opened the first "Personally Yours" department within Sears.
Personally Yours is a concept designed to generate additional customer traffic
and increase sales by offering personalization for hard and soft line products
for both CGC and Sears merchandise. In the first half of 1996, CGC expanded this
test by opening seven stores located in one metropolitan area. If the test is
successful, a large number of Gift Centers could be converted to this format
over the next several years.

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<PAGE> 72

MERCHANDISING

Both Things Remembered and CGC carry a broad assortment of gift categories
and items, with approximately 400 to 600 SKU counts at most locations. Cole
Gift's centralized merchandising department selects products that are designed
to complement Cole Gift's specialty engraving, monogramming and embroidery
services. Cole Gift seeks to expand the range of product categories it sells by
working with vendors to create new engravable and non-engravable products. Cole
Gift has developed its own proprietary brands to complement brand name
merchandise, particularly in the writing instrument and clock lines. These
private label brands, such as "Reflections" pens and "Danbury" clocks, consist
of high quality merchandise that have lower price points but higher gross
margins than the comparable branded merchandise. Since most of Cole Gift's
merchandise is not seasonal in character, Cole Gift generally does not need to
mark down its prices to sell out-of-season merchandise. No single category of
merchandise accounted for more than 10% of Cole Gift's sales in fiscal 1995.
During 1995, CGC added a variety of soft goods to its product lines including
towels, bathrobes, pillows and blankets for embroidering or monogramming, and
also expanded its seasonal presentation to include items such as gourmet food
baskets.

Cole Gift designs store layout, merchandise presentation and signage at its
headquarters and utilizes plan-o-grams to ensure standardized implementation by
field personnel on a national scale. Most engravable products are sold with a
limited amount of engraving included in the purchase price. Most customers
purchase a personally tailored message that typically requires additional
engraving at additional cost. Sample messages, grouped by gift giving occasion,
are located at the sales counter of Cole Gift stores in order to suggest
engraving ideas to customers.

STORE OPERATIONS

Cole Gift's customer service strategy is implemented by its field
personnel. The staffing at each store varies based on store size and shopping
seasons. Cole Gift locations are typically operated by one or two employees
during non-peak periods and up to 15 employees during the peak Christmas season.
Locations typically employ a store manager on a full-time basis and a full- or
part-time assistant manager, while the balance of the employees are part-time
sales associates. Store managers report through an existing district and
regional management structure which Cole Gift believes can accommodate continued
growth.

Training programs are utilized in order to promote the Company's philosophy
of customer satisfaction and to encourage repeat business. Sales associates
undertake a comprehensive training program which covers familiarization with
product lines, selling skills and operation of the gift engraving, key
duplicating and other equipment. Sales associates are trained to suggest
engraved messages and aid customers in their gift and message selection process.
Sales associates are also trained to inquire about each customer's next gift
giving occasion in order to encourage repeat shopping. The training programs are
supported by ongoing employee incentive programs. For sales associates these
generally take the form of recognition awards or cash payments based on sales
contests occurring at various times during the year. Store managers receive
bonus compensation based on meeting sales and other performance goals.

Nearly all Cole Gift locations are equipped with gift engravers and key
duplicating machines. Many Things Remembered stores also have equipment for
etching glassware items. Personalization superstores are also equipped with
computerized embroidery machines. Cole Gift has introduced computerized
engraving equipment in most of its Things Remembered stores and kiosks that has
reduced engraving time, staffing levels and engraving mistakes. Cole Gift
anticipates that this equipment will be included in all new Things Remembered
locations opened in the future and will be added to higher volume existing
stores where cost-effective.

INVENTORY MANAGEMENT AND DISTRIBUTION

Cole Gift's centralized distribution system ships most of the store
merchandise other than greeting cards through its two warehouses located in the
Cleveland, Ohio area. The main warehouse in Highland Heights, Ohio utilizes a
modern computerized carousel system to automate the process of locating
merchandise needed to fill a store order. The carousel system locates
approximately 70% of all SKUs and has permitted the

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<PAGE> 73

Company to reduce the number of warehouse employees while increasing accuracy
and efficiency in filling shipments to stores.

The Company is currently negotiating the purchase and financing of a new
warehouse and distribution facility for Cole Gift that is expected to provide
improved distribution efficiencies. The facility, which would commence operation
in 1997 and may cost approximately $10 million, will most likely be financed
through a sale and lease-back transaction or through conventional secured real
estate financing.

Most Cole Gift locations are equipped with point of sale terminals. Store
orders are generated utilizing information collected by point of sale equipment
at each store and transmitted electronically to the Company's central computers.
Using proprietary software, Cole Gift tracks inventory levels and product trends
and provides automated inventory replenishment to its stores. Cole Gift ships to
each of its stores via UPS or similar carrier once every week or two weeks,
depending on store volume.

STORE OPENINGS

Cole Gift seeks to open new locations where opportunities arise to lease
space in high traffic areas. In the case of Things Remembered, factors
considered by management include the size, location, anchor tenants and
demographics of the mall. CGC considers primarily the sales volume of and
location within the host store. The Company believes that Things Remembered
stores are attractive shopping mall tenants because of their low level of
cannibalization of sales from other mall stores and, in the case of kiosks,
their ability to make effective use of common area space. As a result, Things
Remembered stores and kiosks are frequently located in high traffic areas within
malls. In general, initial capital expenditures and working capital investments
required to open a new Things Remembered superstore, in-line store, and kiosk
are $280,000, $170,000, and $50,000, respectively.

The following table sets forth information concerning openings and closings
of Cole Gift locations during the last five fiscal years and for the 39 weeks
ended November 2, 1996:

<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------- 39 WEEKS ENDED
1991 1992 1993 1994 1995 NOVEMBER 2, 1996
---- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C>
Things Remembered
Beginning of
period.......... 669 697 717 737 760 778
Opened.......... 43 34 32 35 31 31
Closed.......... (15) (14) (12) (12) (13) (12)
--- --- --- --- --- ---
End of period...... 697 717 737 760 778 797
=== === === === === ===
CGC
Beginning of
period.......... 598 598 594 586 589 587
Opened.......... 21 10 23 16 26 13
Closed.......... (21) (14) (31) (13) (28) (95)
--- --- --- --- --- ---
End of period...... 598 594 586 589 587 505
=== === === === === ===
</TABLE>

Closings of CGC locations have resulted from a number of factors, including
the closing or relocating of the host store and low store sales volume. In early
fiscal 1996, CGC closed 86 low-volume locations (whose aggregate sales in fiscal
1995 represented less than one percent of Cole Gift's sales) in Sears, Venture
and Montgomery Ward stores as part of an expense reduction program. Closings of
CGC departments involve minimal cost as fixtures and inventory are typically
moved to other locations and there are no ongoing lease costs to absorb.

HOST RELATIONSHIPS

The Company has developed excellent relationships with the host stores in
which Cole Vision and CGC operate. Set forth below is a table indicating the
number of locations Cole Vision and CGC had within each of their major store
hosts as of November 2, 1996:

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<PAGE> 74

<TABLE>
<CAPTION>
COLE VISION CGC
HOST LOCATIONS LOCATIONS
------------------------ ----------- ---------
<S> <C> <C>
Sears................... 745* 455
Montgomery Ward......... 214 13
Venture................. 0 36
BJ's Wholesale Club..... 75 0
Other................... 19 1
----- ---
Totals........ 1,053 505
===== ===
<FN>

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

* Includes 73 locations in Canada which Cole Vision acquired in November 1996.
Does not include 75 free-standing Sears Optical stores.
</TABLE>

The Company has maintained its relationships with Sears and Montgomery Ward
for over 40 years in the gift and key business and over 35 years in the optical
business. Of the Sears and Montgomery Ward stores that offer optometric
services, virtually all are operated by Cole Vision. Sears routinely consults
with the Company about the size and placement of Cole Vision and CGC departments
within newly opened or remodeled Sears stores and includes plans for such
departments in its prototype new store.

By operating Cole Vision and CGC as leased departments, management believes
that the Company obtains several marketing advantages at a relatively low cost.
Sears and Montgomery Ward provide Cole Vision and CGC with access to their
customer database for marketing purposes, and from time to time include
promotional materials relating to CGC and the optical departments in their
mailings to customers. Through Sears, Cole Vision and CGC customers are able to
utilize their Sears credit cards which the Company believes provides it with a
competitive advantage. Furthermore, all of the host stores' other marketing
efforts to increase customer traffic operate to the Company's benefit. The
Company believes its hosts' reputations of quality, trust and value enhance the
Company's customer relations.

Although Cole Vision's and CGC's leases with their major hosts are
terminable by either party upon relatively short notice, neither has ever had a
lease terminated other than in connection with a store closing, relocation or
major remodelling. See "Risk Factors -- Relationships with Host Stores."

SEASONALITY

The Company's business historically has been seasonal with approximately
30% of its sales and approximately 50% of its operating earnings occurring in
the fourth fiscal quarter because of the importance of gift sales during the
Christmas retailing season. Although the acquisition of Pearle will moderate the
seasonality of the Company due to relatively lower levels of optical product
sales during the Christmas holiday season, the Company's business will remain
seasonal.

PURCHASING

The merchandise, supplies and component parts required for the various
products sold by the Company and Pearle are purchased from a large number of
suppliers and manufacturers and are generally readily available. In most cases,
such purchases are not made under long-term contracts. In fiscal 1995, no single
supplier or manufacturer accounted for 10% or more of total purchases.

COMPETITION

The Company operates in highly competitive businesses. Cole Vision and
Pearle compete with other optical companies, private ophthalmologists,
optometrists, opticians and a growing number of HMOs in a highly fragmented
marketplace. Pearle competes on the basis of its highly recognized brand name,
one-hour express service and by offering quality eyecare products. Cole Vision
competes primarily on the basis of the service it provides, its price and
product quality, and the reputation of its host stores. The Company believes
that Pearle and Cole Vision, based on sales, rank second and third,
respectively, in United States optical retailing sales.

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<PAGE> 75

Although Cole Gift operates the only two nationwide chains of gift stores
offering "while you shop" gift engraving, key duplicating, glass etching and
monogramming, as well as related merchandise, it competes with many other
retailers that sell gift items. Cole Gift competes with such other retailers
primarily on the basis of the value added point of sale services that it
provides as well as price and product quality. Some of the Company's competitors
have greater financial resources than the Company. See "Risk
Factors -- Competition and Other Business Factors."

PROPERTIES

The Company owns an office and warehouse in Highland Heights, Ohio that is
subject to a mortgage and leases its executive offices and another office in
Cleveland, Ohio. All of the retail locations of the Company's subsidiaries are
leased or operated under a license with the host store, and none of the
individual retail locations is material to the Company's operations. Leases for
stores operated in Sears stores and freestanding stores operated under the name
"Sears Optical" are generally for terms of 90 days and five years, respectively.
Leases for Things Remembered stores and kiosks are generally for terms of ten
and five years, respectively. The Company believes that its relationships with
its lessors are generally good. The Company leases its five optical
laboratories, two of which are located in Knoxville, Tennessee; Memphis,
Tennessee; Salt Lake City, Utah; and Richmond, Virginia, pursuant to leases
expiring (including renewals at the option of the Company) in 1999, 2005, 2002,
2006 and 2002, respectively.

Pearle has 635 stores based in forty-three states. Pearle also has eighteen
stores in Canada and thirty-three stores in the Caribbean. Stores are located in
malls, power centers, local strip centers, freestanding locations and downtown
locations. Pearle leases most of its retail stores under noncancellable
operating leases with terms generally ranging from five to ten years and which
generally contain renewal options for additional periods. Pearle also is the
principal lessee on a majority of stores operated by franchisees, who sublease
the facilities from Pearle. Pearle owns its Dallas Support Center, which
comprises approximately 88,721 square feet of office space and 147,336 square
feet of laboratory and distribution facilities. Pearle also owns a small
headquarters and laboratory in Puerto Rico.

EMPLOYEES

As of February 3, 1996, the Company had approximately 6,000 full-time and
3,700 part-time employees. During October, November and December, the Company
employs additional full- and part-time employees. In fiscal 1995, approximately
5,000 additional employees were employed in such period. The hourly employees at
Cole Gift's distribution center (approximately 80 employees in the aggregate)
are represented by a labor union. The Company considers its present labor
relations to be satisfactory.

As of March 31, 1996, Pearle had 3,644 employees. Approximately 2,915 were
full-time and 729 part-time employees. Approximately 171 employees at certain
store locations are represented by labor unions. Pearle considers its present
labor relations to be satisfactory.

PATENTS AND TRADEMARKS

The Company has received a license to use the names of its host stores for
use in communicating with customers or potential customers. The Company also is
licensed to operate its Sears freestanding locations under the name "Sears
Optical."

Pearle has registered numerous trademarks and service marks worldwide.
Pearle Holdings will receive a royalty-free license to the Pearle name in
Europe.

GOVERNMENT REGULATIONS

The offer and sale of franchises is subject to the Federal Trade
Commission's (the "FTC") rule entitled Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures, which requires, among
other things, that the franchisor prepare and update periodically a
comprehensive disclosure document in connection with the sale of its franchises.
A franchisor also must comply with state franchising

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<PAGE> 76

laws and a wide range of other state rules and regulations governing its ongoing
relationship with its franchisees. While Pearle believes that it is in
compliance in all material respects with all such applicable laws and
regulations, continued compliance with this broad federal and state regulatory
network by the Company will be essential and costly, and the failure to comply
with such regulations may have an adverse effect on the Company and its
operations. Violations of franchising laws and/or state laws and regulations
regulating substantive aspects of doing business as a franchisor in a particular
state could subject the Company and its affiliates to rescission offers,
monetary damages, civil and criminal penalties and/or injunctive proceedings. In
addition, absolute vicarious liability has been imposed upon franchisors based
upon claims made against franchisees. Further, franchisors are subject to an
implied covenant of good faith and fair dealing in their franchise
relationships, which implied covenant may restrict the manner in which the
Company operates. Even if the Company is able to obtain insurance coverage for
such claims, there can be no assurance that such insurance will be sufficient to
cover potential claims against the Company.

Cole Vision and Pearle are subject to extensive federal, state and local
laws, rules and regulations affecting the health care industry and the delivery
of health care, including laws and regulations prohibiting the practice of
medicine and optometry by persons not licensed to practice medicine or
optometry, prohibiting the unlawful rebate or unlawful division of fees and
limiting the manner in which prospective patients may be solicited. The
regulatory requirements that Cole Vision and Pearle must satisfy to conduct its
business will vary from state to state. In particular, some states have enacted
laws governing the ability of ophthalmologists and optometrists to enter into
contracts to provide professional services with business corporations or lay
persons, and some states prohibit Cole Vision and Pearle from computing their
fee for management services based upon a percentage of the gross revenues of the
ophthalmological practice being managed.

The field of optical retailing is regulated by state or provincial
governments in those regions in which Cole Vision, Pearle and other retail
optical firms do business. The legality of Cole Vision's and Pearle's
relationships with optical professionals in the jurisdictions in which it
operates has been and may be challenged from time to time, and if challenged,
Cole Vision and Pearle may be required to alter the manner in which they conduct
their business in the jurisdictions in which they are challenged. Such
alterations may adversely affect the Company's business.

LEGAL MATTERS

The Company and Pearle each are subject to various pending and threatened
lawsuits in which claims for monetary damages are asserted in the ordinary
course of business. While any litigation involves an element of uncertainty, in
the opinion of management, liabilities, if any, arising from such litigation or
threat thereof will not have a material adverse effect on the Company.

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<PAGE> 77

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND PARENT

The following table sets forth certain information concerning the directors
and executive officers of the Company and the Parent. Directors serve for a term
of one year and until their successors are elected. Officers hold office until
their successors are elected and qualified.

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- ------ ---------------------------------------------------------------
<S> <C> <C>
Chairman, Chief Executive Officer, Chief Financial Officer and
Jeffrey A. Cole 55 Director
Brian B. Smith 43 President, Chief Operating Officer and Director
Joseph Gaglioti 50 Vice President and Treasurer
Vice President, Controller, Assistant Secretary and Assistant
Wayne L. Mosley 42 Treasurer
Timothy F. Finley 53 Director
Irwin N. Gold 39 Director
Peter V. Handal 54 Director
Charles A. Ratner 55 Director
</TABLE>

Mr. Cole has been Chairman, Chief Executive Officer, Chief Financial
Officer and a Director of the Company since its formation. Mr. Cole has been a
Director of the Parent since 1984, and since 1969 had been a director of a
predecessor company which operated the business of the Parent prior to 1984 (the
"Predecessor"), serving as Chairman of the Predecessor's Executive Committee
from 1978 to 1984. He has been Chairman and Chief Executive Officer of the
Parent since 1992, Chief Financial Officer of the Parent since 1991 and was
President and Chief Executive Officer of the Parent from 1984 to 1992. He was
Chief Financial Officer and Treasurer of the Predecessor from 1978 to 1983 and
was Vice Chairman of the Board of Directors, President and Chief Operating
Officer of the Predecessor from 1983 to 1984. He is also a Director of Hartmarx
Corporation.

Mr. Smith has been President and Chief Operating Officer of the Company
since its formation, and a Director since November 1994. Mr. Smith has been
President and Chief Operating Officer of the Parent since 1992, and a Director
since November 1994. From January 1992 until September 1992, he was President
and Chief Operating Officer of a subsidiary company that merged into the Parent
in September 1992 ("CNCD"). He was Executive Vice President and Chief Operating
Officer of CNCD until January 1992. Mr. Smith has been Vice Chairman of Cole
Vision and CGC, each of which is a wholly owned subsidiary of the Company, since
January 1995 and previously was President of Cole Vision and CGC since 1987 and
1990, respectively. He has been President of Things Remembered, a wholly owned
subsidiary of the Company, since 1990.

Mr. Gaglioti has been Vice President and Treasurer of the Company since its
formation. Mr. Gaglioti has been Vice President of the Parent since 1992 and
Treasurer of the Parent since 1991. He was Assistant Treasurer of the Parent and
CNCD from 1984 to 1991 and has served in various capacities with the Predecessor
from 1981 to 1984.

Mr. Mosley has been Vice President and Controller of the Company since its
formation. Mr. Mosley has been Vice President and Controller (principal
accounting officer), Assistant Secretary and Assistant Treasurer of the Parent
since 1992. Mr. Mosley served as Vice President, Controller -- Finance of CNCD
from 1991 to 1992, was Chief Accounting Officer of CNCD from 1990 to 1991 and
Assistant Corporate Controller of CNCD from 1986 to 1990.

Mr. Finley has been a Director of the Company since its formation and has
been a Director of the Parent since 1992. Since 1990, Mr. Finley has been
Chairman and Chief Executive Officer of Jos. A. Bank Clothiers, Inc., a clothing
retailer, and Chairman and President of The Finley Group since 1986. He is also
a director of Venture Stores, Inc.

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<PAGE> 78

Mr. Gold has been a Director of the Company since its formation and has
been a Director of the Parent since 1992. Mr. Gold has been a Managing Director
of Houlihan Lokey Howard & Zukin, Inc. ("Houlihan Lokey"), an investment banking
firm, since 1988.

Mr. Handal has been a Director of the Company since its formation and has
been a Director of the Parent since 1992. Currently, Mr. Handal is President of
the consulting company COWI International Group, Managing Partner of J4P
Associates, a real estate firm, and President of Fillmore Leasing Company.
Previously, Mr. Handal served as the President of Victor B. Handal and Bro.,
Inc., an apparel manufacturer and distributor. He is also a director of Jos. A.
Bank Clothiers, Inc., a clothing retailer.

Mr. Ratner has been a Director of the Company and the Parent since 1995.
Mr. Ratner has served as the President, the Chief Executive Officer and a
director of Forest City Enterprises, Inc., a national real estate development
and management company, since 1993, prior to which he served as its Executive
Vice President. Mr. Ratner is Chairman of Forest City Rental Properties
Corporation, a subsidiary of Forest City Enterprises, Inc., a position he has
held for at least five years. He is also a director of Forest City Enterprises,
Inc.

On May 6, 1992, Child World, Inc. ("Child World"), a former 82% subsidiary
of the Parent, filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code. Immediately prior to the sale of Child World on June 27, 1991,
Jeffrey A. Cole served as a Director and Chairman of the Executive Committee of
Child World and Joseph Gaglioti was Assistant Treasurer of Child World.

EXECUTIVE COMPENSATION

The following table sets forth for the last three fiscal years certain
compensation information about the Company's chief executive officer and the
other persons who served as executive officers of the Company during fiscal
1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(1) SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(2)
- -------------------------------- ---- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Jeffrey A. Cole -- 1995 $617,692 $193,440 25,000 $ 74,649
Chairman, Chief Executive
Officer 1994 600,385 295,331 131,815(3) 320,239
and Chief Financial Officer 1993 575,000 296,700 226,000 16,797
Brian B. Smith -- 1995 $400,192 $125,654 17,500 $ 37,617
President and Chief 1994 371,154 183,056 79,322(3) 34,515
Operating Officer 1993 350,000 180,600 136,000 4,576
John F. Downie -- 1995 $207,385 $ 64,896 2,500 $ 26,965
Secretary(4) 1994 203,516 96,882 5,833(3) 169,801
1993 200,850 103,639 10,000 4,015
Joseph Gaglioti -- 1995 $122,231 $ 38,376 3,500 $ 10,885
Vice President and 1994 116,846 61,644 4,666(3) 10,433
Treasurer 1993 110,308 61,187 9,000 784
Wayne L. Mosley -- 1995 $122,231 $ 38,376 3,500 $ 10,721
Vice President and 1994 116,846 61,644 4,666(3) 10,312
Controller 1993 110,308 60,607 9,000 412
<FN>

- ---------------
(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) The amounts listed consist of (i) payments by the Parent pursuant to an
agreement between the Parent and an insurance company that provides for
reimbursements to Messrs. Cole, Smith and Downie in
</TABLE>

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<PAGE> 79

amounts up to $20,000 per year for certain medical expenses for themselves
and their families not otherwise covered by the Parent's group medical
insurance plan, (ii) contributions to the Parent's 401(k) Plan to match
pre-tax elective deferral contributions, (iii) the value of life insurance
provided by the Parent for the benefit of the executive officers and (iv)
contribution credits in fiscal 1995 and 1994 provided under the Company's
Supplemental Retirement Benefit Plan. See "Supplemental Executive Retirement
Plans."

(3) Reflects options repriced during 1994.

(4) Mr. Downie also served as Senior Vice President and General Counsel of the
Company and the Parent until February 2, 1996.

CERTAIN AGREEMENTS

Effective April 1, 1996, Jeffrey A. Cole and Brian B. Smith entered into
separate agreements with the Parent and its principal subsidiaries, which
replaced earlier employment agreements, pursuant to which Messrs. Cole and Smith
are employed by the Parent and each of its principal subsidiaries. The
agreements provide for a three-year term that, on the first anniversary of the
agreement and each successive anniversary thereafter, automatically extends for
an additional year up to and until Messrs. Cole and Smith, respectively, reach
age 65, unless notice to the contrary has been furnished in accordance with the
provisions of the agreements. The agreements provide for an annual base salary
of not less than $640,000 for Mr. Cole and $440,000 for Mr. Smith, along with
participation in bonus programs and other customary benefits. Under the
agreements, upon their termination of employment (including a self-termination
during a period following a change of control of the Parent) except (i)
termination by reason of death or disability, (ii) voluntary resignation other
than (a) a voluntary resignation involving a substantial adverse change in
duties without consent or (b) following a change of control of the Company,
(iii) the expiration of the term of the agreement or (iv) termination for cause,
Messrs. Smith and Cole are entitled to receive a lump sum payment equal to three
times the sum of (x) their respective salaries at the time of such termination
and (y) their respective average bonuses for the last five fiscal years. The
agreements also contain provisions with respect to compensation, bonus and
benefits in the event of their death or disability. The agreements provide that,
in the event that any payments received by Messrs. Cole and Smith under the
agreements or otherwise are subject to an excise tax, they will be entitled to a
gross-up payment.

COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS OF THE COMPANY

Described below are certain employee benefit plans of the Company pursuant
to which cash or non-cash compensation was paid or distributed to its executive
officers during the last fiscal year, or is proposed to be paid or distributed
to its executive officers in the future.

RETIREMENT PLAN

The Cole National Group, Inc. Retirement Plan (the "Retirement Plan")
provides non-contributory benefits that are integrated with Social Security
based upon an employee's years of credited service and highest average annual
base salary for any five consecutive years in the last ten years of service.
Compensation covered by the Retirement Plan consists of an employee's base
salary, not including bonuses or any other form of compensation. Under the
Internal Revenue Code of 1986, as amended (the "Code"), the maximum retirement
benefit payable under the Retirement Plan and the maximum amount of annual
compensation that can be taken into consideration in the calculation of pension
benefits under the Retirement Plan are limited. At retirement, based on years of
service and current salary levels, it is estimated that the retirement benefits
payable to Jeffrey A. Cole, Brian B. Smith and John F. Downie will be reduced
because of these limits.

Credited service under the Retirement Plan for each of the individuals
named in the Summary Compensation Table is as follows: Jeffrey A. Cole -- 17
years; Brian B. Smith -- 12 years; John F. Downie -- 25 years; Joseph
Gaglioti -- 14 years; and Wayne L. Mosley -- 9 years.

Participants in the Retirement Plan may elect payment of retirement
benefits under various alternative formulae. The following table shows the
estimated annual retirement benefits which will be payable to

75
<PAGE> 80

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

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

(1) Based on retirement in 1996.

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

SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS

The Company has two supplemental executive retirement plans (the "SERPs")
that provide for payment of benefits to the participating executives (who
include, among others, the officers named in the Summary Compensation Table)
supplementing amounts payable under the Retirement Plan. The Cole National
Group, Inc. Supplemental Pension Plan (the "Pension Plan SERP") is an excess
benefit plan designed to replace benefits that would otherwise have been payable
under the Retirement Plan but that were limited as a result of certain Code
limitations. The Cole National Group, Inc. Supplemental Retirement Benefit Plan
(the "Benefit Plan SERP") is a defined contribution plan under which
participants will receive an annual credit based on a percentage of base salary
and an earnings assumption to be determined on an annual basis. Participants in
the Pension Plan SERP will vest in the excess benefits after five years of
service (with credit for past service). Participants in the Benefit Plan SERP
will be fully vested in the defined contribution benefits after ten years of
service (with credit given for a year of actual past service for each year of
future service). Benefits under the Pension Plan SERP will be payable on the
same basis as the Retirement Plan benefits, while benefits under the Benefit
Plan SERP will generally be payable upon retirement (at age 55 or older) in ten
annual installments or in another form elected by the participant prior to
retirement. The following contribution credits were provided in 1995 under the
Benefit Plan SERP to the named individuals and are included in "All Other
Compensation" in the Summary Compensation Table: Mr. Cole -- $62,000; Mr.
Smith -- $33,200; Mr. Downie -- $20,800; Mr. Gaglioti -- $9,840; and Mr.
Mosley -- $9,840.

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<PAGE> 81

COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS OF THE PARENT

Described below are certain employee benefit plans of the Parent pursuant
to which cash or non-cash compensation was paid or distributed to its executive
officers during the last fiscal year, or is proposed to be paid or distributed
to its executive officers in the future.

STOCK OPTION PLANS

The Parent's 1992 Plan provides for the granting of stock options for up to
555,556 shares of the Parent's Common Stock to the officers or key employees of
the Parent and its subsidiaries, including the Company. The 1993 Plan provides
for the granting of stock options for up to 600,000 shares of the Parent's
Common Stock to the officers or key employees of the Parent and its
subsidiaries, including the Company. The 1992 Plan and the 1993 Plan were
approved by the stockholders of the Parent in February 1994 prior to the
Parent's initial public offering.

The stock options under the 1992 Plan provided for periodic vesting over
five years, with early vesting of all or a portion of the unvested options in
the case of certain events, such as consummation of a public offering of the
Parent's Common Stock, a sale of all or substantially all of the assets of the
Parent, certain change in control transactions, certain mergers or the voluntary
dissolution of the Parent. In May 1993, the Parent's Board of Directors
authorized amendments (the "May Amendments") to the stock option agreements
under the 1992 Plan for all of the Parent's executive officers and for certain
senior personnel of the Parent's subsidiaries, including the Company. The May
Amendments provided for the immediate vesting of the stock options under such
option agreements, but provided that any shares acquired upon exercise of the
options in excess of the number of shares that would have been vested under the
option agreements at the date of exercise had the May Amendments not been
adopted would be subject to forfeiture in the event that the employee ceased to
be employed by the Parent or any of its subsidiaries, as a result of either
voluntary departure or termination for cause, during the period during which the
vesting provision applicable to such shares prior to such amendment would not
have expired. There were no grants made under the 1992 Plan in fiscal 1995 to
the individuals included in the Summary Compensation Table.

The stock options under the 1993 Plan provide for periodic vesting over
five years, with early vesting of all or a portion of the unvested options in
circumstances similar to those that apply to the options under the 1992 Plan.
The original option grants under the 1993 Plan were amended in 1994 to reduce
their exercise prices, to extend their vesting period from four to five years,
and to reduce the number of options granted. The following table contains
information concerning options granted under the 1993 Plan during fiscal 1995 to
the executive officers of the Parent included in the Summary Compensation Table.

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<PAGE> 82

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
PERCENT
OF TOTAL
OPTIONS POTENTIAL REALIZABLE
GRANTED VALUE AT ASSUMED
NUMBER OF TO ANNUAL RATES OF STOCK
SECURITIES EMPLOYEES EXERCISE PRICE APPRECIATION
UNDERLYING IN OR BASE FOR OPTION TERM(1)
OPTIONS FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#) YEAR(%) ($/SH) DATE 5%($) 10%($)
- --------------------------- --------- --------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Cole 10,000 8.2% $ 9.75 3/16/05 $ 61,300 $155,400
15,000 12.3 12.50 8/17/05 117,900 298,800
Brian B. Smith 7,500 6.2 9.75 3/16/05 45,975 116,550
10,000 8.2 12.50 8/17/05 78,600 199,200
John F. Downie 1,500 1.2 9.75 3/16/05 9,195 23,310
1,000 0.8 12.50 8/17/05 7,860 19,920
Joseph Gaglioti 1,500 1.2 9.75 3/16/05 9,195 23,310
2,000 1.6 12.50 8/17/05 15,720 39,840
Wayne L. Mosley 1,500 1.2 9.75 3/16/05 9,195 23,310
2,000 1.6 12.50 8/17/05 15,720 39,840
<FN>

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

(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.
</TABLE>

The following table contains information concerning options exercised
during fiscal 1995 and unexercised stock options held as of February 3, 1996.

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

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FEB. 3, FEB. 3, 1996
SHARES 1996(#) ($)(1)
ACQUIRED ON -------------- --------------
EXERCISE EXERCISABLE/ EXERCISABLE/
NAME (#) UNEXERCISABLE UNEXERCISABLE
----------------------- ----------- -------------- --------------
<S> <C> <C> <C>
Jeffrey A. Cole -- 87,567/125,748 $21,188/38,188
Brian B. Smith -- 52,695/ 78,127 12,750/20,250
John F. Downie -- 10,595/ 6,958 53,018/ 2,438
Joseph Gaglioti -- 11,913/ 7,253 69,051/ 3,699
Wayne L. Mosley -- 11,913/ 7,253 69,051/ 3,699
<FN>

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

(1) Based on the closing price of $10.75 per share of the Parent's Common Stock
on the New York Stock Exchange on February 2, 1996, the last trading day of
fiscal 1995.
</TABLE>

The 1992 Plan and the 1993 Plan and the option agreements thereunder permit
each optionee to exercise options through borrowing funds from the Parent. The
principal on such loans is payable five years following the date of exercise,
with interest payable annually at a rate fixed at the date of exercise based on
a formula tied to federal borrowing rates. Each loan is made on a recourse basis
and is secured by the option shares acquired from the proceeds of such loan.
Messrs. Cole, Smith and Downie each elected to exercise options in 1993 by
borrowing from the Parent the full amount of the exercise price of such shares
granted under the 1992 Plan. As of February 3, 1996, the amount (excluding
accrued interest) owed by each individual named in the

78
<PAGE> 83

Summary Compensation Table with respect to such loans is as follows (the
interest rate per annum payable by such individual is shown in parentheses):
Jeffrey A. Cole -- $666,666 (5.47%); Brian B. Smith -- $333,336 (5.47%); and
John F. Downie -- $15,840 (5.33%). Mr. Downie's loan was repaid on April 15,
1996.

The Parent's 1996 Management Stock Option Plan (the "1996 Plan") was
adopted by the Parent's stockholders as of June 6, 1996 and provides for the
granting of stock options for up to 884,000 shares of the Parent's Common Stock
to the officers or key employees of the Parent and its subsidiaries, including
the Company. In February, the following grants were made to the identified
executive officers: Jeffrey A. Cole -- 240,000 shares; Brian B. Smith -- 180,000
shares; Joseph Gaglioti -- 16,000 shares; Wayne L. Mosley -- 16,000 shares. The
exercise price of the aforementioned options was $10 13/16, which was the market
trading price of the shares at the date of grant.

The Board of Directors and the Compensation Committee are authorized to
determine the time at which options granted under the 1996 Plan will become
exercisable and will terminate. Notwithstanding the foregoing, the 1996 Plan
provides that an option will immediately become fully exercisable upon the
occurrence of a "Sale Transaction" prior to the fifth anniversary of the date on
which such option was granted. For purposes of the foregoing, a "Sale
Transaction" means (a) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, except a sale, transfer or
disposition (i) to a subsidiary of the Company or (ii) that results in the
holders of the then-outstanding securities of the Company generally eligible to
vote in the election of directors of the Parent possessing, in the aggregate, a
majority ownership interest in the corporation, partnership, association, firm,
entity or individuals (collectively, a "Person") acquiring such assets, (b) any
transaction resulting in a majority of the then-outstanding securities of the
Company generally eligible to vote in the election of directors of the Parent
being held or owned beneficially by one Person or an affiliated group of
Persons, (c) a merger or consolidation of the Parent with another Person, except
a merger or consolidation of the Parent (i) with a subsidiary of the Parent or
(ii) that results in the holders of the then-outstanding securities of the
Parent generally eligible to vote in the election of directors of the Parent
possessing, in the aggregate, a majority ownership interest in the surviving
Person or (d) the voluntary liquidation or dissolution of the Parent. The 1996
Plan further provides that no option may run for more than ten years from the
date of grant.

EXECUTIVE LIFE INSURANCE PLAN

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

BONUS PLAN

The Parent has in effect various plans pursuant to which certain officers
and other employees may receive incentive cash bonuses based upon (1) the
achievement of specified earnings goals in the preceding fiscal year by a
particular operating group or the Parent as a whole and (2) individual
performance. The amounts of incentive and discretionary awards, and performance
criteria for such awards, are fixed by the Compensation Committee of the
Parent's Board of Directors.

In March 1996, the Board of Directors approved the adoption by the Parent
of the Management Incentive Bonus Program (the "Incentive Program"), which will
replace the Parent's existing bonus plans for certain senior managers. Under the
Incentive Program, the Compensation Committee establishes performance goals
within 90 days of the commencement of a fiscal year. The performance goals for
the Parent as a whole or the operating units of the Parent may include earnings,
operating income, increases in revenue, return on assets, investment, sales or
equity, total stockholder return or any combination thereof.

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<PAGE> 84

The actual level of achievement of the performance goals serves as the
basis for establishing the amount of the award payable to a participant for the
fiscal year. If operating performance fails to achieve the performance goals
established, no awards will be made. The highest award that may be given under
the Incentive Program is 100% of base salary. The Incentive Program provides
that awards under the Incentive Plan may be made in cash or shares of Common
Stock at the discretion of the Compensation Committee. The Compensation
Committee approves the list of participants for the fiscal year who include the
Parent's executive officers and certain other senior managers. For fiscal 1996,
the Compensation Committee designated nine senior managers, including Messrs.
Cole, Smith, Gaglioti and Mosley, to participate in the Incentive Program.

401(K) PLAN

The Parent provides a defined contribution plan, including features under
section 401(k) of the Internal Revenue Code of 1986, which provides retirement
benefits to its employees. Eligible employees may contribute up to 15% of their
compensation to the plan, although highly compensated employees, including all
executive officers of the Parent, were limited to a maximum of 2% of their
compensation. There is no mandatory matching of employee contributions by the
Parent, but a discretionary match is determined annually by the Board of
Directors. The Board of Directors approved the Parent's contribution of $164,000
to be used to partially match employee contributions made in 1995.

COMPENSATION OF DIRECTORS

The Parent pays each Director who is not an employee of the Parent or its
subsidiaries, including the Company, an annual fee of no less than $20,000 plus
reasonable out-of-pocket expenses. Members of the Audit Committee and the
Compensation Committee receive $500 for each day of attendance at a committee
meeting that is not held on the same day as a meeting of the Board of Directors.
In addition, the chairpersons of the Audit Committee and the Compensation
Committee receive an additional $2,000 and $3,000 per year, respectively.

In January 1993, options to purchase 7,500 shares of the Parent's Common
Stock were issued to Messrs. Finley, Gold and Handal. The options vest over a
five-year period and are exercisable at $3.00 per share. At February 3, 1996,
options to purchase 6,000 shares were exercisable for each of those Directors.

The Parent's Nonqualified Stock Option Plan for Nonemployee Directors (the
"Directors' Plan") provides for the granting of stock options for up to 100,000
shares of the Parent's Common Stock to Directors of the Parent who are not
employees of the Parent or any of its subsidiaries, including the Company. The
Directors' Plan was approved by the stockholders of the Parent prior to the
Parent's initial public offering in April 1994. The Directors' Plan provides for
the automatic grant of a nonqualified option to purchase 1,500 shares of Common
Stock to each newly elected or appointed nonemployee Director of the Parent on
January 1 of the year immediately following the year in which he or she is
elected or appointed and on each January 1 thereafter for as long as he or she
is elected or appointed and on each January 1 thereafter for as long as he or
she continues to serve. Nonemployee Directors serving at the time of the
adoption of the Directors' Plan will not receive option grants under such plan
until January 1, 1997. Options granted under the Directors' Plan generally vest
on the first anniversary of the date of grant of the option, provided that the
optionee is still serving as a nonemployee Director at that time. The exercise
price per share for options granted under the Directors' Plan is the average of
the high and low selling prices of the Parent's Common Stock on the New York
Stock Exchange on the date of grant, or, if no such prices are quoted on the
date of grant, on the last date on which such prices are quoted prior to the
date of grant. Mr. Ratner received an automatic grant of options for 1,500
shares on January 1, 1996 with an exercise price of $13.6875, the average of the
high and low selling prices for the Common Stock on December 29, 1995.

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COMPENSATION COMMITTEE INTERLOCKS, INSIDER PARTICIPATION AND CERTAIN
TRANSACTIONS

Deliberations concerning compensation for fiscal 1995 generally involved
the full Board of Directors of the Parent consisting of Jeffrey A. Cole, Brian
B. Smith, Timothy F. Finley, Irwin N. Gold, Peter V. Handal and Charles A.
Ratner. Jeffrey A. Cole and Brian B. Smith are employees of the Company.

The Company currently leases its headquarters office space in a building
which is owned by a partnership in which Jeffrey A. Cole currently has a 46.5%
limited partnership interest. The Company believes that the lease terms are
equivalent to those that could have been obtained pursuant to an arm's length
transaction with unaffiliated parties. Lease payments to the partnership
totalled $291,575, $344,637 and $354,194, net of payments made by the Company's
subtenant, during fiscal 1993, 1994 and 1995, respectively.

Until August 1995, when American Consumer Products, Inc. ("ACP") was
acquired by Vista 2000, Stephan W. Cole, the brother of Jeffrey A. Cole, was the
controlling shareholder, Chief Executive Officer and a director of ACP, and
Jeffrey A. Cole was a beneficial owner of 16.62% of the shares of common stock
of ACP and a director of ACP. In fiscal 1993, 1994 and 1995, the Company
acquired approximately $1.6 million, $1.3 million and $1.1 million,
respectively, of key blanks and other related products from ACP in transactions
the Company believes were on terms equivalent to those that could have been
obtained pursuant to arm's length transactions with unaffiliated parties. These
amounts are not considered material to either the Company or ACP, as they
represent less than 5% of the annual gross revenues of each entity.

Mr. Ratner is the President, Chief Executive Officer, and a director of
Forest City Enterprises, Inc. ("Forest City"). Forest City and its affiliates
are developers and managers of commercial real estate, including shopping malls
in which the Company's stores may operate. Things Remembered currently operates
thirteen stores under leases with Forest City or its affiliates. Under such
leases, which expire at different times during the period from 1996 to 2005,
Things Remembered paid aggregate rent of $490,843 during 1995. Additional common
area charges, insurance charges, taxes and similar charges were paid. The
Company believes that the terms of its leases with Forest City or its
affiliates, as applicable, are equivalent to those that could have been obtained
pursuant to arm's length transactions with unaffiliated parties.

Effective as of March 1992, Joseph E. Cole, founder of the Company and the
father of Jeffrey A. Cole, who was then serving as Chairman of the Company,
relinquished that title and took on the title of Senior Chairman. Joseph E.
Cole, who served as Chairman of the Board and as a Director of the Company until
March 1992, was compensated prior to his death in January 1995 pursuant to an
employment agreement with the Company that provided for an annual salary of
$200,000, commencing in fiscal 1993. Under the agreement, Joseph E. Cole
received payments of $200,000 in fiscal 1993 and 1994. In fiscal 1995, Jeffrey
A. Cole's mother, who is the widow of Joseph E. Cole, received a final $200,000
payment under Joseph E. Cole's employment agreement with the Company.

Houlihan Lokey of which Mr. Irwin Gold, a director of the Company, is a
managing director, served as a financial advisor to the Company in connection
with the Parent's Acquisition of Pearle and was compensated by the Company in
the amount of $50,000, as a non-refundable retainer fee. Following the
consummation of the Pearle Acquisition, the Company paid Houlihan Lokey an
additional payment of $950,000.

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<PAGE> 86

PRINCIPAL STOCKHOLDERS

The Company is a wholly owned subsidiary of the Parent, which owns 1,100
shares of the Company's Common Stock, par value $.01 per share, which are the
only shares of the Company's capital stock that are outstanding. The following
table sets forth certain information as of December 5, 1996 (except as otherwise
noted) as to the ownership of the Parent's Common Stock by each of those persons
owning of record or known to the Parent to be the beneficial owner of more than
five percent of the Parent's Common Stock; each of the Parent's Directors; each
of the Parent's executive officers; and all Directors and executive officers of
the Parent as a group. The number of shares of the Parent's Common Stock
outstanding on December 5, 1996 was 11,947,696. Except as noted, all information
with respect to beneficial ownership has been furnished by the respective
Director or officer or is based on filings with the Commission. Unless otherwise
indicated below, the persons named below have sole voting and investment power
with respect to the number of shares set forth opposite their names. Beneficial
ownership of the Parent's Common Stock has been determined for this purpose in
accordance with Rules 13d-3 and 13d-5 under the Exchange Act, which provide,
among other things, that a person is deemed to be the beneficial owner of the
Parent's Common Stock if such person, directly or indirectly, has or shares
voting power or investment power in respect of such stock or has the right to
acquire such ownership within sixty days. Accordingly, the amounts shown in the
table do not purport to represent beneficial ownership for any purpose other
than compliance with SEC reporting requirements. Further, beneficial ownership
as determined in this manner does not necessarily bear on the economic incidence
of ownership of the Parent's Common Stock.

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NO. OF SHARES PERCENT OF CLASS
- ------------------------------------------------------------------ ------------- ----------------
<S> <C> <C>
Cumberland Associates(1) 527,500 4.42%
1114 Avenue of the Americas
New York, New York 10036

FMR Corp.(2) 1,067,100 8.93%
82 Devonshire Street
Boston, MA 02109-3614

Harris Associates L.P.(3) 660,000 5.52%
Trust Series Designated
The Oakmark Fund(6)
Two North LaSalle Street
Chicago, IL 60602-3790

Palisade Capital Management, L.L.C.(4) 781,000 6.54%
One Bridge Plaza
Suite 695
Fort Lee, NJ 07024

Pioneering Management Corporation(5) 711,500 5.96%
60 State Street
Boston, MA 02109

Robert M. Raiff(6) 793,300 6.64%
152 West 57th Street
New York, NY 10019

T. Rowe Price Associates, Inc.(7) 1,060,000 8.87%
100 E. Pratt Street
Baltimore, MD 21202

Jeffrey A. Cole (8) 435,971 3.61%

Timothy F. Finley (9) 15,500 *

Irwin N. Gold (8)(9) 17,355 *

Peter V. Handal (8)(9) 19,877 *

Charles A. Ratner(10) 2,500 *
</TABLE>

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<PAGE> 87

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NO. OF SHARES PERCENT OF CLASS
- ------------------------------------------------------------------ ------------- ----------------
<S> <C> <C>
Brian B. Smith (8)(11) 225,847 1.88%
Joseph Gaglioti (12) 15,174 *
Wayne L. Mosley (12) 15,231 *
All Directors and executive officers as a group
(8 persons) (8)(9)(10)(11)(12) 747,455 6.11%
<FN>

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

* Less than one percent

(1) Stock ownership is based on a Schedule 13D filed on July 3, 1996.
Cumberland Associates holds sole dispositive power as to 438,000 shares
indicated and shared dispositive power as to 89,500 shares indicated, and
holds no voting power with respect to any of the shares. Each of the
general partners of Cumberland Associates, who include K. Tucker Andersen,
Richard Reiss, Jr., Oscar S. Schafer, Bruce G. Wilcox, Glenn Krevlin,
Andrew Wallach and Eleanor Poppe at the principal business address of 1114
Avenue of the Americas, New York, New York 10036, is also deemed a
beneficial owner of the shares.

(2) Stock ownership is based on a Schedule 13G dated May 10, 1996. Fidelity
Management & Research Company, a wholly owned subsidiary of FMR Corp. and
an investment adviser registered under the Investment Advisers Act of 1940
("Fidelity"), is the beneficial owner of the shares indicated as a result
of acting as investment adviser to several investment companies registered
under the Investment Company Act of 1940 (the "Fidelity Funds").

The ownership of one investment company, Fidelity Low-Priced Stock Fund,
amounted to 1,042,200 shares or 8.72% of the Common Stock outstanding.
Fidelity Low-Priced Stock Fund has its principal business office at 82
Devonshire Street, Boston, Massachusetts 02109.

Edward C. Johnson 3d, FMR Corp. (through its control of Fidelity), and the
Fidelity Funds each has sole power to dispose of the 1,067,100 shares owned
by the Fidelity Funds. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman
of FMR Corp., has the sole power to vote or direct the voting of the shares
owned directly by the Fidelity Funds, which power resides with the Fidelity
Funds' Boards of Trustees. Fidelity carries out the voting of the shares
under written guidelines established by the Fidelity Funds' Boards of
Trustees.

Edward C. Johnson 3d and Abigail P. Johnson own respectively 12.0% and
24.5% of the outstanding voting common stock of FMR Corp. Mr. Johnson 3d is
Chairman of FMR Corp. Various Johnson family members and trusts for the
benefit of Johnson family members own approximately 49% of FMR Corp. voting
common stock. These Johnson family members, through their ownership of
voting common stock and the execution of a family shareholders' voting
agreement, form a controlling group with respect to FMR Corp.

(3) Stock ownership is based on a Schedule 13G dated February 6, 1996. Harris
Associates L.P. ("Harris") serves as investment adviser to The Oakmark Fund
and The Oakmark Small Cap Fund, each of which is a series of the Harris
Associates Investment Trust. Various of Harris's officers and directors are
also officers and directors of the Harris Associates Investment Trust;
Harris has indicated that it does not consider Oakmark Fund to be
controlled by such persons. The Oakmark Fund and The Oakmark Small Cap Fund
each beneficially own, respectively, 600,000 and 60,000 shares. Harris and
Harris's sole general partner, Harris Associates Inc., share voting and
dispositive powers as to such shares and thus also are deemed to be
beneficial owners of such shares.

(4) Stock ownership is based on a Schedule 13G filed on February 14, 1996.

(5) Stock ownership is based on a Schedule 13G filed on January 26, 1996.
Pioneering Management Corporation has shared dispositive power as to the
shares indicated.

(6) Stock ownership is based on a Schedule 13D filed on July 31, 1996.

(7) Stock ownership is based on a Schedule 13G filed on July 8, 1996. The
shares indicated 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
</TABLE>

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<PAGE> 88

shares, representing 6.70% of the shares outstanding), for which T. Rowe
Price Associates, Inc. ("Price Associates") serves as investment adviser
with sole power to vote the shares. Price Associates disclaims beneficial
ownership of the shares indicated.

(8) Includes shares of Common Stock that may be acquired pursuant to the
exercise of warrants exercisable within 60 days held by the following
individuals: Mr. Cole -- 5,861 shares; Mr. Gold -- 1,355 shares; Mr.
Handal -- 5,977 shares; and Mr. Smith -- 4,087. Included in Mr. Cole's and
Mr. Smith's Common Stock shares are 136,388 and 82,892 shares,
respectively, that may be acquired within 60 days pursuant to the exercise
of options granted under the Company's 1993 Management Stock Option Plan
(the "1993 Plan").

(9) Includes 7,500 shares of Common Stock that may be acquired within 60 days
pursuant to the exercise of options granted under stock option agreements.

(10) Includes 1,500 shares of Common Stock that may be acquired within 60 days
pursuant to the exercise of an option granted under a stock option
agreement.

(11) Includes 1,140 shares of Common Stock owned indirectly by Mr. Smith and
held by Mr. Smith's wife under the Uniform Gifts to Minors Act. Mr. Smith
disclaims beneficial ownership of all securities held by his wife.

(12) Includes shares of Common Stock that may be acquired within 60 days
pursuant to the exercise of options granted under the Company's 1992
Management Stock Option Plan (the "1992 Plan") and the 1993 Plan as
follows: Mr. Gaglioti -- 14,700 shares and Mr. Mosley -- 14,700 shares.

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<PAGE> 89

DESCRIPTION OF OTHER INDEBTEDNESS

SENIOR NOTES

Initially, $190.0 million of Senior Notes were issued pursuant to the
Senior Note Indenture between the Company and Norwest Bank Minnesota, N.A., as
trustee. Currently, there is $165.8 million aggregate principal amount of Senior
Notes outstanding. The Senior Notes are unsecured and mature October 1, 2001
with no earlier scheduled redemption or sinking fund payments. Interest on the
Senior Notes accrues at the rate of 11.25% per annum and is payable semiannually
on April 1 and October 1 of each year. The Senior Notes are not redeemable at
the Company's option prior to October 1, 1998. Thereafter, the Senior Notes will
be subject to redemption at the option of the Company, in whole or in part, at
redemption prices ranging from 105.625% to 100% of the principal amount, plus
accrued and unpaid interest thereon.

Upon the occurrence of a change of control of the Company, each holder of
Senior Notes will have the right to require the repurchase of all or any part of
such holder's Senior Notes at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon. A "change of
control" would occur if a single purchaser or purchasers acting together as a
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
acquire more than 50% of the total voting power of the voting stock of the
Company and/or warrants or options to acquire such voting stock, calculated on a
fully diluted basis, or if there is a change in the Company's Board of Directors
not approved by a majority of directors who constitute continuing directors. So
long as no single purchaser or purchasers acting together as a "group" acquire
50% or more of the shares outstanding following the offering, the sale of the
shares of Common Stock made pursuant to this offering will not constitute a
change of control under the Senior Note Indenture. See "Risk
Factors -- Leverage."

The Senior Note Indenture pursuant to which the Senior Notes were issued
contains certain optional and mandatory redemption features and other financial
covenants, including restrictions on the ability of the Company to pay dividends
or make other restricted payments to the Parent. The Senior Note Indenture
permits dividend payments to the Parent of one-half of the Company's
consolidated net income, provided that no default or event of default has
occurred under the Senior Note Indenture and that the Company has met a
specified fixed charge coverage ratio test. The indenture also permits payments
to the Parent for certain tax obligations and for administrative expenses of the
Parent not to exceed .25% of net sales.

In addition, the Senior Note Indenture contains covenants restricting the
ability of the Company and its subsidiaries to, among other things, (i) sell or
otherwise dispose of assets, (ii) create or incur liens on their assets, (iii)
incur or guaranty indebtedness (which is currently more restrictive than is
included in the Notes), and (iv) merge or consolidate with or into, or sell or
otherwise dispose of all or substantially all of the Company's assets to,
another person.

Under the Senior Note Indenture each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in the payment when due of principal on the Senior
Notes; (iii) failure by the Company for 15 days after notice to comply with
certain "Change of Control," "Limitations on Restricted Payments" or "Limitation
on Indebtedness and Preferred Stock" provisions, as described in the Indenture;
(iv) failure by the Company for 60 days after notice to comply with other
agreements or covenants in the Senior Note Indenture or the Senior Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness, as
defined in the Senior Note Indenture, for money borrowed by the Company or any
of its subsidiaries (or the payment of which is guaranteed by the Company or any
of its subsidiaries) (other than the Senior Notes) whether such Indebtedness or
guarantee now exists, or is created after the date of the Senior Note Indenture;
(vi) failure by the Company or any of its subsidiaries to pay final judgments
(other than any judgment as to which a reputable insurance company has accepted
full liability) aggregating in excess of $5.0 million which judgments are not
stayed within 60 days after their entry; and (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its significant
subsidiaries.

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<PAGE> 90

If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Senior Notes will
become due and payable without further action or notice. Holders of the Senior
Notes may not enforce the Senior Note Indenture or the Senior Notes except as
provided in the Senior Note Indenture. Subject to certain limitations, holders
of a majority in principal amount of the then outstanding Senior Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Senior Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default in payment of principal
or interest) if it determines that withholding notice is in their interest.

NEW CREDIT FACILITY

The Company's primary source of liquidity is funds provided from operations
of its operating subsidiaries. On November 15, 1996, Cole Vision, Things
Remembered and CGC, the principal operating subsidiaries of the Company, Pearle
and PSC (collectively, the "Borrowers"), entered into the New Credit Facility.
The New Credit Facility provides the Borrowers with a four-year revolving line
of credit of up to the lesser of a "borrowing base" and $75,000,000. A portion
of the New Credit Facility not in excess of $30,000,000 is available for the
issuance of letters of credit. Borrowings under the New Credit Facility
initially will bear interest at a rate equal to, at the option of the Borrowers,
either (a) the Eurodollar Rate plus 1.25% or (b) .25% plus the highest of (i)
the rate of interest publicly announced by Canadian Imperial Bank of Commerce as
its prime rate in effect at its principal office in New York City, (ii) the
secondary market rate for three-month certificates of deposit (adjusted for
statutory reserve requirements) plus 1% and (iii) the federal funds effective
rate from time to time plus 0.5%. These interest rates are subject to quarterly
adjustment after the first anniversary of the closing of the New Credit Facility
based on the Company's achievement of certain interest coverage ratio
benchmarks. The New Credit Facility replaced, contemporaneously with the
consummation of the offering of the Original Notes, the existing Revolving
Credit Facility. Proceeds of certain asset sales and proceeds of casualty or
condemnation recoveries by the Company or the Borrowers will be required to be
reinvested in specified capital assets of the Company or the Borrowers or
applied to reduce the commitments under the New Credit Facility. The New Credit
Facility requires the Borrowers to comply with various operating covenants that
restrict corporate activities, including covenants restricting the Borrowers'
ability to incur additional indebtedness, pay dividends, prepay subordinated
indebtedness, dispose of certain assets, create liens, make capital expenditures
and make certain investments or acquisitions. The New Credit Facility also
requires the Borrowers to comply with certain financial covenants, including
covenants regarding minimum interest coverage, maximum leverage and consolidated
net worth. The New Credit Facility permits the Company's subsidiaries to pay
dividends to the Company to the extent necessary to permit it to pay all
interest and principal on the Senior Notes and the Notes when due so long as no
default or event of default under the New Credit Facility has occurred and is
continuing. The New Credit Facility permits the Company to use up to $20,000,000
to repurchase the Senior Notes and/or the Notes so long as no default or event
of default under the New Credit Facility has occurred and is continuing. The
Company is a limited guarantor under the New Credit Facility, with recourse
against the Company limited to certain bank accounts. As of December 1, 1996,
approximately $9.7 million of letters of credit were outstanding under the
Company's New Credit Facility.

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<PAGE> 91

DESCRIPTION OF THE NOTES

The Original Notes were, and the Exchange Notes will be, issued under an
Indenture, dated as of November 15, 1996 (the "Indenture") between the Company
and the Norwest Bank Minnesota, National Association, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Notes are subject to all such
terms, and holders of the Notes are referred to the Indenture and the Trust
Indenture Act for a statement of such terms.

The following is a summary of the material terms and provisions of the
Notes. This summary does not purport to be a complete description of the Notes
and is subject to the detailed provisions of, and qualified in its entirety by
reference to, the Notes and the Indenture (including the definitions contained
therein). Definitions relating to certain capitalized terms are set forth under
"-- Certain Definitions" and throughout this description. Capitalized terms that
are used but not otherwise defined herein have the meanings assigned to them in
the Indenture, and such definitions are incorporated herein by reference. The
Indenture has been incorporated by reference as an exhibit to the Registration
Statement of which this Prospectus is a part. The form of the Exchange Notes and
the Original Notes are identical in all material respects except that the
Exchange Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer. The Exchange Notes
will not represent new indebtedness of the Company, will be entitled to the
benefits of the same Indenture which governs the Original Notes and will rank
pari passu with the Original Notes. Any provisions of the Indenture which
require actions by or approval of a specified percentage of Original Notes shall
require the approval of the holders of such percentage of principal amount of
Original Notes and Exchange Notes, in the aggregate.

GENERAL

The Notes are limited in aggregate principal amount to $150,000,000. The
Notes are general unsecured obligations of the Company, subordinated in right of
payment to Senior Indebtedness of the Company, including the Senior Notes, and
senior in right of payment to any current or future subordinated indebtedness of
the Company.

The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. The Notes will
be effectively subordinated to all indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of the Company's
Subsidiaries, including borrowings under the New Credit Facility. Any right of
the Company to receive assets of any of its Subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the holders of the
Notes to participate in those assets) will be effectively subordinated to the
claims of that Subsidiary's creditors, except to the extent that the Company is
itself recognized as a creditor of such Subsidiary, in which case the claims of
the Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company.

MATURITY, INTEREST AND PRINCIPAL

The Notes will mature on December 31, 2006. The Notes will bear interest at
a rate of 9 7/8% per annum from the date of original issuance until maturity.
Interest is payable semi-annually in arrears on December 31 and June 30
commencing June 30, 1997, to holders of record of the Notes at the close of
business on the immediately preceding December 15 and June 15, respectively.
Interest on the Notes will be paid on the basis of a 360 day year and twelve 30
day months. Interest on the Exchange Notes will accrue from (A) the last
interest payment date on which interest was paid on the Notes surrendered in
exchange therefor, or (B) if no interest has been paid on the Notes, from
November 15, 1996. Holders whose Original Notes are accepted for exchange will
be deemed to have waived the right to receive any interest on the Original
Notes. The interest rate on the Notes is subject to increase, and such
Additional Interest will be payable on the payment dates set forth above, in
certain circumstances, if the Notes (or other securities substantially similar
to the Notes) are

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not registered with the Commission within the prescribed time periods. See "The
Exchange Offer -- Registration Rights; Additional Interest."

OPTIONAL REDEMPTION

The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after December 31, 2001 at the following redemption
prices (expressed as a percentage of principal amount), together, in each case,
with accrued interest to the redemption date, if redeemed during the
twelve-month period beginning on December 31, of each year listed below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
----------------------------------------------------- ----------
<S> <C>
2001................................................. 104.9375%
2002................................................. 102.4688%
2003................................................. 101.2343%
2004................................................. 100.6172%
2005 and thereafter.................................. 100.0000%
</TABLE>

Notwithstanding the foregoing, the Company may redeem in the aggregate up
to 35% of the original principal amount of Notes at any time and from time to
time prior to December 31, 1999 at a redemption price equal to 109.875% of the
aggregate principal amount so redeemed plus accrued interest to the redemption
date out of the Net Proceeds of one or more Qualified Equity Offerings; provided
that at least $97.5 million of the principal amount of Notes originally issued
remain outstanding immediately after the occurrence of any such redemption and
that any such redemption occurs within 90 days following the closing of any such
Qualified Equity Offering.

In the event of redemption of fewer than all of the Notes, the Trustee
shall select by lot or in such other manner as it shall deem fair and equitable
the Notes to be redeemed. The Notes will be redeemable in whole or in part upon
not less than 30 nor more than 60 days' prior written notice, mailed by first
class mail to a holder's last address as it shall appear on the register
maintained by the Registrar of the Notes. On and after any redemption date,
interest will cease to accrue on the Notes or portions thereof called for
redemption unless the Company shall fail to redeem any such Note.

SUBORDINATION

The indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
indefeasible payment and satisfaction in full in cash of all existing and future
Senior Indebtedness of the Company. As of November 2, 1996, after giving pro
forma effect to the application of the net proceeds of the Offering, the
principal amount of outstanding Senior Indebtedness of the Company, on a
consolidated basis, would have been approximately $166.9 million. In addition,
the Company would have had $75.0 million of undrawn commitments available under
the New Credit Facility, reduced by any outstanding letters of credit.

In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, whether voluntary or involuntary, or any liquidation,
dissolution or other winding-up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or any general assignment
for the benefit of creditors or other marshalling of assets or liabilities of
the Company (except in connection with the merger or consolidation of the
Company or its liquidation or dissolution following the transfer of
substantially all of its assets, upon the terms and conditions permitted under
the circumstances described under "--Mergers, Consolidations or Sale of Assets")
(all of the foregoing referred to herein individually as a "Bankruptcy
Proceeding" and collectively as "Bankruptcy Proceedings"), the holders of Senior
Indebtedness of the Company will be entitled to receive payment and satisfaction
in full in cash of all amounts due on or in respect of all Senior Indebtedness
of the Company before the holders of the Notes are entitled to receive or retain
any payment or distribution of any kind on account of the Notes. In the event
that, notwithstanding the foregoing, the Trustee or any holder of

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Notes receives any payment or distribution of assets of the Company of any kind,
whether in cash, property or securities, including, without limitation, by way
of set-off or otherwise, in respect of the Notes before all Senior Indebtedness
of the Company is paid and satisfied in full in cash, then such payment or
distribution will be held by the recipient in trust for the benefit of holders
of Senior Indebtedness and will be immediately paid over or delivered to the
holders of Senior Indebtedness or their representative or representatives to the
extent necessary to make payment in full of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution, or
provision therefor, to or for the holders of Senior Indebtedness. By reason of
such subordination, in the event of liquidation or insolvency, creditors of the
Company who are holders of Senior Indebtedness may recover more, ratably, than
other creditors of the Company, and creditors of the Company who are not holders
of Senior Indebtedness or of the Notes may recover more, ratably, than the
holders of the Notes.

No payment or distribution of any assets or securities of the Company or
any Subsidiary of any kind or character (including, without limitation, cash,
property and any payment or distribution which may be payable or deliverable by
reason of the payment of any other Indebtedness of the Company being
subordinated to the payment of the Notes by the Company) may be made by or on
behalf of the Company or any Subsidiary, including, without limitation, by way
of set-off or otherwise, for or on account of the Notes, or for or on account of
the purchase, redemption or other acquisition of the Notes, and neither the
Trustee nor any holder or owner of any Notes shall take or receive from the
Company or any Subsidiary, directly or indirectly in any manner, payment in
respect of all or any portion of Notes following the occurrence of a Payment
Default, and in any such event, such prohibition shall continue until such
Payment Default is cured, waived in writing or ceases to exist or such
acceleration has been rescinded or otherwise cured. At such time as the
prohibition set forth in the preceding sentence shall no longer be in effect,
subject to the provisions of the following paragraph, the Company shall resume
making any and all required payments in respect of the Notes, including any
missed payments.

Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, no payment or distribution of any assets of the Company of any
kind may be made by the Company, including, without limitation, by way of
set-off or otherwise, on account of the Notes, for or on account of the
purchase, redemption, defeasance or other acquisition of Notes, and neither the
Trustee nor any holder or owner of Notes shall take or receive from the Company
or any Subsidiary, directly or indirectly in any manner, payment in respect of
all or any portion of the Notes for a period (a "Payment Blockage Period")
commencing on the date of receipt by the Trustee of written notice from an
authorized Person on behalf of the holders of Designated Senior Indebtedness
(the "Authorized Person") of such Non-Payment Event of Default unless and until
(subject to any blockage of payments that may then be in effect under the
preceding paragraph) the earliest of (x) more than 179 days shall have elapsed
since receipt of such written notice by the Trustee, (y) such Non-Payment Event
of Default shall have been cured or waived in writing or shall have ceased to
exist or such Designated Senior Indebtedness shall have been paid in full or (z)
such Payment Blockage Period shall have been terminated by written notice to the
Company or the Trustee from such Authorized Person, after which, in the case of
clause (x), (y) or (z), the Company shall resume making any and all required
payments in respect of the Notes, including any missed payments. Notwithstanding
any other provision of the Indenture, in no event shall a Payment Blockage
Period commenced in accordance with the provisions of the Indenture described in
this paragraph extend beyond 179 days from the date of the receipt by the
Trustee of the notice referred to above (the "Initial Blockage Period"). Any
number of additional Payment Blockage Periods may be commenced during the
Initial Blockage Period; provided, however, that no such additional Payment
Blockage Period shall extend beyond the Initial Blockage Period. After the
expiration of the Initial Blockage Period, no Payment Blockage Period may be
commenced until at least 180 consecutive days have elapsed from the last day of
the Initial Blockage Period. Notwithstanding any other provision of the
Indenture, no event of default with respect to Designated Senior Indebtedness
(other than a Payment Default) which existed or was continuing on the date of
the commencement of any Payment Blockage Period initiated by an Authorized
Person shall be, or be made, the basis for the commencement of a second Payment
Blockage Period initiated by an Authorized Person, whether or not within the
Initial Blockage Period, unless such event of default shall have been cured or
waived for a period of not less than 90 consecutive days.

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If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of payment blockage
provisions, such failure would constitute an Event of Default under the
Indenture and would enable the holders of the Notes to accelerate the maturity
thereof. See "Events of Default."

A holder of Notes by his acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purpose.

CERTAIN COVENANTS

The Indenture will contain, among others, the following covenants. Except
as otherwise specified, all of the covenants described below will appear in the
Indenture.

Limitation on Additional Indebtedness

The Company will not, and will not permit any Subsidiary of the Company to,
directly or indirectly, incur (as defined) any Indebtedness (including Acquired
Indebtedness); provided, that the Company (but not any Subsidiary of the
Company) may incur Indebtedness if (i) after giving effect to the incurrence of
such Indebtedness and the receipt and application of the proceeds thereof, the
Company's Fixed Charge Coverage Ratio (determined on a pro forma basis for the
last four fiscal quarters of the Company for which financial statements are
available at the date of determination) is at least 2.00 to 1 if the
Indebtedness is incurred prior to December 31, 2000 and 2.25 to 1 thereafter,
and (ii) no Triggering Default Event shall have occurred and be continuing at
the time or as a consequence of the incurrence of such Indebtedness. For
purposes of computing the Fixed Charge Coverage Ratio, (A) if the Indebtedness
which is the subject of a determination under this provision is Acquired
Indebtedness, or Indebtedness incurred in connection with the simultaneous
acquisition (by way of merger, consolidation or otherwise) of any Person,
business, property or assets (an "Acquisition"), then such ratio shall be
determined by giving effect (on a pro forma basis, as if the transaction had
occurred at the beginning of the four-quarter period) to both the incurrence or
assumption of such Acquired Indebtedness or such other Indebtedness by the
Company and the inclusion in the Company's EBITDA of the EBITDA of the acquired
Person, business, property or assets, (B) if any Indebtedness outstanding or to
be incurred (x) bears a floating rate of interest, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account on a pro forma basis any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term as at the date
of determination in excess of 12 months), (y) bears, at the option of the
Company or a Subsidiary, a fixed or floating rate of interest, the interest
expense on such Indebtedness shall be computed by applying, at the option of the
Company or such Subsidiary, either a fixed or floating rate and (z) was incurred
under a revolving credit facility, the interest expense on such Indebtedness
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period, (C) for any quarter prior to the date hereof
included in the calculation of such ratio, such calculation shall be made on a
pro forma basis, giving effect to the Pearle Acquisition, the issuance of the
Notes, the incurrence of Indebtedness under the New Credit Facility and the use
of the net proceeds therefrom as if the same had occurred at the beginning of
the four-quarter period used to make such calculation and (D) for any quarter
included in the calculation of such ratio prior to the date that any Asset Sale
was consummated, or that any Indebtedness was incurred, or that any Acquisition
was effected, by the Company or any of its Subsidiaries, such calculation shall
be made on a pro forma basis, giving effect to each Asset Sale, incurrence of
Indebtedness or Acquisition, as the case may be, and the use of any proceeds
therefrom, as if the same had occurred at the beginning of the four quarter
period used to make such calculation.

Notwithstanding the foregoing, the Company and its Subsidiaries may incur
Permitted Indebtedness; provided, that the Company will not incur any Permitted
Indebtedness, without meeting the Indebtedness incurrence provisions of the
preceding paragraph, that ranks pari passu or junior in right of payment to the
Notes and that has a maturity or mandatory sinking fund payment prior to the
maturity of the Notes.

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Limitation on Restricted Payments

The Company will not make, and will not permit any of its Subsidiaries to,
directly or indirectly, make, any Restricted Payment, unless:

(a) no Triggering Default Event shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted
Payment;

(b) immediately after giving pro forma effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant set forth under
"-- Limitation on Additional Indebtedness"; and

(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 50% of the cumulative Consolidated Net
Income of the Company subsequent to October 31, 1993 (or minus 100% of any
cumulative deficit in Consolidated Net Income during such period); (2) 100%
of the aggregate Net Proceeds and the fair market value (as determined in
good faith by the Board of Directors of the Company) of securities or other
property received by the Company from the issue or sale, after the Issue
Date, of Capital Stock (other than Disqualified Capital Stock or Capital
Stock of the Company issued to any Subsidiary of the Company) of the
Company or any Indebtedness or other securities of the Company convertible
into or exercisable or exchangeable for Capital Stock (other than
Disqualified Capital Stock) of the Company which has been so converted or
exercised or exchanged, as the case may be; (3) 100% of the capital
contributions made by the Parent to the Company after the Issue Date (other
than capital contributions which constitute Indebtedness); and (4) in the
case of the disposition or repayment of any Investment constituting a
Restricted Payment made after the date hereof, an amount equal to the
lesser of the return of capital with respect to such Investment and the
initial amount of such Investment, in either case, less the cost of the
disposition of such Investment. For purposes of determining under this
clause (c) the amount expended for Restricted Payments, cash distributed
shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value (as determined in good faith by
the Board of Directors of the Company).

The provisions of this covenant will not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture; (ii) the repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company or Indebtedness subordinated to the
Notes by conversion into, or by or in exchange for, shares of Capital Stock
(other than Disqualified Capital Stock), or out of, the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other shares of Capital Stock of the Company (other than Disqualified Capital
Stock); (iii) the repurchase, redemption or other acquisition or retirement of
Indebtedness of the Company subordinated to the Notes in exchange for, by
conversion into, or out of the Net Proceeds of, a substantially concurrent sale
or incurrence of Indebtedness (other than any Indebtedness owed to a Subsidiary)
of the Company that is contractually subordinated in right of payment to the
Notes to at least the same extent as the Indebtedness subordinated to the Notes
being redeemed or retired; (iv) the retirement of any shares of Disqualified
Capital Stock by conversion into, or by exchange for, shares of Disqualified
Capital Stock, or out of the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of Disqualified
Capital Stock; (v) the repurchase, redemption or other acquisition or retirement
for value of any Capital Stock of the Company or the Parent or any current or
former Subsidiary of the Company held by any member of the Company's (or any of
its Subsidiaries') current or former employees; provided, that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Capital Stock
shall not exceed $4 million; (vi) the payment of dividends to the Parent solely
for the purpose of enabling Parent to pay the ordinary operating and
administrative expenses of the Parent (including all reasonable professional
fees and expenses) in connection with its complying with its reporting
obligations and obligations to prepare and distribute business records in the
ordinary course of business and the Parent's costs and expenses relating to
taxes (which taxes are attributable to the operations of the Company and its
Subsidiaries or to the Parent's ownership thereof); provided, however, that the
aggregate dividend payments paid in each fiscal year pursuant to this clause
(vi) will at no time exceed .25% of the Company's Net Sales for

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such fiscal year; (vii) payments to the Parent for income taxes pursuant to the
Tax Allocation Agreement; and (viii) the payment of dividends to the Parent
solely for the purpose of enabling the Parent to pay taxes other than income
taxes, to the extent actually owed and attributable to the operations of the
Company and its Subsidiaries or to the Parent's ownership thereof; provided,
that, for purposes of determining whether Restricted Payments can be made
pursuant to the previous paragraph, all payments made pursuant to clauses (ii),
(iv), (v), (vi), (vii) and (viii) of this paragraph will reduce the amount that
would otherwise be available for such Restricted Payments and payments made
pursuant to the other clauses of this paragraph shall not so reduce the amount
available for Restricted Payments.

Not later than the date of making any Restricted Payment which may only be
made pursuant to subclause (c) above, the Company shall deliver to the Trustee
an Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"-- Limitation on Restricted Payments" were computed, which calculations may be
based upon the Company's latest available financial statements, and that no
Triggering Default Event exists and is continuing and no Triggering Default
Event will occur immediately after giving effect to any Restricted Payments. At
November 2, 1996, the Company had $15.4 million available to make Restricted
Payments.

Limitation on Other Senior Subordinated Debt

The Company will not, directly or indirectly, incur any Indebtedness that
is both (i) subordinate in right of payment to any Senior Indebtedness of the
Company and (ii) senior in right of payment to the Notes. For purposes of this
covenant, Indebtedness is deemed to be senior in right of payment to the Notes
if it is not explicitly subordinate in right of payment to Senior Indebtedness
at least to the same extent as the Notes are subordinate to Senior Indebtedness.

Limitations on Liens

The Company will not create, incur or otherwise cause or suffer to exist
any Liens of any kind (other than Permitted Liens) upon any property or asset of
the Company to secure Indebtedness which is pari passu with or subordinate in
right of payment to the Notes, unless (i) if such Lien secures Indebtedness
which is pari passu with the Notes, the Notes are secured on an equal and
ratable basis with the obligation so secured until such time as such obligation
is no longer secured by a Lien and (ii) if such Lien secures Indebtedness which
is subordinated to the Notes, such Indebtedness secured by such Lien and such
Lien shall be subordinated to the Lien granted to the Holders of the Notes to
the same extent as such Indebtedness is subordinated to the Notes.

Dividend and Other Payment Restrictions Affecting Subsidiaries

The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (a)(i) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (A) on its Capital Stock
or (B) with respect to any other interest or participation in, or measured by,
its profits, or (ii) pay any Indebtedness owed to the Company or any of its
Subsidiaries or (b) make loans or advances to the Company or any of its
Subsidiaries or (c) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reasons of (i) Indebtedness outstanding on the date of the
Indenture, (ii) the Revolving Credit Facility as in effect as of the date of the
Indenture, or as replaced by the New Credit Facility having terms no more
restrictive than those contained in the Revolving Credit Facility as in effect
on the date of the Indenture, (iii) the Senior Note Indenture, the Senior Notes
and the Indenture, (iv) applicable law, (v) customary nonassignment provisions
in leases, (vi) permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Refinancing Indebtedness
shall not be materially more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, (vii) customary restrictions
imposed in connection with Purchase Money Indebtedness or Capital Lease
Obligations permitted under the covenant entitled "Limitation on Incurrence of
Indebtedness" as long as such customary restrictions are not materially more
restrictive than those set forth in the Revolving Credit Facility

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on the date of the Indenture and the New Credit Facility (except that they may
impose restrictions on the transfer of the asset so financed), or (viii)
restrictions in agreements with Persons acquired by the Company or any
Subsidiary which do not extend to Property or assets other than the Property or
assets of such Persons.

Limitation on Transactions with Affiliates

The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate (including
Parent and entities in which the Company or any of its Subsidiaries own a
minority interest) or holder of 10% or more of the Company's Common Stock (an
"Affiliate Transaction") or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date unless (i)
such Affiliate Transaction is between or among the Company and its Wholly-Owned
Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Subsidiary, as the case may be, and the terms
of such Affiliate Transaction are at least as favorable as the terms which could
be obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties. In any Affiliate Transaction involving an amount or having a value in
excess of $5.0 million which is not permitted under clause (i) above, the
Company must obtain a resolution of the Board of Directors certifying that such
Affiliate Transaction complies with clause (ii) above. In transactions with a
value in excess of $10.0 million which are not permitted under clause (i) above
(other than loans from the Parent to the Company at a rate not in excess of the
incremental borrowing rate of the Company as determined in good faith by the
Board of Directors of the Company, or loans from the Company or any Subsidiary
to Parent, in each case at a rate not in excess of the Parent's incremental
borrowing rate, as determined in good faith by the Board of Directors of the
Company), the Company must obtain a written opinion as to the fairness of such a
transaction from an independent investment banking firm.

The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "-- Limitations on
Restricted Payments" contained herein, (ii) Indebtedness incurred by the Company
to the Parent, provided such Indebtedness has terms no more onerous than those
contained in the New Credit Facility or (iii) any compensation-related
transaction, approved by an independent committee of the Board of Directors of
the Company, with an officer or director of the Company or of any Subsidiary in
his or her capacity as officer or director entered into in the ordinary course
of business.

Limitation on Certain Asset Sales

The Company will not, and will not permit any of its Subsidiaries to,
consummate an Asset Sale unless (i) the Company or its Subsidiaries, as the case
may be, receives consideration at the time of such sale or other disposition at
least equal to the fair market value thereof (as determined in good faith by the
Board of Directors of the Company); (ii) except in the case of the sale,
transfer or other disposition of Company-owned stores to franchisees in a
business related to the optical business that result in the conversion of such
stores to franchised stores, not less than 75% of the consideration received by
the Company or its Subsidiaries, as the case may be, is in the form of cash or
Temporary Cash Investments; and (iii) the Asset Sale Proceeds received by the
Company or such Subsidiary are applied (a) first, to the extent the Company
elects, or is required, to prepay, repay or purchase debt under any then
existing Senior Indebtedness of the Company or any Subsidiary within 12 months
following the receipt of the Asset Sale Proceeds from any Asset Sale, provided
that any such repayment shall result in a permanent reduction of the commitments
thereunder in an amount equal to the principal amount so repaid; (b) second, to
the extent of the balance of Asset Sale Proceeds after application as described
above, to the extent the Company elects, to an investment in assets (including
Capital Stock or other securities purchased in connection with the acquisition
of Capital Stock or property of another person) used or useful in businesses
similar or ancillary to the business of the Company or Subsidiary as conducted
at the time of such Asset Sale, provided that such investment occurs on or prior
to the 365th day following receipt of such Asset Sale Proceeds (the
"Reinvestment Date"); and (c) third, if on the Reinvestment Date the Available
Asset Sale Proceeds with respect to any Asset Sale exceed $10 million, the
Company shall apply an amount equal to such Available Asset Sale Proceeds to an
offer to repurchase the

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Notes, at a purchase price in cash equal to 100% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of repurchase (an "Excess
Proceeds Offer"). If an Excess Proceeds Offer is not fully subscribed, the
Company may retain the portion of the Available Asset Sale Proceeds not required
to repurchase Notes.

If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
Holders stating, among other things: (1) that such Holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (2)
the purchase date, which shall be no earlier than 30 days and not later than 60
days from the date such notice is mailed; (3) the instructions, determined by
the Company, that each Holder must follow in order to have such Notes
repurchased; and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the repurchase of such Notes.

Limitation on Capital Stock of Subsidiaries

The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Subsidiary (other than under the New Credit
Facility or a successor facility or under the terms of any Designated Senior
Indebtedness) or (ii) permit any of its Subsidiaries to issue any Capital Stock,
other than to the Company or a Wholly Owned Subsidiary of the Company. The
foregoing restrictions shall not apply to an Asset Sale (other than the sale of
Preferred Stock of a Subsidiary) made in compliance with "-- Limitation on
Certain Asset Sales."

Limitation on Sale and Lease-Back Transactions

The Company will not, and will not permit any Subsidiary to, enter into any
Sale and Lease-Back Transaction unless (i) the consideration received in such
Sale and Lease-Back Transaction is at least equal to the fair market value of
the property sold, as determined by a board resolution of the Company and (ii)
the Company could incur Indebtedness in an amount equal to the Attributable
Indebtedness in respect of such Sale and Lease-Back Transaction in compliance
with the covenant described under "-- Limitation of Additional Indebtedness."

Payments for Consent

Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.

CHANGE OF CONTROL OFFER

Within 30 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Notes at a purchase
price equal to 101% of the principal amount thereof plus any accrued interest to
the Change of Control Payment Date (as hereinafter defined) (such applicable
purchase price being hereinafter referred to as the "Change of Control Purchase
Price") in accordance with the procedures set forth in this covenant.

Within 40 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and to
each holder of the Notes, at the address appearing in the register maintained by
the Registrar of the Notes, a notice stating:

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(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;

(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 nor later than 40 days from the
date such notice is mailed (the "Change of Control Payment Date"));

(3) that any Note not tendered will continue to accrue interest;

(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;

(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;

(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;

(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof;

(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and

(9) the name and address of the Paying Agent.

On the Change of Control Payment Date, the Company shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered; provided that each such new Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof.

The Indenture requires that if the New Credit Facility is in effect and the
Senior Notes are outstanding, or any amounts are owing thereunder or in respect
thereof, at the time of the occurrence of a Change of Control, prior to the
mailing of the notice to holders described in the preceding paragraph, but in
any event within 30 days following any Change of Control, the Company covenants
to (i) repay in full all obligations under or in respect of the New Credit
Facility and the Senior Notes or offer to repay in full all obligations under or
in respect of the New Credit Facility and the Senior Notes and repay the
obligations under or in respect of the New Credit Facility and the Senior Notes
of each lender and holder, as the case may be, who has accepted such offer or
(ii) obtain the requisite consent under the New Credit Facility and the Senior
Notes to permit the repurchase of the Notes as described above. The Company must
first comply with the covenant described in the preceding sentence before it
shall be required to purchase Notes in the event of a Change of Control;
provided that the Company's failure to comply with the covenant described in the
preceding sentence constitutes an Event of Default described in clause (iii)
under "-- Events of Default" below if not cured within 60 days after the notice
required by such clause. As a result of the foregoing, a holder of the Notes may
not be able to compel the Company to purchase the Notes unless the Company is
able at the

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time to refinance all of the obligations under or in respect of the New Credit
Facility and the Senior Notes or obtain requisite consents under the New Credit
Facility and the Senior Notes. Failure by the Company to make a Change of
Control Offer when required by the Indenture constitutes a default under the
Indenture and, if not cured within 60 days after notice, constitutes an Event of
Default.

The Indenture provides that, (A) if the Company or any Subsidiary thereof
has issued any outstanding (i) Indebtedness that is subordinated in right of
payment to the Notes or (ii) Preferred Stock, and the Company or such Subsidiary
is required to make a Change of Control Offer or to make a distribution with
respect to such subordinated Indebtedness or Preferred Stock in the event of a
change of control, the Company shall not consummate any such offer or
distribution with respect to such subordinated Indebtedness or Preferred Stock
until such time as the Company shall have paid the Change of Control Purchase
Price in full to the holders of Notes that have accepted the Company's Change of
Control Offer and shall otherwise have consummated the Change of Control Offer
made to holders of the Notes and (B) the Company will not issue Indebtedness
that is subordinated in right of payment to the Notes or Preferred Stock with
change of control provisions requiring the payment of such Indebtedness or
Preferred Stock prior to the payment of the Notes in the event of a Change in
Control under the Indenture.

In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.

MERGER, CONSOLIDATION OR SALE OF ASSETS

The Company will not and will not permit any Subsidiary to consolidate
with, merge with or into, or transfer all or substantially all of its assets (as
an entirety or substantially as an entirety in one transaction or a series of
related transactions), to any Person unless: (i) the Company or the Subsidiary,
as the case may be, shall be the continuing Person, or the Person (if other than
the Company or the Subsidiary) formed by such consolidation or into which the
Company or the Subsidiary, as the case may be, is merged or to which the
properties and assets of the Company or the Subsidiary, as the case may be, are
transferred shall be a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of the
Company or the Subsidiary, as the case may be, under the Notes and the
Indenture, and the obligations under the Indenture shall remain in full force
and effect; (ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (iii) immediately after giving effect to such transaction on a
pro forma basis the Company or such Person could incur at least $1.00 additional
Indebtedness (other than Permitted Indebtedness) under the covenant set forth
under "Limitation on Additional Indebtedness," provided that a Person that is a
Subsidiary on the Issue Date may merge into the Company or another Person that
is a Subsidiary on the Issue Date without complying with this clause (iii).

In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.

EVENTS OF DEFAULT

The following events are defined in the Indenture as "Events of Default":

(i) default in payment of any principal of, or premium, if any, on the
Notes;

(ii) default for 30 days in payment of any interest on the Notes;

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(iii) default by the Company or any Subsidiary in the observance or
performance of any other covenant in the Notes or the Indenture for 60 days
after written notice from the Trustee or the holders of not less than 25%
in aggregate principal amount of the Notes then outstanding;

(iv) failure to pay when due (within the grace period provided in such
Indebtedness) principal, interest or premium in an aggregate amount of
$5,000,000 or more with respect to any Indebtedness of the Company or any
Subsidiary thereof, or the acceleration of any such Indebtedness
aggregating $5,000,000 or more, which default or acceleration shall not be
cured, waived or postponed pursuant to an agreement with the holders of
such Indebtedness within 60 days after written notice, or such acceleration
shall not be rescinded or annulled within 20 days after written notice;

(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5,000,000 shall be rendered against
the Company or any Subsidiary thereof (other than a judgment or portion
thereof as to which an insurance company of national reputation has
accepted full liability), and shall not be discharged or fully bonded for
any period of 60 consecutive days during which a stay of enforcement shall
not be in effect; and

(vi) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Significant Subsidiary thereof.

The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.

The Indenture will provide that if an Event of Default (other than an Event
of Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued interest to the date of
acceleration and (i) such amounts shall become immediately due and payable or
(ii) if there are any amounts outstanding under or in respect of the New Credit
Facility, such amounts shall become due and payable upon the first to occur of
an acceleration of amounts outstanding under or in respect of the New Credit
Facility or five business days after receipt by the Company and the
representative of the holders of Senior Indebtedness under or in respect of the
New Credit Facility, of notice of the acceleration of the Notes; provided,
however, that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Trustee, the holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than nonpayment of
accelerated principal, premium or interest, have been cured or waived as
provided in the Indenture. In case an Event of Default resulting from certain
events of bankruptcy, insolvency or reorganization shall occur, the principal,
premium and interest amount with respect to all of the Notes shall be due and
payable immediately without any declaration or other act on the part of the
Trustee or the holders of the Notes.

The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.

No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as a trustee,
and unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted on such Note
on or after the respective due dates expressed in such Note.

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DEFEASANCE AND COVENANT DEFEASANCE

The Indenture provides the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold monies for payment in trust)
("defeasance") or (b) to be released from their obligations with respect to the
Notes under certain covenants contained in the Indenture and described above
under "-- Certain Covenants" ("covenant defeasance"), upon the deposit with the
Trustee (or other qualifying trustee), in trust for such purpose, of money
and/or United States Government Obligations which through the payment of
principal and interest in accordance with their terms will provide money, in an
amount sufficient to pay the principal of, premium, if any, and interest on the
Notes, on the scheduled due dates therefor or on a selected date of redemption
in accordance with the terms of the Indenture. Such a trust may only be
established if, among other things, the Issuers have delivered to the Trustee an
Opinion of Counsel (as specified in the Indenture) (i) to the effect that
neither the trust nor the Trustee will be required to register as an investment
company under the Investment Company Act of 1940, as amended, and (ii) in the
case of defeasance describing either a private ruling concerning the Notes or a
published ruling of the Internal Revenue Service, to the effect that, and in the
case of covenant defeasance, stating that, holders of the Notes or persons in
their positions will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same manner and at
the same times, as would have been the case if such deposit, defeasance and
discharge had not occurred.

MODIFICATION OF INDENTURE

From time to time, the Company and the Trustee may, without the consent of
holders of the Notes, amend the Indenture or the Notes or supplement the
Indenture for certain specified purposes, including providing for uncertificated
Notes in addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not materially and adversely
affect the rights of any holder. The Indenture contains provisions permitting
the Company and the Trustee, with the consent of holders of at least a majority
in principal amount of the outstanding Notes, to modify or supplement the
Indenture or the Notes, except that no such modification shall, without the
consent of each holder affected thereby, (i) reduce the amount of Notes whose
holders must consent to an amendment, supplement, or waiver to the Indenture or
the Notes, (ii) reduce the rate of or change the time for payment of interest on
any Note, (iii) reduce the principal of or premium on or change the stated
maturity of any Note, (iv) make any Note payable in money other than that stated
in the Note or change the place of payment from New York, New York, (v) change
the amount or time of any payment required by the Notes or reduce the premium
payable upon any redemption of Notes, or change the time before which no such
redemption may be made, (vi) waive a default on the payment of the principal of,
interest on, or redemption payment with respect to any Note, or (vii) take any
other action otherwise prohibited by the Indenture to be taken without the
consent of each holder affected thereby.

REPORTS TO HOLDERS

So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Notes. The Indenture provides that
even if the Company is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, they will
nonetheless continue to furnish such information to the Commission and holders
of the Notes.

COMPLIANCE CERTIFICATE

The Company will deliver to the Trustee on or before 120 days after the end
of the Company's fiscal year and on or before 60 days after the end of each the
first, second and third fiscal quarters in each year an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
has occurred. If they do, the certificate will describe the Default or Event of
Default and its status.

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THE TRUSTEE

The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.

TRANSFER AND EXCHANGE

Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption. Also,
the Registrar is not required to transfer or exchange any Note for a period of
15 days before selection of the Notes to be redeemed.

The Original Notes were issued in a transaction exempt from registration
under the Act and are subject to the restrictions on transfer.

The registered holder of a Note may be treated as the owner of it for all
purposes.

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.

"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary or assumed in connection with the acquisition
of assets from such Person.

"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.

"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Subsidiaries) in any single transaction or series of
related transactions having a fair market value in excess of $2.5 million of (a)
any Capital Stock of or other equity interest in any Subsidiary of the Company,
(b) all or substantially all of the assets of the Company or of any Subsidiary,
(c) real property or (d) all or substantially all of the assets of a division,
line of business or comparable business segment or part thereof of the Company
or any Subsidiary thereof; provided that Asset Sales shall not include sales,
transfers or other dispositions to the Company or to a Subsidiary or to any
other Person if after giving effect to such sale, lease, conveyance, transfer or
other disposition such other Person becomes a Subsidiary.

"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Subsidiary from such Asset Sale (including cash
received as consideration for the assumption of liabilities incurred in
connection with or in anticipation of such Asset Sale), after (a) provision for
all income or other taxes measured by or resulting from such Asset Sale, (b)
payment of all brokerage commissions, underwriting and other fees and expenses
related to such Asset Sale, (c) provision for minority interest holders in any
Subsidiary as a result of such Asset Sale and (d) deduction of appropriate
amounts to be provided by the Company or a Subsidiary as a reserve, in
accordance with GAAP, against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by the Company or a Subsidiary after
such Asset Sale, including, without limitation, pension and other post
employment benefit liabilities and liabilities related to environmental matters
or against any indemnification obligations associated with the assets sold or
disposed

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of in such Asset Sale, and (ii) promissory notes and other noncash consideration
received by the Company or any Subsidiary from such Asset Sale or other
disposition upon the liquidation or conversion of such notes or noncash
consideration into cash.

"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement (as determined by the Board of Directors of
the Company) and (ii) the present value (discounted at a rate of 10%, compounded
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).

"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii)(a) or (iii)(b), and which have not yet been the
basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of the
first paragraph of "Description of the Notes -- Certain Covenants -- Limitation
on Certain Asset Sales."

"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into any of the foregoing.

"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.

A "Change of Control" of the Company will be deemed to have occurred at
such time as (i) any Person (including a Person's Affiliates and associates),
other than a Permitted Holder, becomes the beneficial owner (as defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of 50% or more of the total voting or economic power of the Common Stock of
the Company or the Parent and/or warrants or options to acquire such Common
Stock on a fully diluted basis, (ii) either the Company or Parent consolidates
with, or merges with or into, another Person or conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any Person, or
any Person consolidates with, or merges with or into, either the Company or
Parent, in any such event pursuant to a transaction in which the outstanding
Common Stock of either the Company or Parent is converted into or exchanged for
cash, securities or other property, other than any such transaction where (a)
(1) the outstanding Common Stock of the Company or Parent, as the case may be,
is not converted or exchanged at all (except to the extent necessary to reflect
a change in the jurisdiction of incorporation) or is converted into or exchanged
for Common Stock (other than Disqualified Capital Stock) of the surviving or
transferee corporation (the "Surviving Entity") and (2) immediately after such
transaction, no "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) other than a Permitted Holder is the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than a majority of the total outstanding Common Stock of the Surviving Entity,
or (b) the holders of the Common Stock of the Company outstanding immediately
prior to the consolidation or merger hold, directly or indirectly, at least a
majority of the Common Stock of the surviving corporation immediately after such
consolidation or merger, or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company or the Parent (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Company or the Parent has been approved by 66 2/3% of the
directors then still in office who either were directors at the beginning of
such period or whose election or recommendation for election was previously so
approved) cease to constitute a majority of the Board of Directors of the
Company or the Parent.

"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise

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participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.

"Consolidated Fixed Charges" means, with respect to any Person and with
respect to any determination date, the sum of a Person's (i) Consolidated
Interest Expense, plus (ii) the product of (x) the aggregate amount of all
dividends paid on Disqualified Capital Stock of the Company or on each series of
preferred stock of each Subsidiary of such Person (other than dividends paid or
payable in additional shares of preferred stock or to the Company or any of its
Wholly Owned Subsidiaries) times (y) a fraction, the numerator of which is one
and the denominator of which is one minus the then current effective combined
federal, state and local tax rate of such Person (expressed as a decimal), in
each case, for the prior four full fiscal quarter period for which financial
results are available.

"Consolidated Interest Expense" means, with respect to any Person, for any
period and without duplication, the aggregate amount of interest which, in
conformity with GAAP, would be set forth opposite the caption "interest expense"
or any like caption on an income statement for such Person and its Subsidiaries
on a consolidated basis (including, but not limited to, (i) imputed interest
included in Capitalized Lease Obligations, (ii) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (iii) net payments made in connection with Interest Rate
Agreements, (iv) the interest portion of any deferred payment obligation, (v)
amortization of discount or premium, if any, and (vi) all other non-cash
interest expense (other than interest amortized to cost of sales)) plus all net
capitalized interest for such period and all interest paid under any guarantee
of Indebtedness (including a guarantee of principal, interest or any combination
thereof) of any Person, and minus (a) net payments received in connection with
Interest Rate Agreements and (b) amortization of deferred financing costs and
expenses.

"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person (the "other Person") in
which the Person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the net income of such other Person to
be consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) the Net
Income of any Subsidiary of the Person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions (other than pursuant to the Notes or the Indenture) shall be
excluded to the extent of such restriction or limitation, (c)(i) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (ii) any net gain (but not loss)
resulting from an Asset Sale by the Person in question or any of its
Subsidiaries other than in the ordinary course of business shall be excluded,
(d) extraordinary, unusual and non-recurring gains and losses shall be excluded.

"Designated Senior Indebtedness," as to the Company, means any Senior
Indebtedness (a) under the New Credit Facility or (b) which at the time of
determination exceeds $25 million in aggregate principal amount (or accreted
value in the case of Indebtedness issued at a discount) outstanding or available
under a committed facility.

"Disqualified Capital Stock" means any Capital Stock of the Company or a
Subsidiary thereof which, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable at the option of the
holder), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Notes, for cash or securities constituting Indebtedness.
Without limiting the foregoing, Disqualified Capital Stock shall be deemed to
include (i) any Preferred Stock of a Subsidiary of the Company and (ii) any
Preferred Stock of the Company, with respect to either of which, under the terms
of such Preferred Stock, by agreement or otherwise, such Subsidiary or the
Company is obligated to pay current dividends or distributions in cash during
the period prior to the maturity date of the Notes; provided, however, that
Preferred Stock of the Company or any Subsidiary thereof that is issued with the
benefit of provisions requiring a change of control offer to be made for such
Preferred Stock in the event of a change of

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control of the Company or Subsidiary, which provisions have substantially the
same effect as the provisions of the Indenture described under "Description of
the Notes -- Change of Control Offer," shall not be deemed to be Disqualified
Capital Stock solely by virtue of such provisions.

"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period including the write-off of franchise receivables acquired
in the Pearle Acquisition which have not been restructured or refinanced since
the consummation of the Pearle Acquisition but excluding the write-off of all
other franchise receivables, minus (b) all non-cash items increasing
Consolidated Net Income for such period, all for such Person and its
Subsidiaries determined in accordance with GAAP, except that with respect to the
Company each of the foregoing items shall be determined on a consolidated basis
with respect to the Company and its Subsidiaries only.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Fixed Charge Coverage Ratio" of any Person means, with respect to any
determination date, the ratio of (i) EBITDA for such Person's prior four full
fiscal quarters for which financial results have been reported prior to the
determination date, to (ii) Consolidated Fixed Charges of such Person.

"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.

"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such person (and
"incurrence," "incurred," "incurrable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.

"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a lien to which the
property or assets owned or held by such Person is subject, whether or not the
obligation or obligations secured thereby shall have been assumed (provided,
however, that if such obligation or obligations shall not have been assumed, the
amount of such indebtedness shall be deemed to be the lesser of the principal
amount of the obligation or the fair market value of the pledged property or
assets), (iii) guarantees of items of other Persons which would be included
within this definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor), (iv) all obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (provided that in the case of any such letters of
credit, the items for which such letters of credit provide credit support are
those of other Persons which would be included within this definition for such
other Persons), (v) Disqualified Capital Stock of the Company or any Subsidiary
thereof, and (vi) obligations of any such Person under any Interest Rate
Agreement applicable to any of the foregoing (if and to the extent such Interest
Rate Agreement obligations would appear as a liability upon a

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balance sheet of such Person prepared in accordance with GAAP). The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided (i) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the principal amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP and (ii) that Indebtedness shall not include
any liability for federal, state, local or other taxes. Notwithstanding any
other provision of the foregoing definition, any trade payable arising from the
purchase of goods or materials or for services obtained in the ordinary course
of business shall not be deemed to be "Indebtedness" of the Company or any
Subsidiaries for purposes of this definition. Furthermore, guarantees of (or
obligations with respect to letters of credit supporting) Indebtedness otherwise
included in the determination of such amount shall not also be included.

"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.

"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business or acquired as part of the assets acquired by the Company in connection
with an acquisition of assets which is otherwise permitted by the terms of the
Indenture), loan or capital contribution to (by means of transfers of property
to others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude (i) extensions of trade
credit on commercially reasonable terms in accordance with normal trade
practices and (ii) the repurchase of securities of any Person by such Person.

"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.

"Lien" means with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).

"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.

"Net Proceeds" means (a) in the case of any sale of Capital Stock by the
Company, the aggregate net proceeds received by the Company, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the board of directors, at the time of
receipt) and (b) in the case of any exchange, exercise, conversion or surrender
of outstanding securities of any kind for or into shares of Capital Stock of the
Company which is not Disqualified Stock, the net book value of such outstanding
securities on the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder to the Company upon such
exchange, exercise, conversion or surrender, less any and all payments made to
the holders, e.g., on account of fractional shares and less all expenses
incurred by the Company in connection therewith).

"Net Sales" means Net Sales as shown on the Company's audited consolidated
statements of income for the applicable fiscal year.

"New Credit Facility" means the term and revolving credit agreement, dated
November 15, 1996, by and among Canadian Imperial Bank of Commerce, as agent,
the lenders named therein, one or more lenders

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parties thereto, as the same may be amended, extended, renewed, restated,
supplemented or otherwise modified from time to time.

"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.

"Officer" means the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial Officer, the
Treasurer, any Assistant Treasurer, Controller, Secretary or any Vice-President
of the Company or any Subsidiary, as the case may be.

"Officers' Certificate" means a certificate signed by two Officers, one of
whom must be the principal executive officer, principal financial officer,
treasurer or principal accounting officer of the Company.

"Parent" means Cole National Corporation, a Delaware corporation and the
Company's sole stockholder.

"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Indebtedness.

"Pearle Acquisition" means the acquisition of the capital stock of Pearle,
Inc. and Pearle Service Corporation by the Parent from The Pillsbury Company
pursuant to a stock purchase agreement dated as of September 24, 1996 and
various documents related thereto.

"Permitted Holders" means (i) Jeffrey A. Cole, (ii) any employee stock
ownership plan or any "group" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) in which employees of Parent or its Subsidiaries beneficially own
at least 25% of the Common Stock of the Company or Parent owned by such group,
(iii) Parent and (iv) any Person that is controlled by any one or more of the
Persons set forth in (i)-(iii) above.

"Permitted Indebtedness" means:

(i) Indebtedness of the Company or any Subsidiary arising under or in
connection with the New Credit Facility in an amount not to exceed the
greater of (a) $75,000,000 less any mandatory prepayments actually made
thereunder (to the extent, in the case of payments of revolving credit
indebtedness, that the corresponding commitments have been permanently
reduced) or scheduled payments actually made thereunder or (b) the sum of
(x) 80% of consolidated accounts receivable of the Company and its
Subsidiaries and (y) 50% of consolidated inventory of the Company and its
Subsidiaries;

(ii) Indebtedness under the Notes;

(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture;

(iv) Indebtedness of the Company to any Subsidiary and Indebtedness of
any Subsidiary to the Company or another Subsidiary;

(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred by the Company or its Subsidiaries to acquire property in the
ordinary course of business which Indebtedness and Capitalized Lease
Obligations do not in the aggregate exceed $15,000,000 at any time
outstanding;

(vi) Interest Rate Agreements;

(vii) Indebtedness of the Company or its Subsidiaries which do not in
the aggregate exceed $3,000,000 in principal amount at anytime outstanding
with respect to guarantees of obligations of franchisees in a business
related to the optical business of the Company or any Subsidiary as
conducted on the Issue Date;

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(viii) Indebtedness incurred in connection with the financing of a new
warehouse facility relating to Cole Gift's business in an amount not to
exceed $7,500,000 in the aggregate;

(ix) additional Indebtedness of the Company not to exceed $15,000,000
in principal amount outstanding at any time; and

(x) Refinancing Indebtedness.

"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of

(i) Investments by the Company, or by a Subsidiary thereof, in the
Company or a Subsidiary;

(ii) Temporary Cash Investments;

(iii) Investments by the Company, or by a Subsidiary thereof, in a
Person, if as a result of such Investment (a) such Person becomes a
Subsidiary of the Company or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Subsidiary thereof;

(iv) reasonable and customary loans made to employees in connection
with their relocation;

(v) an Investment that is made by the Company or a Subsidiary thereof
in the form of any stock, bonds, notes, debentures, partnership or joint
venture interests or other securities that are issued by a third party to
the Company or Subsidiary solely as partial consideration for the
consummation of an Asset Sale that is otherwise permitted under the
covenant described under "Description of the Notes -- Certain
Covenants -- Limitation on Sale of Assets";

(vi) Investments made by the Company or any Subsidiary in franchises
in a business related to the optical business of the Company as conducted
on the Issue Date; provided, that immediately after giving pro forma effect
to such Investment, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the covenant set
forth under "Description of the Notes -- Certain Covenants -- Limitation on
Additional Indebtedness"; provided, however, that if the Company may not
incur $1.00 of additional Indebtedness, but otherwise satisfies the
requirements of this clause (vi), the Company may make Investments in such
franchises in an amount not to exceed $7,500,000 in any fiscal year, which
unused portion of any such annual amount, if any, may not be applied to any
Investment in a subsequent fiscal year; and

(vii) other Investments that do not exceed $10,000,000 at any time
outstanding.

"Permitted Liens" means (i) Liens on property or assets of, or any shares
of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Subsidiary of the Company or at the time such corporation
is merged into the Company or any of its Subsidiaries; provided that such Liens
are not incurred in connection with, or in contemplation of, such corporation
becoming a Subsidiary of the Company or merging into the Company or any of its
Subsidiaries, (ii) Liens securing Refinancing Indebtedness; provided that any
such Lien on subordinated Indebtedness does not extend to or cover any Property,
shares or debt other than the Property, shares or debt securing the Indebtedness
so refunded, refinanced or extended, (iii) Liens in favor of the Company or any
of its Subsidiaries, (iv) Liens securing industrial revenue bonds, (v) Liens to
secure Purchase Money Indebtedness that is otherwise permitted under the
Indenture, provided that (a) any such Lien is created solely for the purpose of
securing Indebtedness representing, or incurred to finance, refinance or refund,
the cost (including sales and excise taxes, installation and delivery charges
and other direct costs of, and other direct expenses paid or charged in
connection with, such purchase or construction) of such Property and (b) such
Lien does not extend to or cover any Property other than such item of Property
and any improvements on such item, (vi) statutory liens or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business which do not secure
any Indebtedness and with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor, (vii) other Liens securing obligations

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incurred in the ordinary course of business which obligations do not exceed
$3,000,000 in the aggregate at any one time outstanding, (viii) Liens securing
Interest Rate Agreements, (ix) Liens securing reimbursement obligations with
respect to letters of credit that encumber documents and other Property relating
to such letters of credit and the products and proceeds thereof, (x) any
extensions, substitutions, replacements or renewals of the foregoing, (xi) Liens
for taxes, assessments or governmental charges that are being contested in good
faith by appropriate proceedings, and (xii) Liens securing Capital Lease
Obligations permitted to be incurred under clause (v) of the definition of
"Permitted Indebtedness," provided that such Lien does not extend to any
property other than that subject to the underlying lease.

"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).

"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.

"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.

"Purchase Money Indebtedness" means any Indebtedness incurred by a Person
to finance the cost (including the cost of construction) of an item of Property,
the principal amount of which Indebtedness does not exceed the sum of (i) 100%
of such cost and (ii) reasonable fees and expenses of such Person incurred in
connection therewith.

"Qualified Equity Offering" means an offering by the Company or the Parent
of shares of its common stock (however designated and whether voting or
non-voting) and any and all rights, warrants or options to acquire such common
stock, whether registered or exempt from registration under the Securities Act;
provided, however, that in connection with a Qualified Equity Offering of the
Parent the net proceeds of such Qualified Equity Offering are contributed to the
Company as common equity.

"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Subsidiaries
pursuant to the terms of the Indenture, but only to the extent that (i) the
Refinancing Indebtedness is subordinated to the Notes to at least the same
extent as the Indebtedness being refunded, refinanced or extended, if at all,
(ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier
than the Indebtedness being refunded, refinanced or extended, or (b) after the
maturity date of the Notes, (iii) the portion, if any, of the Refinancing
Indebtedness that is scheduled to mature on or prior to the maturity date of the
Notes has a weighted average life to maturity at the time such Refinancing
Indebtedness is incurred that is equal to or greater than the weighted average
life to maturity of the portion of the Indebtedness being refunded, refinanced
or extended that is scheduled to mature on or prior to the maturity date of the
Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of (a) the aggregate principal amount then
outstanding under the Indebtedness being refunded, refinanced or extended, (b)
the amount of accrued and unpaid interest, if any, and premiums owed, if any,
not in excess of preexisting prepayment provisions on such Indebtedness being
refunded, refinanced or extended, plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined by
the Company as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase and (c) the amount of customary fees,
expenses and costs related to the incurrence of such Refinancing Indebtedness,
and (v) such Refinancing Indebtedness is incurred by the same Person that
initially incurred the Indebtedness being refunded, refinanced or extended,
except that the Company may incur Refinancing Indebtedness to refund, refinance
or extend Indebtedness of any Wholly Owned Subsidiary of the Company.

"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Subsidiary of the Company or any

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payment made to the direct or indirect holders (in their capacities as such) of
Capital Stock of the Company or any Subsidiary of the Company (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock), and (y) in the case of Subsidiaries of the Company,
dividends or distributions payable to the Company or to a Wholly Owned
Subsidiary of the Company), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company or any of its
Subsidiaries (other than Capital Stock owned by the Company or a Wholly Owned
Subsidiary of the Company), (iii) the making of any principal payment on, or the
purchase, defeasance, repurchase, redemption or other acquisition or retirement
for value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, of any Indebtedness which is subordinated in right of
payment to the Notes other than subordinated Indebtedness acquired in
anticipation of satisfying a scheduled sinking fund obligation, principal
installment or final maturity (in each case due within one year of the date of
acquisition), (iv) the making of any Investment in any Person other than a
Permitted Investment, and (v) forgiveness of any Indebtedness of an Affiliate of
the Company to the Company or a Subsidiary. For purposes of determining the
amount expended for Restricted Payments, cash distributed or invested shall be
valued at the face amount thereof and property other than cash shall be valued
at its fair market value.

"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing.

"Senior Indebtedness" means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a bankruptcy, reorganization or other insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) on, and any and all other fees, expense reimbursement obligations
and other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise entered
into in connection with (a) all Indebtedness of the Company owed to lenders
under the New Credit Facility, (b) the Senior Notes, (c) all obligations of the
Company with respect to any Interest Rate Agreement, (d) all obligations of the
Company to reimburse any bank or other person in respect of amounts paid under
letters of credit, acceptances or other similar instruments, (e) all other
Indebtedness of the Company which does not provide that it is to rank pari passu
with or subordinate to the Notes and (f) all deferrals, renewals, extensions and
refundings of, and amendments, modifications and supplements to, any of the
Senior Indebtedness described above. Notwithstanding anything to the contrary in
the foregoing, Senior Indebtedness will not include (i) Indebtedness of the
Company to any of its Subsidiaries, (ii) Indebtedness represented by the Notes,
(iii) any Indebtedness which by the express terms of the agreement or instrument
creating, evidencing or governing the same is junior or subordinate in right of
payment to any item of Senior Indebtedness, (iv) any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business, or (v) Indebtedness (other than that described in clause (a)
above) incurred in violation of the Indenture.

"Senior Notes" means the Company's 11 1/4% Senior Notes due 2001.

"Senior Note Indenture" means the indenture dated as of October 1, 1993
between the Company and Norwest Bank Minnesota, National Association, as
trustee.

"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act and the Exchange Act, as in effect on the Issue Date.

"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in

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accordance with generally accepted accounting principles such entity is
consolidated with the first-named Person for financial statement purposes.

"Tax Allocation Agreement" means the Tax Allocation Agreement, dated as of
August 23, 1985, as amended, between the Parent and its subsidiaries, including
the Company, as the same may be amended or extended from time to time provided
that no such amendment may create greater additional liability of the Company
and its Subsidiaries than existing as of the Issue Date under such agreement.

"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase, (ii) Investments in United States dollar denominated
time deposits and United States dollar denominated certificates of deposit
(including Eurodollar time deposits and certificates of deposit) maturing within
365 days of the date of purchase thereof issued by any United States or Canadian
national, provincial or state (including the District of Columbia) banking
institution having capital, surplus and undivided profits aggregating at least
$250,000,000, or by any British, French, German, Japanese or Swiss national
banking institution having capital, surplus and undivided profits aggregating at
least $1,000,000,000, in each case that is (a) rated at least "A" by Standard &
Poor's Corporation or at least "A-2" by Moody's Investors Service Inc., or (b)
that is a party to the New Credit Facility, (iii) Investments in commercial
paper maturing within 270 days after the issuance thereof that has the highest
credit rating of either of such rating agencies, (iv) Investments in readily
marketable direct obligations issued by any state of the United States of
America or any political subdivision thereof having the highest rating
obtainable from either of such rating agencies, (v) Investments in tax exempted
and tax advantaged instruments including, without limitation, municipal bonds,
commercial paper, auction rate preferred stock and variable rate demand
obligations with the highest short-term ratings by either of such rating
agencies or a long-term debt rating of AAA from Standard & Poor's Corporation,
(vi) Investments in repurchase agreements and reverse repurchase agreements with
institutions described in clause (ii) above that are fully secured by
obligations described in clause (i) above and (vii) Investments not exceeding
365 days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding clauses (i) through
(v).

"Triggering Default Event" means a Default or Event of Default described in
clauses (i), (ii), (iv), (v) or (vi) under the caption "Events of Default" or
any breach or violation under the covenants entitled "Limitation on Additional
Indebtedness," "Limitation on Restricted Payments," "Limitation on Other Senior
Subordinated Debt," "Limitations on Liens," "Limitation on Sale and Lease-Back
Transactions," "Dividend and Other Payment Restrictions Affecting Subsidiaries,"
"Limitation on Transactions with Affiliates," "Limitation on Certain Asset
Sales," "Limitation on Capital Stock of Subsidiaries," "Merger, Consolidation or
Sale of Assets," "Payments for Consent" or with respect to the making of a
Change of Control Offer.

"Wholly Owned Subsidiary" means any Subsidiary, all of the outstanding
Capital Stock (other than directors' qualifying shares) of which is owned,
directly or indirectly, by the Company.

BOOK-ENTRY; DELIVERY AND FORM

The Original Notes were issued in the form of one Note certificate (the
"Original Global Note"). The Original Global Note was deposited on the date of
the closing of the sale of the Original Notes offered hereby (the "Closing
Date") with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of a nominee of DTC. Except for Exchange Notes issued to
Non-Global Purchasers (as defined below), the Exchange Notes will initially be
issued in the form of one Global Note (the "Exchange Global Note"). The Exchange
Global Note will be deposited on the date of closing of the Exchange Offer,
with, or on behalf of DTC and registered in the name of a nominee of DTC.

Notes (i) originally purchased by or transferred to "foreign purchasers" or
Accredited Investors who are not QIBs, or (ii) held by QIBs which elect to take
physical delivery of their certificates instead of holding their interest
through the Original Global Note (and which are thus ineligible to trade through
DTC) (collectively referred to herein as the "Non-Global Purchasers") will be
issued, in registered form, without interest coupons ("Certificated
Securities"). Upon the transfer to a QIB of such Certificated Securities

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initially issued to a Non-Global Purchaser, such Certificated Securities will,
unless the Global Note has previously been exchanged in whole for such
Certificated Securities, be exchanged for an interest in the Global Note.
"Global Notes" means the Original Global Notes or the Exchange Global Notes, as
the case may be.

The Global Note. The Company expects that pursuant to procedures
established by DTC (i) upon deposit of the Global Note, DTC will credit the
accounts of persons who have accounts with DTC ("participants") or persons who
hold interests through participants designated by such person with portions of
the Global Note and (ii) ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC or its nominee (with respect to interests of participants) and the
records of participants (with respect to interests of persons other than
participants). QIBs may hold their interests in the Global Note directly through
DTC if they are participants in such system, or indirectly through organizations
that are participants in such system.

So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee will be considered the sole owner or holder of the
Notes represented by the Global Note for all purposes under the Indenture. No
beneficial owner of an interest in the Global Note will be able to transfer such
interest except in accordance with DTC's applicable procedures, in addition to
those provided for under the Indenture.

Payments of the principal of, premium (if any) and interest on the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any Paying Agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.

The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium (if any) and interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note, as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.

Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. If a holder
requires physical delivery of a Certificated Security for any reason, including
to sell Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the Global Note in accordance with the normal procedures of DTC and including
the procedures set forth in the Indenture.

DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interest in the Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants have given such direction. However, if there is an
Event of Default under the Indenture, DTC will exchange the Global Note for
Certificated Securities, which it will distribute to its participants.

DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others

109
<PAGE> 114

such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").

Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.

Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depository for the Global Note and a successor depository is not
appointed by the Company within 90 days, the Company will issue Certificated
Securities in exchange for the Company's Global Note.

PLAN OF DISTRIBUTION

Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired as a result
of market-making activities of other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will use reasonable
efforts to make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale; provided that such
broker-dealer indicates in the Letter of Transmittal that it is a broker-dealer.
In addition, until , 1997, all broker-dealers effecting
transactions in the Exchange Notes may be required to deliver a Prospectus.

The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act, and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.

For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment of
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal.

By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt of
notice from the Company of the happening of any event which makes any statement
in the Prospectus untrue in any material respect or which requires the making of
any changes in the Prospectus in order to make the statements therein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such broker-dealer. If the Company gives any such notice to suspend the use
of the Prospectus, it shall extend the 180-day period referred to above by the
number of days during the period from and including the date of the giving of
such notice up to and including

110
<PAGE> 115

when broker-dealers have received copies of the supplement or amended Prospectus
necessary to permit resales of Exchange Notes.

The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any broker-dealers) and certain parties related
to the holders against certain liabilities, including liabilities under the
Securities Act.

LEGAL MATTERS

Certain legal matters in connection with the issuance of the Exchange Notes
will be passed upon for the Company by Jones, Day, Reavis & Pogue, Cleveland,
Ohio.

INDEPENDENT PUBLIC ACCOUNTANTS

The audited financial statements of the Company included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report, which is included herein.

The consolidated financial statements of Pearle, Inc. and Subsidiaries as
of September 30, 1996 and 1995 and for each of the years in the three-year
period ended September 30, 1996 have been included in this Prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, as indicated in their report, which is included elsewhere herein
and upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to a change in the method of accounting
for income taxes in 1994.

111
<PAGE> 116

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES:
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet at November 2, 1996.................................... F-2
Consolidated Statements of Income for the 39 weeks ended November 2, 1996
and October 28, 1995........................................................... F-3
Consolidated Statements of Cash Flows for the 39 weeks ended November 2, 1996
and October 28, 1995........................................................... F-4
Notes to Consolidated Financial Statements........................................ F-5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.......................................... F-8
Consolidated Balance Sheets at February 3, 1996 and January 28, 1995.............. F-9
Consolidated Statements of Income for the 53 weeks ended February 3, 1996 and 52
weeks ended January 28, 1995 and January 29, 1994.............................. F-10
Consolidated Statements of Stockholder's Equity for the 53 weeks ended February 3,
1996 and 52 weeks ended January 28, 1995 and January 29, 1994.................. F-11
Consolidated Statements of Cash Flows for the 53 weeks ended February 3, 1996 and
52 weeks ended January 28, 1995 and January 29, 1994........................... F-12
Notes to Consolidated Financial Statements........................................ F-13
PEARLE, INC. AND SUBSIDIARIES:
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report...................................................... F-22
Consolidated Balance Sheets at September 30, 1996 and 1995........................ F-23
Consolidated Statements of Operations for the Years Ended September 30, 1996,
1995 and 1994.................................................................. F-24
Consolidated Statements of Stockholder's Equity for the Years
Ended September 30, 1996, 1995 and 1994........................................ F-25
Consolidated Statements of Cash Flows for the Years Ended September 30, 1996,
1995 and 1994.................................................................. F-26
Notes to Consolidated Financial Statements........................................ F-27
</TABLE>

F-1
<PAGE> 117

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NOVEMBER 2,
1996
-----------
<S> <C>
ASSETS
Current assets:
Cash and temporary cash investments............................................ $ 31,489
Accounts receivable............................................................ 20,075
Inventories.................................................................... 103,778
Prepaid expenses and other..................................................... 5,795
Deferred income tax benefits................................................... 10,616
---------
Total current assets................................................... 171,753
Property and equipment, at cost.................................................. 162,713
Less -- accumulated depreciation and amortization.............................. (95,127)
---------
Total property and equipment, net...................................... 67,586
Other assets..................................................................... 8,294
Cost in excess of net assets of purchased businesses, net........................ 79,485
---------
Total assets........................................................... $ 327,118
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.............................................. $ 300
Accounts payable............................................................... 39,896
Payable to affiliates.......................................................... 25,394
Accrued interest............................................................... 1,886
Accrued liabilities............................................................ 59,939
Accrued income taxes........................................................... 4,819
---------
Total current liabilities.............................................. 132,234
Long-term debt, net of discount.................................................. 180,033
Deferred income taxes and other.................................................. 5,390
Stockholder's equity:
Common stock................................................................... --
Paid-in capital................................................................ 118,065
Accumulated deficit............................................................ (108,604)
---------
Total stockholder's equity............................................. 9,461
---------
Total liabilities and stockholder's equity............................. $ 327,118
=========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this balance sheet.

F-2
<PAGE> 118

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
39 WEEKS ENDED
---------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Net sales........................................................ $ 443,057 $ 401,999
Costs and expenses:
Cost of goods sold............................................. 136,673 125,246
Operating expenses............................................. 266,385 242,269
Depreciation and amortization.................................. 12,780 11,552
----------- -----------
Total costs and expenses............................... 415,838 379,067
----------- -----------
Income from operations........................................... 27,219 22,932
Interest expense, net............................................ 14,782 15,872
----------- -----------
Income before income taxes....................................... 12,437 7,060
Income tax provision............................................. 5,473 3,107
----------- -----------
Net income....................................................... $ 6,964 $ 3,953
=========== ==========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-3
<PAGE> 119

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
39 WEEKS ENDED
---------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 6,964 $ 3,953
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization................................... 12,780 11,552
Non-cash interest expense....................................... 322 307
Change in assets and liabilities:
Increase in accounts receivable, prepaid expenses and other
assets....................................................... (1,705) (5,485)
Increase in inventories....................................... (18,984) (12,801)
Increase in accounts payable and accrued liabilities.......... 16,722 14,147
Decrease in accrued interest.................................. (5,158) (5,317)
Decrease in accrued income taxes.............................. (1,151) (1,116)
--------- ---------
Net cash provided by operating activities.................. 9,790 5,240
--------- ---------
Cash flows from financing activities:
Advances from Affiliates, net...................................... 10,639 --
Repayment of long-term debt........................................ (360) (181)
--------- ---------
Net cash provided (used) by financing activities........... 10,279 (181)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment, net........................... (15,553) (14,042)
Acquisition of business............................................ -- (800)
Other, net......................................................... (2,287) (959)
--------- ---------
Net cash used by investing activities...................... (17,840) (15,801)
--------- ---------
Cash and temporary cash investments:
Net increase (decrease) during the period.......................... 2,229 (10,742)
Balance, beginning of the period................................... 29,260 19,730
--------- ---------
Balance, end of the period......................................... $ 31,489 $ 8,988
========= ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-4
<PAGE> 120

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The Consolidated financial statements include the accounts of Cole National
Group, Inc. ("CNG") and its wholly owned subsidiaries (collectively, the
"Company"). CNG is a wholly owned subsidiary of Cole National Corporation (the
"Parent"). All significant intercompany transactions have been eliminated in
consolidation.

The accompanying consolidated financial statements have been prepared
without audit and certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, although the Company
believes that the disclosures herein are adequate to make the information not
misleading. These statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K for the fiscal year ended February 3, 1996.

In the opinion of management, the accompanying financial statements contain
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the Company's financial position as of November 2, 1996 and the
results of operations and cash flows for the 39 weeks ended November 2, 1996 and
October 28, 1995.

Inventories

The accompanying interim consolidated financial statements have been
prepared without physical inventories. Inventories at November 2, 1996 were
valued at the lower of first-in, first-out ("FIFO") cost or market.

Cash Flows

Net cash flows from operating activities reflect cash payments for income
taxes and interest of $6,670,000 and $20,779,000, respectively, for the 39 weeks
ended November 2, 1996, and $4,224,000 and $21,413,000, respectively, for the 39
weeks ended October 28, 1995.

(2) TRANSACTIONS WITH PARENT

During the second quarter of fiscal 1996, the Parent used a portion of the
net proceeds from its public stock offering to purchase approximately $15.1
million of the Company's outstanding 11.25% Senior Notes (the "Senior Notes") in
the open market. The remaining proceeds of approximately $9.7 million were
advanced to the Company.

Of the $180.0 million of long-term debt outstanding at November 2, 1996,
approximately $15.1 million, plus accrued interest, is payable to the Parent. In
connection with the acquisition of Pearle, Inc. (see Note 5), the Company
purchased and retired the $15.1 million of Senior Notes held by the Parent at a
price equal to net book value.

(3) ASSET IMPAIRMENT

During the first quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to be Disposed Of". Adoption of
SFAS No. 121 had no material impact on the Company's results of operations,
financial position or cash flows.

(4) SEASONALITY

The Company's business is seasonal with approximately 30% of its sales and
approximately 50% of its income from operations generated in the fourth fiscal
quarter, which contains the important Christmas

F-5
<PAGE> 121

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)

retailing season. Therefore, earnings or losses for a particular interim period
are not necessarily indicative of full year results.

(5) SUBSEQUENT EVENTS

Acquisition of AOCO Limited

On November 5, 1996, the Company acquired all of the issued and outstanding
common stock of AOCO Limited, which operates 73 Sears Optical Departments and
two freestanding Vision Club stores in Canada, for a purchase price of $2.6
million. The acquisition will be accounted for as a purchase.

Acquisition of Pearle, Inc.

On November 15, 1996, the Parent purchased certain assets and all of the
issued and outstanding common stock of Pearle, Inc. ("Pearle"). Subsequent to
the acquisition of Pearle, the Parent sold Pearle Holdings B.V., Pearle's
European operations, to Pearle Trust B.V. for approximately $62 million. The
Parent has a 20% equity interest in Pearle Trust B.V.

Immediately following the Parent's acquisition of Pearle, and pursuant to a
transfer agreement, CNG purchased from the Parent all of the issued and
outstanding common stock of Pearle and Pearle Service Corporation (PSC) for an
aggregate purchase price of approximately $154 million. The Company will account
for the Pearle acquisition as a purchase.

The Company financed the Pearle Acquisition primarily through the proceeds
of a private placement (the "Offering") of $150 million of 9 7/8% Senior
Subordinated Notes (the "Notes") due in 2006. Interest on the Notes is payable
semi-annually in arrears on December 31 and June 30 commencing June 30, 1997.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to Senior Indebtedness of the Company, including the Senior
Notes, and senior in right of payment to any current or future subordinated
indebtedness of the Company.

The indenture pursuant to which the Notes were issued restricts dividend
payments to the Parent to 50% of the Company's net income after October 31,
1993, plus amounts due to the Parent under a tax sharing agreement and for
administrative expenses of the Parent not to exceed 0.25% of the Company's net
sales and contains other financial covenants. The Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after December 31,
2001. In addition, the Company would be required to make an offer to purchase
Notes following a Change of Control (as defined in the Indenture) and, under
certain circumstances, following a sale of assets.

Following the Pearle Acquisition, Cole Vision Corporation, Things
Remembered, Inc., Cole Gift Centers, Inc., Pearle and PSC, the principal
operating subsidiaries of CNG, (collectively, the "Borrowers"), entered into a
New Credit Facility. The New Credit Facility replaced, contemporaneously with
the consummation of the Offering, the existing Revolving Credit Facility.

The New Credit Facility provides the Borrowers with a four-year revolving
line of credit of up to the lesser of a "borrowing base" and $75 million. A
portion of the New Credit Facility not in excess of $30 million is available for
the issuance of letters of credit. Borrowings under the New Credit Facility
initially bear interest at a rate equal to, at the option of the Borrowers,
either (a) the Eurodollar Rate plus 1.25% or (b) 0.25% plus the highest of (i)
the rate of interest publicly announced by Canadian Imperial Bank of Commerce as
its prime rate in effect at its principal office in New York City, (ii) the
three-week moving average of the secondary market rates for three-month
certificates of deposit (adjusted for statutory reserve requirements) plus 1%
and (iii) the federal funds effective rate from time to time plus 0.5%. The
interest rates are subject to quarterly adjustment after the first anniversary
of the closing of the New Credit Facility based on the Company's achievement of
certain interest coverage ratio benchmarks. Additionally, the New Credit
Facility

F-6
<PAGE> 122

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)

requires the Borrowers to comply with various operating covenants that restrict
corporate activities, including covenants restricting the Borrowers' ability to
incur additional indebtedness, pay dividends, prepay subordinated indebtedness,
dispose of certain assets, create liens, make capital expenditures and make
certain investments or acquisitions. The New Credit Facility also requires the
Borrowers to comply with certain financial covenants, including covenants
regarding minimum interest coverage, maximum leverage and consolidated net
worth.

The New Credit Facility permits the Company's subsidiaries to pay dividends
to the Company, to the extent necessary to permit it to pay all interest and
principal on the Senior Notes and the Notes, and to use up to $20 million to
repurchase the Senior Notes and/or the Notes, so long as no default or event of
default under the New Credit Facility has occurred and is continuing. The
Company is a limited guarantor under the New Credit Facility, with recourse
against the Company limited to certain bank accounts.

F-7
<PAGE> 123

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS OF COLE NATIONAL GROUP, INC.:

We have audited the accompanying consolidated balance sheets of Cole
National Group, Inc. (a Delaware corporation) and Subsidiaries (the "Company")
as of February 3, 1996 and January 28, 1995, and the related consolidated
statements of income, stockholder's equity and cash flows for each of the three
years in the period ended February 3, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cole
National Group, Inc. and Subsidiaries as of February 3, 1996 and January 28,
1995, and the results of their operations and their cash flows for each of the
three years in the period ended February 3, 1996, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Cleveland, Ohio,
March 19, 1996.

F-8
<PAGE> 124

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments............................. $ 29,260 $ 19,730
Accounts receivable............................................. 18,544 17,701
Inventories..................................................... 84,794 87,246
Prepaid expenses and other...................................... 5,869 3,574
Deferred income tax benefits.................................... 10,616 13,301
----------- -----------
Total current assets.................................... 149,083 141,552
Property and equipment, at cost................................... 154,589 140,301
Less -- accumulated depreciation and amortization............... (90,883) (84,284)
----------- -----------
Total property and equipment, net....................... 63,706 56,017
Other assets...................................................... 5,038 2,926
Cost in excess of net assets of purchased businesses, net......... 81,163 82,808
----------- -----------
Total assets............................................ $ 298,990 $ 283,303
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt............................... $ 292 $ 169
Accounts payable................................................ 29,082 25,141
Payable to affiliates........................................... 1,255 2,184
Accrued interest................................................ 7,044 6,935
Dividend payable................................................ 13,500 --
Accrued liabilities............................................. 53,676 55,035
Accrued income taxes............................................ 5,970 4,643
----------- -----------
Total current liabilities............................... 110,819 94,107
Long-term debt, net of discount................................... 180,218 184,388
Deferred income taxes and other................................... 5,456 3,669
Stockholder's equity:
Common stock.................................................... -- --
Paid-in capital................................................. 118,065 118,065
Notes receivable-stock option exercise.......................... -- (1,108)
Accumulated deficit............................................. (115,568) (115,818)
----------- -----------
Total stockholder's equity.............................. 2,497 1,139
----------- -----------
Total liabilities and stockholder's equity.............. $ 298,990 $ 283,303
========== ==========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.

F-9
<PAGE> 125

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $ 577,091 $ 528,049 $ 472,888
Costs and expenses:
Cost of goods sold................................ 182,934 164,723 140,952
Operating expenses................................ 332,540 305,470 281,149
Depreciation and amortization..................... 15,686 14,892 13,516
----------- ----------- -----------
Total costs and expenses.................. 531,160 485,085 435,617
----------- ----------- -----------
Income from operations.............................. 45,931 42,964 37,271
Interest expense, net............................... 21,382 21,823 17,651
----------- ----------- -----------
Income before income taxes and extraordinary item... 24,549 21,141 19,620
Income tax provision (benefit)...................... 10,799 (3,703) 2,361
----------- ----------- -----------
Income before extraordinary item.................... 13,750 24,844 17,259
Extraordinary gain (loss) on early extinguishment of
debt.............................................. -- (134) 18,828
----------- ----------- -----------
Net income.......................................... $ 13,750 $ 24,710 $ 36,087
========== ========== ==========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-10
<PAGE> 126

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NOTES
RECEIVABLE TOTAL
COMMON PAID-IN STOCK OPTION ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL EXERCISE DEFICIT EQUITY
-------- -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 30, 1993....... $ -- $110,735 $ -- $(169,637) $ (58,902)
-------- -------- ------- --------- --------
Net income.................... -- -- -- 36,087 36,087
Dividends to parent........... -- -- -- (6,978) (6,978)
Exercise of stock options..... -- 1,130 (1,130) -- --
-------- -------- ------- --------- --------
Balance, January 29, 1994....... -- 111,865 (1,130) (140,528) (29,793)
-------- -------- ------- --------- --------
Net income.................... -- -- -- 24,710 24,710
Capital contribution by
parent..................... -- 6,200 -- -- 6,200
Repayment of notes
receivable................. -- -- 22 -- 22
-------- -------- ------- --------- --------
Balance, January 28, 1995....... -- 118,065 (1,108) (115,818) 1,139
-------- -------- ------- --------- --------
Net income.................... -- -- -- 13,750 13,750
Transfer of notes receivable
to parent.................. -- -- 1,108 -- 1,108
Dividend to parent............ -- -- -- (13,500) (13,500)
-------- -------- ------- --------- --------
Balance, February 3, 1996....... $ -- $118,065 $ -- $(115,568) $ 2,497
======== ======== ======= ========= ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-11
<PAGE> 127

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 13,750 $ 24,710 $ 36,087
Adjustments to reconcile net income to net cash
provided by operations:
Extraordinary loss (gain) on early
extinguishment of debt....................... -- 134 (18,828)
Depreciation and amortization.................. 15,686 14,892 13,516
Non-cash interest expense...................... 454 469 3,373
Deferred income taxes.......................... 4,394 (10,153) --
Change in assets and liabilities:
Increase in accounts receivable, prepaid
expenses and other assets................. (4,894) (4,596) (2,542)
Decrease (increase) in inventories........... 2,452 (8,723) (12,264)
Increase in accounts payable, accrued
liabilities and payable to affiliates..... 2,812 211 7,492
Increase (decrease) in accrued interest...... 109 (272) 6,125
Increase in accrued income taxes............. 1,419 2,386 355
-------- -------- --------
Net cash provided by operating
activities.............................. 36,182 19,058 33,314
-------- -------- --------
Cash flows from financing activities:
Repayment of long-term debt....................... (5,200) (5,667) (188,206)
Payment of deferred financing fees................ -- (100) (1,214)
Proceeds from long-term debt...................... -- -- 187,557
Other............................................. -- 22 (37)
-------- -------- --------
Net cash used by financing activities..... (5,200) (5,745) (1,900)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment, net.......... (19,675) (18,527) (13,074)
Acquisition of business........................... (800) (4,675) (3,220)
Other, net........................................ (977) (1,285) (560)
-------- -------- --------
Net cash used by investing activities..... (21,452) (24,487) (16,854)
-------- -------- --------
Cash and temporary cash investments:
Net increase (decrease) during the period......... 9,530 (11,174) 14,560
Balance, beginning of the period.................. 19,730 30,904 16,344
-------- -------- --------
Balance, end of the period........................ $ 29,260 $ 19,730 $ 30,904
======== ======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-12
<PAGE> 128

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of Cole National
Group, Inc. ("CNG") and its wholly owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions have been eliminated in
consolidation.

CNG, a wholly owned subsidiary of Cole National Corporation (the "Parent"),
was formed on July 19, 1993. Immediately prior to CNG's issuance and sale of
11.25% Senior Notes on September 30, 1993, as described in Note 2, all of the
Parent's assets were contributed to CNG and CNG assumed all of the Parent's
liabilities other than $50.0 million of the Parent's obligations under the
Parent's 13% Senior Subordinated Notes (the "Initial Capitalization"). The
transaction was accounted for as a reorganization of entities under common
control, in a manner similar to a pooling of interests.

Prior to the Initial Capitalization, all operations of the Company were
conducted by subsidiaries of the Parent. The accompanying consolidated financial
statements are based on historical cost as if the Initial Capitalization had
occurred at the beginning of fiscal 1993 and CNG had been in existence during
all periods presented. Accordingly, transactions of the Parent prior to
September 30, 1993, except for those relating to the debt not assumed by CNG and
the interest expense thereon, have been included in the accompanying financial
statements.

The Company is a national specialty service retailer operating in both host
and non-host environments. The Company's primary lines of business are
personalized gifts and eyewear products, both of which are about equal in size
based on sales. The Company sells its products nationally through over 2,300
retail locations in 49 states, and differentiates itself from other specialty
retailers by providing value-added services at the point of sale at all of its
retail locations. The Company considers its operations to be in one business
segment.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years are identified according to the calendar year in which they begin.
The 1995 fiscal year consisted of 53 weeks, and fiscal years 1994 and 1993 each
consisted of 52 weeks.

Inventories

The Company's inventories are valued at the lower of first-in,
first-out ("FIFO") cost or market.

Property and Depreciation

The Company's policy is to provide depreciation using the
straight-line method over a period which is sufficient to amortize the cost
of the asset during its useful life.

The estimated useful lives for depreciation purposes are:

<TABLE>
<S> <C>
Buildings and improvements...................................... 5 to 40 years
Equipment....................................................... 3 to 10 years
Furniture and fixtures.......................................... 2 to 10 years
Leasehold improvements.......................................... 2 to 20 years
</TABLE>

F-13
<PAGE> 129

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Property and equipment, at cost, consist of the following as of February 3,
1996 and January 28, 1995 (000's omitted):

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land and buildings.............................................. $ 3,615 $ 4,989
Furniture, fixtures and equipment............................... 114,802 104,061
Leasehold improvements.......................................... 36,172 31,251
-------- --------
Total property and equipment.................................. $154,589 $140,301
======== ========
</TABLE>

Store Opening Expenses

Store opening expenses are charged to operations in the year the store is
opened, which is generally the year the expense is incurred.

Other Assets

Cost in excess of net assets of purchased businesses is being amortized on
a straight-line basis over 40 years and is presented net of accumulated
amortization of $29,640,000 and $26,880,000, at February 3, 1996 and January 28,
1995, respectively. Management, which regularly evaluates its accounting for
goodwill, considering such factors as historical profitability, current
operating profits and cash flows, believes that the asset is realizable and the
amortization period is appropriate.

Financing costs incurred in connection with obtaining long-term debt are
capitalized and amortized over the life of the related debt using the effective
interest method.

Cash Flows

For purposes of reporting cash flows, the Company considers all temporary
cash investments, which have original maturities of three months or less, to be
cash equivalents. The carrying value of cash equivalents approximates fair value
because of the short maturity of such instruments.

Net cash flows from operating activities reflects cash payments for income
taxes and interest as follows (000's omitted):

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income taxes........................................... $ 4,264 $ 2,250 $ 2,685
Interest............................................... $21,580 $22,069 $ 8,530
</TABLE>

F-14
<PAGE> 130

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Initial Capitalization was primarily a noncash transaction. The assets
contributed to CNG by the Parent and the Parent's liabilities assumed by CNG at
September 30, 1993 were as follows (000's omitted):

<TABLE>
<S> <C>
Current assets (including cash of $3,314)............................... $ 108,288
Property and equipment, net............................................. 47,571
Other assets............................................................ 3,339
Cost in excess of net assets of purchased businesses, net............... 81,704
---------
Total assets contributed.............................................. $ 240,902
=========
Current liabilities..................................................... $ 83,263
Long-term debt:
Bank loans............................................................ 126,017
13% Senior Subordinated Notes......................................... 59,852
Deferred interest reduction........................................... 20,378
Other................................................................. 2,650
Other deferred liabilities.............................................. 503
---------
Total liabilities assumed.......................................... $ 292,663
=========
</TABLE>

During 1994, the Parent contributed $6.2 million of its receivable from the
Company to the Company's paid in capital in exchange for 100 additional shares
of the Company's common stock.

During 1995, non-cash financing activities included incurring $887,000 in
capital lease obligations.

During 1995, a dividend in the amount of $13.5 million was declared and is
payable to the Parent at February 3, 1996.

Capital Stock

At February 3, 1996, there were 1,100 shares of common stock, par value
$.01 per share, authorized, issued, and outstanding.

Earnings Per Share

Earnings per share and weighted average number of common shares outstanding
data for 1995, 1994 and 1993 have been omitted as the presentation of such
information, considering the Company is a wholly owned subsidiary of the Parent,
is not meaningful.

F-15
<PAGE> 131

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(2) LONG-TERM DEBT

Long-term debt at February 3, 1996 and January 28, 1995 is summarized as
follows (000's omitted):

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
7.5% obligations in connection with Industrial Revenue Bonds........... $ 506 $ 675
11.25% senior notes:
Face value........................................................... 181,000 186,000
Unamortized discount................................................. (1,834) (2,118)
-------- --------
Total 11.25% senior notes.................................... 179,166 183,882
Capital lease obligations.............................................. 838 --
-------- --------
180,510 184,557
Less current portion................................................... (292) (169)
-------- --------
Net long-term debt........................................... $180,218 $184,388
======== ========
</TABLE>

On September 30, 1993, CNG completed a public offering of $190 million of
11.25% Senior Notes (the "CNG Notes"). Proceeds of $187.6 million were used to
repay $126 million of bank loans, plus accrued interest thereon, and $59.9
million of Senior Subordinated Notes including accrued interest. The Company
recorded a net gain of $18.8 million (with no related income tax effect) on
extinguishment of this debt in fiscal 1993.

The CNG Notes are unsecured and mature October 1, 2001 with no earlier
scheduled redemption or sinking fund payments. The CNG Notes bear interest at a
rate of 11.25% per annum, payable semi-annually on each April 1 and October 1.
The indenture pursuant to which the CNG Notes were issued restricts dividend
payments to the Parent to 50% of CNG's net income after October 31, 1993, plus
amounts due to the Parent under a tax sharing agreement and for administrative
expenses of the Parent not to exceed .25% of the Company's net sales. The
indenture also contains certain optional and mandatory redemption features and
other financial covenants.

During the first quarter of 1994, the Parent completed an initial public
offering ("IPO") of the Parent's Class A Common Stock. A portion of the net
proceeds from the IPO were advanced to the Company by the Parent and used to
retire $4.0 million of the CNG Notes. The Company recorded an extraordinary loss
of $134,000 representing the payment of a premium, the write-off of unamortized
discount and other costs associated with retiring the debt. The loss is net of
an income tax benefit of $72,000.

The agreement in connection with the Industrial Revenue Bonds provides for
repayment of the obligation in annual installments of $168,750. The Industrial
Revenue Bonds are secured by office and distribution facilities with a net book
value of $1,781,000 at February 3, 1996.

Annual aggregate principal payments due on long-term debt, excluding
capital leases, are $168,750 in each of the years 1996 through 1998 with no
payments due in 1999 or 2000.

At February 3, 1996, the fair value of the Company's long-term debt was
approximately $182.4 million compared to a carrying value of $180.5 million. The
fair value was estimated primarily by using quoted market prices.

(3) REVOLVING CREDIT FACILITY

The Company's principal operating subsidiaries entered into a Revolving
Credit Facility which provides for working capital borrowings, including letters
of credit, of up to $50 million through December 31, 1998. Effective September
1, 1995, the working capital facility was amended such that borrowings bear
interest, at

F-16
<PAGE> 132

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

the borrower's option, at the Prime Rate plus .25% or the Eurodollar Rate plus
2.5% per annum. The Company pays a commitment fee of .375% per annum on the
total unused portion of the facility.

The maximum amounts of short term borrowings outstanding during 1995 and
1994 were $3.5 million and $13.0 million, respectively. No amounts were
outstanding as of February 3, 1996 or January 28, 1995.

The Revolving Credit Facility restricts dividend payments to CNG to amounts
needed to pay interest and principal on the CNG Notes and certain amounts
relating to taxes, along with up to $15.0 million plus .25% of the Company's net
sales annually for other direct expenses of CNG or the Parent. The Revolving
Credit Facility also contains covenants which, among other things, require CNG
to maintain certain financial ratios and specified levels of working capital,
net worth and earnings and limit the amount of capital expenditures.

(4) NOTES RECEIVABLE -- STOCK OPTION EXERCISE

During the second quarter of fiscal 1993, certain officers of the Company
exercised stock options to purchase shares of the Parent's Common Stock, par
value $.001 per share at $3 per share. Payment was made by executing promissory
notes. The remaining promissory notes, which were contributed to CNG by the
Parent as part of the Initial Capitalization, were transferred to the Parent
during fiscal 1995.

(5) INCOME TAXES

The Company has been included in the consolidated federal income tax
returns of the Parent and has been charged an amount equal to the taxes that
would have been payable by it if it were a corporation filing separate tax
returns under a tax sharing agreement between the Parent, CNG and its
subsidiaries.

Income tax expense for fiscal 1995, 1994 and 1993 is detailed below (000's
omitted):

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Currently payable --
Federal...................................................... $ 4,615 $ 4,434 $ --
State and local.............................................. 1,790 2,016 2,361
-------- -------- --------
6,405 6,450 2,361
Deferred --
Federal...................................................... 3,260 (1,494) --
Utilization of net operating loss carryforwards.............. 1,134 4,169 --
Change in valuation allowance................................ -- (12,828) --
-------- -------- --------
4,394 (10,153) --
-------- -------- --------
Income tax provision (benefit)................................. $ 10,799 $ (3,703) $ 2,361
======== ======== ========
</TABLE>

At February 3, 1996, the Company has minimum tax credits in the amount of
approximately $2.0 million that can be carried forward indefinitely.

F-17
<PAGE> 133

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The income tax expense reflected in the accompanying consolidated
statements of income differs from the federal statutory rate as follows (000's
omitted):

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Tax provision at statutory rate................................. $ 8,592 $ 7,399 $ 6,867
Tax effect of --
State income taxes, net of federal tax benefit................ 1,164 1,310 1,534
Amortization of cost in excess of net assets of purchased
businesses................................................. 900 901 901
Benefit of net operating loss carryforward.................... -- -- (7,003)
Change in valuation allowance................................. -- (12,828) --
Other, net.................................................... 143 (485) 62
-------- -------- -------
Tax provision (benefit)............................... $ 10,799 $ (3,703) $ 2,361
======== ======== =======
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets and deferred tax liabilities at
February 3, 1996 and January 28, 1995 are as follows (000's omitted):

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Employee benefit accruals.............................................. $ 3,375 $ 3,883
Other non-deductible accruals.......................................... 3,922 4,315
State and local taxes.................................................. 1,086 981
Tax credit and net operating loss carryforwards........................ 1,990 4,693
Other.................................................................. 1,252 712
------- -------
Total deferred tax assets...................................... 11,625 14,584
------- -------
Deferred tax liabilities:
Depreciation........................................................... (5,070) (3,763)
Other.................................................................. (836) (668)
------- -------
Total deferred tax liabilities................................. (5,906) (4,431)
------- -------
Net deferred taxes....................................................... $ 5,719 $10,153
======= =======
</TABLE>

(6) RETIREMENT PLANS

The Company maintains a noncontributory defined benefit pension plan (the
"Retirement Plan") that covers employees who have met eligibility service
requirements and are not members of certain collective bargaining units. The
Retirement Plan calls for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Company and their
compensation levels near retirement.

The Company's policy is to fund amounts necessary to keep the Retirement
Plan in full force and effect, in accordance with the Internal Revenue Code and
the Employee Retirement Income Security Act of 1974. Actuarial present values of
benefit obligations are determined using the projected unit credit method.

F-18
<PAGE> 134

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Pension expense for fiscal 1995, 1994 and 1993 includes the following
components (000's omitted):

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the period............. $ 528 $ 581 $ 620
Interest cost on the projected benefit obligation............. 1,369 1,292 1,275
Less:
Return on plan assets --
Actual................................................... (1,138) 178 (452)
Deferred................................................. 11 (1,294) (640)
------- ------- -------
(1,127) (1,116) (1,092)
Amortization of transition asset over 17.9 years............ (179) (179) (179)
------- ------- -------
Net pension expense................................. $ 591 $ 578 $ 624
======= ======= =======
</TABLE>

The following sets forth the funded status of the Retirement Plan at
December 31, 1995 and 1994 based upon the actuarial present values of benefit
obligations (000's omitted):

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accumulated benefit obligations:
Vested................................................................. $17,147 $14,550
Nonvested.............................................................. 291 218
------- -------
Total.......................................................... $17,438 $14,768
======= =======
Projected benefit obligation for service rendered to date................ $19,030 $15,842
Fair value of plan assets, primarily money market and equity mutual
funds.................................................................. 13,849 12,052
------- -------
Plan assets less than projected benefit obligation....................... (5,181) (3,790)
Unrecognized prior service cost.......................................... 168 197
Net unrecognized loss.................................................... 2,983 947
Unamortized transition asset............................................. (1,595) (1,774)
------- -------
Pension liability included in accrued liabilities.............. $(3,625) $(4,420)
======= =======
</TABLE>

The weighted average discount rate used to measure the projected benefit
obligation was 7.75% in 1995 and 8.50% in 1994. For both years, the rate of
increase in future compensation levels was 5.0% and the expected long-term rate
of return on plan assets was 9.5%.

During fiscal 1993, the Company established a defined contribution plan,
including features under Section 401(k) of the Internal Revenue Code, which will
provide retirement benefits to its employees. Eligible employees may contribute
up to 15% of their compensation to the plan. There is no mandatory matching of
employee contributions by the Company, but discretionary matches of $163,600,
$163,500 and $100,000 were accrued for 1995, 1994 and 1993, respectively.

During fiscal 1994, the Company established two Supplemental Executive
Retirement Plans which will provide for the payment of retirement benefits to
participating executives supplementing amounts payable under the Retirement
Plan. The first plan is an excess benefit plan designed to replace benefits that
would otherwise have been payable under the Retirement Plan but that were
limited as a result of certain tax law changes. The second plan is a defined
contribution plan under which participants will receive an annual credit based
on a percentage of base salary, subject to vesting requirements. Expense for
these plans for fiscal 1995 and 1994 was $447,000 and $413,000, respectively.

F-19
<PAGE> 135

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(7) COMMITMENTS

The Company leases a substantial portion of its facilities including
laboratories, office and warehouse space, and retail store locations. These
leases have initial terms of up to 10 years and typically do not provide for
renewal options. In most leases covering retail store locations, additional
rents are payable based on store sales. In addition, the Company operates
departments in various host stores paying occupancy costs solely as a percentage
of sales under agreements containing short-term cancellation clauses. Generally,
the Company is required to pay taxes and normal expenses of operating the
premises for laboratory, office, warehouse and retail store leases; the host
stores pay these expenses for departments operated on a percentage-of-sales
basis. The following amounts represent rental expense for fiscal 1995, 1994 and
1993 (000's omitted):

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Occupancy costs based on sales................................ $50,218 $47,198 $41,329
All other rental expense...................................... 32,697 30,003 27,940
Sublease rental income........................................ (1,510) (1,455) (1,197)
------- ------- -------
$81,405 $75,746 $68,072
======= ======= =======
</TABLE>

During 1995, the Company entered into leases for equipment which have been
accounted for as capital leases. At February 3, 1996, property under capital
leases consisted of $887,000 in equipment with accumulated amortization of
$22,000.

At February 3, 1996 future minimum lease payments for all leases, and the
present value of future minimum lease payments for capital leases, are as
follows (000's omitted):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996............................................................. $ 173 $ 30,053
1997............................................................. 188 26,727
1998............................................................. 188 23,537
1999............................................................. 188 19,678
2000............................................................. 308 15,308
2001 and thereafter.............................................. -- 36,621
------- ---------
Total future minimum lease payments.............................. 1,045 $ 151,924
=========
Amount representing interest..................................... (207)
-------
Present value of future minimum lease payments................... $ 838
=======

</TABLE>

Effective March 25, 1995, CNG entered into an agreement with a third party
for the management and operation of the Company's data processing center. The
agreement expires in March 2005 and may be

F-20
<PAGE> 136

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

terminated by the Company upon six months' notice and payment of certain fees
for termination. The agreement provides for minimum payments as follows (000's
omitted):

<TABLE>
<S> <C>
1996......................................... $ 6,448
1997......................................... 5,674
1998......................................... 5,020
1999......................................... 6,442
2000......................................... 6,829
Thereafter................................... 21,307
-------
$51,720
=======
</TABLE>

(8) ACQUISITIONS AND DISPOSITIONS OF BUSINESS

The Company has made several acquisitions, each of which has been accounted
for as a purchase. In May 1995, the Company acquired the assets of 59 optical
departments located in BJ's Wholesale Clubs for a purchase price of $1.1
million. In January 1994, the Company acquired the assets of 107 leased optical
departments within Montgomery Ward Stores for a purchase price of $4.7 million.
In September 1993, the Company acquired the operating assets from and assumed
certain liabilities of Contact Lens Supply, Inc., a mail order distributor of
contact lenses, for a purchase price of $3.2 million.

In April 1995, the Company sold its 39 Sunspot fashion sunglass kiosks. No
gain or loss was recognized on this transaction.

F-21
<PAGE> 137

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Pearle, Inc.:

We have audited the accompanying consolidated balance sheets of Pearle,
Inc. and subsidiaries as of September 30, 1996 and 1995 and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the years in the three-year period ended September 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pearle, Inc.
and subsidiaries as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1996, in conformity with generally accepted accounting
principles.

As discussed in notes 1 and 8, the Company changed its method of accounting
for income taxes in fiscal 1994 to adopt the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.

KPMG Peat Marwick LLP

Dallas, Texas
November 22, 1996

F-22
<PAGE> 138

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 7,411 $ 17,800
Accounts and notes receivable:
Trade, less allowance for doubtful accounts of $2,908 in 1996 and
$2,944 in 1995................................................... 21,326 15,657
Current portion of franchise notes................................ 7,310 8,252
Other............................................................. 3,787 3,947
Inventories.......................................................... 36,751 35,432
Prepaid expenses..................................................... 1,741 1,661
Deferred income taxes................................................ 9,118 9,710
-------- --------
Total current assets............................................ 87,444 92,459
Property, plant and equipment, net..................................... 57,860 62,459
Franchise notes receivable, excluding current portion.................. 25,250 32,137
Intangible assets, net................................................. 121,669 216,767
Other assets........................................................... 809 544
-------- --------
$293,032 $404,366
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................................... $ 12,998 $ 8,268
Checks outstanding................................................... 11,196 9,711
Accrued payroll costs................................................ 12,212 14,140
Income taxes payable................................................. -- 18,710
Accrued advertising.................................................. 342 3,707
Accrued store closure costs.......................................... 2,233 6,573
Other accrued expenses and liabilities............................... 21,356 25,168
-------- --------
Total current liabilities....................................... 60,337 86,277
Payables to Parent and affiliated companies............................ -- 201,399
Deferred income taxes.................................................. 1,927 9,059
Other noncurrent liabilities........................................... 5,036 6,501
-------- --------
Total liabilities............................................... 67,300 303,236
-------- --------
Stockholder's equity:
Common stock, $1.00 par value, 1,000 shares authorized, 100 shares
issued and outstanding............................................ -- --
Additional paid-in capital........................................... 646,243 417,187
Accumulated deficit.................................................. (426,775) (324,392)
Foreign currency translation adjustment.............................. 6,264 8,335
-------- --------
Total stockholder's equity...................................... 225,732 101,130
Commitments and contingencies.......................................... -- --
-------- --------
$293,032 $404,366
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-23
<PAGE> 139

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Revenues:
Trade sales.............................................. $ 341,141 $331,105 $311,233
Franchise revenues....................................... 24,883 23,147 24,785
-------- -------- ---------
Total revenues...................................... 366,024 354,252 336,018
-------- -------- ---------
Operating expenses:
Cost of sales, including buying and occupancy costs...... 184,486 187,185 181,340
Selling, general and administrative expenses............. 164,129 155,256 160,820
Restructuring and store closure costs.................... (2,083) 7,265 1,876
Royalty payments and other affiliate charges............. 6,406 6,039 5,916
Amortization of intangible assets........................ 15,604 14,260 14,289
Provision for impairment of intangible assets and related
costs................................................. 94,673 -- --
-------- -------- ---------
Total operating expenses............................ 463,215 370,005 364,241
-------- -------- ---------
Operating loss...................................... (97,191) (15,753) (28,223)
Other expense (income):
Gain on sale of subsidiary............................... -- (14,811) --
Interest expense to Parent............................... 15,461 15,769 17,309
Other interest, net...................................... (4,258) (4,829) (4,080)
-------- -------- ---------
Loss before income tax benefit and cumulative effect
of accounting change............................. (108,394) (11,882) (41,452)
Income tax benefit......................................... (6,011) (12,845) (10,480)
-------- -------- ---------
Income (loss) before cumulative effect of accounting
change.............................................. (102,383) 963 (30,972)
Cumulative effect of a change in accounting for income
taxes.................................................... -- -- 842
-------- -------- ---------
Net income (loss)................................... $(102,383) $ 963 $(31,814)
======== ======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-24
<PAGE> 140

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
--------------------------------------------------------------------
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER'S
STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
-------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1993...... $ -- $ 405,829 $(293,541) $ 976 $ 113,264
Net loss............................ -- -- (31,814) -- (31,814)
Capital contribution from
affiliate......................... -- 7,222 -- -- 7,222
Effect of foreign currency
translation....................... -- -- -- 3,283 3,283
-------- -------- --------- ------- --------
Balances at September 30, 1994...... -- 413,051 (325,355) 4,259 91,955
Net income.......................... -- -- 963 -- 963
Capital contribution from
affiliate......................... -- 4,136 -- -- 4,136
Effect of foreign currency
translation....................... -- -- -- 4,076 4,076
-------- -------- --------- ------- --------
Balances at September 30, 1995...... -- 417,187 (324,392) 8,335 101,130
Net loss............................ -- -- (102,383) -- (102,383)
Distribution of assets to
affiliate......................... -- (19,730) -- -- (19,730)
Capital contributions from
affiliate......................... -- 248,786 -- -- 248,786
Effect of foreign currency
translation....................... -- -- -- (2,071) (2,071)
-------- -------- --------- ------- --------
Balances at September 30, 1996...... $ -- $ 646,243 $(426,775) $ 6,264 $ 225,732
======== ======== ========= ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-25
<PAGE> 141

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $(102,383) $ 963 $(31,814)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 31,587 33,448 39,953
Provision for bad debts............................... 1,797 (481) 2,162
Provision for inventory shrinkage and reserves........ 2,037 1,361 6,137
Restructuring and store closure costs................. (2,015) 7,164 2,487
Provision for impairment of intangible assets and
related costs....................................... 94,673 -- --
Gain on sale of subsidiary............................ -- (14,811) --
Changes in assets and liabilities:
Accounts and notes receivable....................... (6,642) 260 3,595
Inventories......................................... (3,004) 1,627 10,564
Prepaid expenses.................................... (80) 5,409 (5,409)
Checks outstanding.................................. 1,485 5,185 (10,079)
Accrued payroll costs............................... (1,928) 2,755 (2,572)
Income taxes payable................................ 3,360 6,573 751
Accrued advertising................................. (3,365) (2,353) 1,795
Accrued store closure costs......................... (2,512) (4,434) (18,878)
Accounts payable and accrued and other
liabilities...................................... (1,391) (7,695) (19,797)
Other assets........................................ (265) 662 3,939
Deferred income taxes............................... (6,540) (4,094) 19,094
Other noncurrent liabilities........................ (912) 625 1,512
--------- -------- --------
Net cash provided by operating activities........ 3,902 32,164 3,440
--------- -------- --------
Cash flows from investing activities:
Capital expenditures..................................... (13,558) (7,321) (6,083)
Proceeds from sale of property, plant and equipment...... 1,078 400 1,840
Proceeds from sale of subsidiary......................... -- 14,811 --
Other, net............................................... (710) 2,045 (257)
--------- -------- --------
Net cash provided by (used in) investing
activities..................................... (13,190) 9,935 (4,500)
--------- -------- --------
Cash flows from financing activities:
Increase (decrease) in payables to Parent and affiliated
companies............................................. 18,629 (37,396) (10,355)
Capital contribution from affiliate...................... -- 4,146 7,222
Distribution of assets to affiliate...................... (19,730) -- --
--------- -------- --------
Net cash used in financing activities............ (1,101) (33,250) (3,133)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents....... (10,389) 8,849 (4,193)
Cash and cash equivalents at beginning of year............. 17,800 8,951 13,144
--------- -------- --------
Cash and cash equivalents at end of year................... $ 7,411 $ 17,800 $ 8,951
========= ======== ========
Supplemental disclosures of cash flow information -- cash
paid (received) during the year for:
Income taxes.......................................... $ 101 $(16,988) $(29,878)
========= ======== ========
Interest.............................................. $ 11,203 $ 10,759 $ 13,229
========= ======== ========
Supplemental schedule of noncash financing activities:
Capitalization of amounts payable to Parent and
affiliated companies............................. $ 220,028 $ -- $ --
========= ======== ========
Current income taxes payable assumed by affiliate........ $ 22,070 $ -- $ --
========= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-26
<PAGE> 142

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) General

Prior to November 15, 1996, Pearle, Inc. ("Pearle" or the "Company"), was a
wholly owned subsidiary of Grand Metropolitan Incorporated ("GrandMet" or the
"Parent") (see note 2). GrandMet is an indirect wholly-owned subsidiary of Grand
Metropolitan Public Limited Company. Pearle is a retailer of eyecare products
and services through company operated and franchised optical stores in the
United States, Canada, Puerto Rico, Belgium and the Netherlands. In addition,
Pearle operates an optical processing laboratory and distribution center in
connection with its retail operations.

(b) Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. Intercompany balances and transactions have
been eliminated in consolidation.

The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents were
$1,207,000 and $1,174,000 at September 30, 1996 and 1995, respectively.

(d) Inventories

Inventories consist of frames, lenses and other raw materials and are
stated at the lower of weighted average cost or market.

(e) Property, Plant and Equipment

Property, plant and equipment are stated at cost. Maintenance and repair
costs are expensed as incurred.

Depreciation and amortization are computed on a straight-line basis over
the estimated useful lives of the assets. Amortization of leasehold improvements
is based on the shorter of the lives of the respective leases or the estimated
useful lives of the improvements. The following is a summary of depreciation and
amortization periods for each classification of property, plant and equipment:

<TABLE>
<S> <C>
Buildings................ 20-33 years
Leasehold improvements... 4-20 years
Fixtures and equipment... 3-10 years
</TABLE>

(f) Intangible Assets

The excess of cost over the fair value of net tangible assets acquired upon
GrandMet's acquisition of the Company in 1985 and other businesses acquired by
Pearle since that time has been reflected as intangible assets in the
accompanying consolidated balance sheets. Such intangible assets are being
amortized on a straight-line basis over periods up to 40 years (see note 7). As
a result of the sale of the stock of the Company on November 15, 1996, it was
determined that a portion of the excess of cost over the fair value of net
tangible assets acquired was not recoverable. Accordingly, an impairment of
$87,985,000 was recorded in the consolidated financial statements at September
30, 1996 (see note 2).

Goodwill is recorded on the repurchase of franchise locations based on a
discounted cash flow model and is amortized over the expected life of the store
location.

F-27
<PAGE> 143

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(g) Income Taxes

Effective October 1, 1993, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), Accounting for Income Taxes, requiring the
asset and liability method of accounting for deferred income taxes. SFAS No. 109
changes the Company's method of accounting for income taxes from the deferred
method required under Accounting Principles Board Opinion 11 to the asset and
liability method. Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

The Company has reported the cumulative effect of adopting SFAS No. 109 as
a change in method of accounting for income taxes in the fiscal year 1994
consolidated statement of operations.

(h) Trade Sales

Trade sales represent sales of goods and services to retail customers by
Company operated stores and sales of merchandise inventory to franchisees and
other outside customers.

(i) Franchise Revenues

Franchise royalty revenues based on sales by franchisees are accrued as
earned. Gains and losses from the sale of existing Company owned stores to
franchisees are recognized at the time of the sale. A provision for doubtful
notes receivable is included as an offset to gain or loss on sale of franchises,
as appropriate. Initial franchise fees are recorded as income when all material
services or conditions relating to the sale of the franchises have been
substantially performed or satisfied by Pearle and when the related store begins
operations. Accrued franchise royalty revenues are included in trade accounts
receivable.

(j) Advertising Expenses

The Company expenses advertising production costs and advertising costs as
incurred. Gross advertising expense before contributions from franchisees was
approximately $47,678,000, $43,903,000 and $43,496,000 during the years ended
September 30, 1996, 1995 and 1994, respectively.

(k) Foreign Currency Translation

The assets and liabilities of the Company's foreign subsidiaries are
translated to United States dollars at the rates of exchange on the balance
sheet date. Income and expense items of these subsidiaries are translated at
average monthly rates of exchange. The resultant translation gains or losses are
included in the foreign currency translation adjustment component of
stockholder's equity.

(l) Postretirement Benefits Other than Pensions

The estimated cost of retiree benefit payments, principally health and life
insurance benefits, are accrued during the employees' active service periods
(see note 13).

(m) Use of Estimates

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial

F-28
<PAGE> 144

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(2) SALE OF COMPANY

On September 24, 1996, The Pillsbury Company ("Pillsbury"), an intermediate
parent of the Company, entered into a Stock Purchase Agreement (the Agreement)
with Cole National Corporation, an unrelated third party, to sell Pillsbury's
interest in the Company. The final closing of the sale occurred on November 15,
1996 at which time Cole National Corporation exchanged approximately $220
million cash for Pillsbury's interest in the Company.

As the net assets of the Company, excluding intercompany and other balances
which were assumed by Pillsbury at the time of the sale, exceeded the selling
price, an impairment of the assets of the Company was determined to exist at
September 30, 1996. Accordingly, an impairment of approximately $87,985,000 has
been recorded in the September 30, 1996 consolidated financial statements to
reflect the assets of the Company at their estimated fair value. The impairment
is recorded as a write-off of excess cost over fair value of net tangible assets
acquired. The terms of the Agreement will substantially affect the Company's
current affiliate tax, debt and cash sharing arrangements. As a result of the
sale, approximately $6,688,000 was or will be paid by an affiliate company on
behalf of Pearle. This amount has been included in the consolidated statement of
operations and as a corresponding capital contribution in the consolidated
statement of stockholder's equity, as this amount will not be repaid by Pearle.

(3) RESTRUCTURING AND STORE CLOSURE COSTS

During the year ending September 30, 1996, the Company recorded a
write-down of the accrued store closure costs in the consolidated statement of
operations of approximately $2,083,000 related to a change in estimate of the
liability relating to store closure costs. During the years ended September 30,
1995 and 1994 the Company recorded a net provision of approximately $7,265,000
and $1,876,000, respectively, for estimated costs, consisting primarily of
future commitments under operating leases, of closing unprofitable U.S. and
international retail locations. During the year ended September 30, 1994, the
Company also recorded a provision of $4,800,000 (included in cost of sales) for
charges related to obsolete inventory which occurred as a result of a change in
brand strategy.

(4) DISPOSAL OF SUBSIDIARY

On October 27, 1994, the Company entered into an agreement to sell all of
the capital stock of Ophthalmic Research Group International Company ("ORGIC")
to a third party for cash consideration of $14,811,000. Prior to fiscal year
1994, the remaining book value of the intangible assets acquired of
approximately $22,146,000 was written off since, in the opinion of management,
the value of such assets was not recoverable. As a result, the gain on sale in
1995 was equal to the cash consideration.

(5) RELATED PARTY TRANSACTIONS

In connection with an acquisition in 1989, Pearle pays to an affiliated
company an annual royalty payment equal to the greater of a predetermined
minimum amount or 4% of sales from the predecessor's stores as a license fee for
use of the predecessor's trademark. The Company paid $6,081,000, $5,714,000, and
$5,494,000 for royalties in 1996, 1995 and 1994, respectively, pursuant to the
licensing agreement. These amounts are included in the accompanying consolidated
statements of operations as royalty payments and other affiliate charges. The
Company paid $17,236,000 on November 15, 1996 to settle its obligation under the
license agreement. In exchange for the settlement all rights in the trademark
were assigned to the Company.

F-29
<PAGE> 145

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Company received capital contributions from an affiliate of
approximately $4,146,000, and $7,222,000 during the years ended September 30,
1995 and 1994, respectively. These amounts have been recorded as additional
paid-in capital in the accompanying consolidated balance sheets. In addition, in
connection with the sale of the Company (see note 2), amounts payable to Parent
and affiliated companies have been cancelled and current income taxes payable
has been assumed by Pillsbury as of September 30, 1996, and accordingly have
been recorded as an increase to additional paid-in capital.

On September 30, 1996, the Company distributed assets of $19,730,000
relating to a controlled entity to an affiliated company. The distribution
resulted in a reduction of additional paid-in capital, and a corresponding
reduction in payables to Parent and affiliated companies.

On May 28, 1993, an affiliate of the Company purchased approximately
$75,280,000 of newly issued preferred stock from a subsidiary of the Company.
The cash received from the sale of such stock was then loaned to the affiliate
in exchange for a note receivable. All balances related to this transaction have
been eliminated in the consolidated financial statements due to the related
party nature of the transaction. In fiscal year 1995, the preferred stock was
redeemed and the proceeds used to retire the note receivable.

The Company maintains an ongoing financing relationship with GrandMet.
Excess cash from operations is transferred to GrandMet on a regular basis.
Interest expense related to intercompany balances is recorded monthly at the
LIBOR rate plus 1%.

Royalty payments and other affiliate charges included in the consolidated
statements of operations include allocations of management, tax, accounting and
other administrative expenses performed by GrandMet.

(6) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Land........................................................ $ 6,803 $ 6,951
Buildings................................................... 26,922 26,784
Leasehold improvements...................................... 68,869 67,026
Fixtures and equipment...................................... 111,270 109,247
-------- --------
213,864 210,008
Less accumulated depreciation and amortization.............. 156,004 147,549
-------- --------
$ 57,860 $ 62,459
======== ========
</TABLE>

Depreciation and amortization expense related to property, plant and
equipment was $15,819,000, $18,619,000, and $22,567,000 for 1996, 1995 and 1994,
respectively.

F-30
<PAGE> 146

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(7) INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
AMORTIZATION -----------------------------
PERIOD 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Goodwill....................................... 7-40 years $ 213,221 $ 205,326
Patient files.................................. 4-8 years 21,297 21,600
Franchise agreements........................... 11-25 years 23,140 24,329
Franchise lease agreements..................... 1-11 years 2,234 2,235
Trademarks..................................... 40 years 55,496 55,496
Noncompetition agreements...................... 2-5 years 17,428 17,428
Other.......................................... 1-23 years 38,487 38,865
---------- ----------
371,303 365,279
Less:
Accumulated amortization..................... 161,649 148,512
Provision for impairment..................... 87,985 --
---------- ----------
$ 121,669 $ 216,767
========== ==========
</TABLE>

(8) INCOME TAXES

The Company is included in the consolidated Federal income tax return of
GrandMet. In 1989 the Company entered into a tax sharing agreement with GrandMet
whereby GrandMet agreed to allocate to the Company certain tax benefits
resulting from the utilization of the Company's tax deductions by other members
of the consolidated GrandMet group. For financial reporting purposes, the
Company's Federal income tax provision is calculated as though the Company filed
a separate Federal income tax return, except for the effect of the
aforementioned 1989 agreement with GrandMet.

As discussed in note 1, the Company adopted SFAS No. 109 as of October 1,
1993. The cumulative effect of this change in accounting for income taxes of
approximately $842,000 was determined as of October 1, 1993 and is reported
separately in the consolidated statement of operations for the year ended
September 30, 1994.

Federal income tax returns have been examined by the Internal Revenue
Service and settled through fiscal 1988.

The loss before income tax benefit and cumulative effect of accounting
change in the accompanying consolidated statements of operations consists of the
following (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Domestic operations........................... $(113,304) $(17,814) $ (30,171)
Foreign operations............................ 4,910 5,932 (11,281)
--------- -------- ---------
Loss before income tax benefit and
cumulative effect of accounting
changes................................ $(108,394) $(11,882) $ (41,452)
========= ======== =========
</TABLE>

F-31
<PAGE> 147

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The income tax expense (benefit) attributable to loss before income tax
benefit and cumulative effect of accounting change consists of the following (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................... $ (7,123) $ (9,380) $(27,535)
State...................................... 48 97 103
Foreign.................................... 2,250 532 (1,300)
-------- -------- ---------
Total current......................... (4,825) (8,751) (28,732)
-------- -------- ---------
Deferred:
Federal.................................... (1,097) (4,037) 17,454
Foreign.................................... (89) (57) 798
-------- -------- ---------
Total deferred........................ (1,186) (4,094) 18,252
-------- -------- ---------
Income tax benefit.................... $ (6,011) $(12,845) $(10,480)
======== ======== =========
</TABLE>

The tax effects of the primary temporary differences giving rise to the
deferred income tax assets and liabilities as determined under SFAS No. 109 are
as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Restructuring reserves............................................. $ 627 $ 2,444
Inventories, principally due to additional costs inventoried for
tax pursuant
to the Tax Reform Act of 1986.................................... 1,264 3,130
Accounts and notes receivable, principally due to allowance for
doubtful accounts................................................. 2,834 3,039
Employee related accruals, principally vacation pay and
post-retirement medical accruals.................................. 1,407 2,573
Accrued store closure costs........................................ 969 1,921
Warranty reserves.................................................. 86 392
Plant and equipment, principally due to differences in
depreciation...................................................... 3,049 --
Self insurance reserves............................................ 1,185 113
Other.............................................................. 1,271 848
-------- -------
Total gross deferred tax assets............................... 12,692 14,460
-------- -------
Deferred tax liabilities:
Intangibles, principally due to differences in amortization........ (3,698) (4,830)
Deferred income on franchise notes receivable...................... (1,339) (3,482)
Plant and equipment, principally due to differences in
depreciation...................................................... -- (110)
Prepaid advertising................................................ -- (112)
Other.............................................................. (464) (5,275)
-------- -------
Total gross deferred tax liabilities.......................... 5,501 (13,809)
-------- -------
Net deferred income tax asset................................. $ 7,191 $ 651
======== =======
</TABLE>

F-32
<PAGE> 148

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

These deferred income tax assets and liabilities are presented as follows
in the consolidated balance sheets (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- -------
<S> <C> <C>
Current deferred income tax asset....................................... $ 9,118 $ 9,710
Noncurrent deferred income tax liability................................ (1,927) (9,059)
-------- -------
Net deferred income tax asset................................. $ 7,191 $ 651
======== =======
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences.

A reconciliation of the U.S. federal statutory rate to the effective income
tax rate applicable to loss before income tax benefit and cumulative effect of
accounting change follows:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
U.S. federal statutory rate....................................... (35.0)% (35.0)% (35.0)%
State income taxes, net of Federal benefit........................ 0.3 0.2 0.2
Nondeductible goodwill and trademarks............................. 1.0 8.4 2.1
Provisions for impairment of intangible assets and related
costs........................................................... 29.1 -- --
Loss (earnings) of foreign subsidiaries........................... 0.5 (13.1) 8.3
Sale of ORGIC stock............................................... -- (70.8) --
Other............................................................. (1.4) 2.2 (.9)
------ ------ -----
Effective income tax rate............................... (5.5)% (108.1)% (25.3)%
====== ====== =====
</TABLE>

The disposition of ORGIC resulted in an income tax deduction of
approximately $24,000,000 in 1995.

(9) FRANCHISE REVENUES

A summary of franchise revenues follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Franchise royalties........................................... $23,363 $23,978 $23,543
Gain (loss) on sale of franchises, net of reserves............ 1,240 (1,661) 482
Franchise fees................................................ 280 830 760
------- ------- -------
$24,883 $23,147 $24,785
======= ======= =======
</TABLE>

The Company financed approximately $1,239,000, $1,478,000 and $1,506,000 in
1996, 1995 and 1994, respectively, in notes receivable in connection with the
sale of franchises.

The Company is reimbursed by franchisees for certain advertising
expenditures made on their behalf. The reimbursements amounted to $25,122,000,
$25,480,000 and $24,591,000 for 1996, 1995 and 1994, respec-
tively, and are netted against advertising expense in the accompanying statement
of operations.

F-33
<PAGE> 149

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Company's franchise notes receivable are from franchisees throughout
the U.S. and are collateralized by inventory, equipment, and leasehold
improvements at each location. The notes generally bear interest at the prime
rate plus 3% and require monthly payments of principal and interest over ten
years.

(10) LEASES

The Company leases most of its retail stores under noncancellable operating
leases with terms ranging from five to twenty years and which may contain
renewal options for consecutive five-year terms. Certain of these stores have
been sublet to franchisees. In addition, the Company also leases certain of its
manufacturing and office facilities and data processing equipment.

Net rent expense included in the accompanying consolidated statements of
operations is as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Base rentals........................................ $ 39,312 $42,135 $43,185
Contingent rentals (based on sales)................. 924 330 35
Sublease rental income.............................. (17,626) (19,620) (20,796)
-------- ------- -------
$ 22,610 $22,845 $22,424
======== ======= =======
</TABLE>

Future minimum lease payments and sublease income receipts under
noncancellable operating leases as of September 30, 1996 are as follows (in
thousands):

<TABLE>
<CAPTION>
PAYMENTS RECEIPTS
-------- --------
<S> <C> <C>
1997.......................................................... $ 38,834 $ 15,431
1998.......................................................... 35,245 13,269
1999.......................................................... 30,675 10,841
2000.......................................................... 22,416 8,165
2001.......................................................... 13,288 5,664
Thereafter.................................................... 28,663 7,615
-------- --------
$169,121 $ 60,985
======== =======
</TABLE>

Approximately $1,911,000 and $3,000,000 of these future minimum lease
payments are included in accrued store closure costs in the consolidated balance
sheet at September 30, 1996 and 1995, respectively.

(11) EMPLOYEE BENEFIT PLANS

The Company has a contributory profit sharing plan for employees in the
U.S. meeting certain service requirements as defined in the plan. The Company's
contribution to the plan consists of a minimum matching contribution plus an
additional performance contribution. Profit sharing plan expenses, which are
included in selling, general and administrative expenses, amounted to
$1,224,000, $1,279,000 and $1,010,000 in 1996, 1995 and 1994, respectively. The
Company also has retirement plans for employees of foreign subsidiaries.

(12) SALE OF FRANCHISE NOTES RECEIVABLE

Prior to fiscal year 1994, the Company sold approximately $72,500,000 of
franchise notes receivable with limited recourse to a large banking institution
for $81,000,000 in cash. The limited recourse provisions require Pearle to
reacquire all of the notes under certain circumstances, including failure to
maintain properties in good order, failure to deliver a monthly statement, or
false or misleading representations. Additionally, under other circumstances,
such as default, Pearle is required to repurchase the individual note involved.
Such repurchases are limited to 28% of the aggregate purchase price of all notes
($6,460,000 and $8,517,000

F-34
<PAGE> 150

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

remaining repurchase exposure at September 30, 1996 and 1995, respectively). The
notes are secured by inventory, receivables and fixed assets of the franchised
stores.

(13) POSTRETIREMENT BENEFIT PLANS

Prior to February 1993, the Company and its subsidiaries provided health
care and other benefits to substantially all retired employees and covered
dependents. Generally, employees who have attained certain age and service
requirements were eligible for these benefits.

Net postretirement benefit cost, included as a component of selling,
general and administration expenses, consisted of the following components:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Interest cost on accumulated postretirement benefit
obligation................................................. $ 42,100 $77,400 $76,800
Amortization of unrecognized gain............................ (19,700) -- --
-------- ------- -------
Net postretirement benefit cost.................... $ 22,400 $77,400 $76,800
======== ======= =======
</TABLE>

The actuarial present value of the accumulated postretirement benefit
obligation as recognized in the consolidated balance sheets at September 30,
1996 and 1995, respectively, is $589,200 and $978,000, and relates solely to
existing retirees.

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7.5% in 1996 and these rates are
anticipated to ratably decline to 5% by 2006. A one-percentage-point increase in
the assumed health care cost trend rate for each year would increase the
accumulated postretirement benefit obligation by approximately $46,600 and net
postretirement health care cost by approximately $3,500 as of September 30,
1996. The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%.

(14) COMMITMENTS AND CONTINGENCIES

The Company is engaged in various legal proceedings and has certain
unresolved claims pending. The ultimate liability, if any, for the aggregate
amounts claimed cannot be determined at this time. Management of the Company,
based upon consultation with legal counsel, is of the opinion that there are no
matters pending or threatened which are expected to have a material adverse
effect on the Company's consolidated financial condition, results of operations
or liability.

The Company has certain commitments to purchase advertising in fiscal year
1997 approximating $11,205,500.

(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, trade and other
receivables and payables approximate fair value due to the short maturity of
those instruments.

Franchise notes receivable and the payable to Parent and affiliated
companies bear interest at floating rates based on market rates and are adjusted
quarterly; therefore, the carrying value of these instruments approximates fair
value.

F-35
<PAGE> 151

PEARLE, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(16) SELECTED FINANCIAL DATA FOR EUROPEAN OPERATIONS

The following summary sets forth selected financial information for the
Company's European operations in Netherlands and Belgium included in the
Company's consolidated financial statements:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Total revenues................................................ $63,817 $59,841 $48,704
Cost of sales, including buying and occupancy costs........... 35,849 33,372 26,805
Selling, general and administrative expenses.................. 20,177 19,583 17,974
Amortization and impairment of intangible assets.............. 238 236 209
------- ------- -------
Operating income......................................... 7,553 6,650 3,716
Interest expense (income), net................................ (488) (429) (99)
Income tax provision.......................................... 2,510 2,135 1,216
------- ------- -------
Net income............................................... $ 5,531 $ 4,944 $ 2,599
======= ======= =======
Total depreciation and amortization........................... $ 3,563 $ 3,373 $ 2,996
Capital expenditures.......................................... 3,193 3,279 2,272
Cash.......................................................... $ 1,380 $ 8,812 $ 4,751
Total current assets.......................................... 19,178 26,048 20,627
Total assets.................................................. 38,274 47,311 40,229
Total current liabilities..................................... 9,107 6,680 6,158
Payable to Company and affiliated companies................... (8,028) (3,985) (1,917)
Stockholder's equity.......................................... 34,339 41,049 33,292
</TABLE>

F-36
<PAGE> 152
===============================================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CON-
TAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................... ii
Prospectus Summary...................... 1
Risk Factors............................ 16
The Exchange Offer...................... 22
The Company............................. 32
The Transactions........................ 33
Use of Proceeds......................... 34
Capitalization.......................... 35
Unaudited Pro Forma Condensed
Consolidated Financial Data........... 36
Selected Historical Financial and Other
Data.................................. 44
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 48
Business................................ 55
Management.............................. 73
Principal Stockholders.................. 82
Description of Other Indebtedness....... 85
Description of the Notes................ 87
Plan of Distribution.................... 110
Legal Matters........................... 111
Independent Public Accountants.......... 111
Index to Financial Statements........... F-1
</TABLE>

Until , 1997, (90 days after the date of this Prospectus),
all dealers effecting transactions in the Exchange Notes, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
selling Exchange Notes received in exchange for Original Notes held for their
own account. See "Plan of Distribution."

===============================================================================

$150,000,000

[ Cole LOGO ]

COLE NATIONAL
GROUP, INC.

OFFER TO EXCHANGE ITS
9 7/8% SENIOR SUBORDINATED
NOTES DUE 2006 WHICH
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT FOR ANY AND
ALL OUTSTANDING 9 7/8% SENIOR
SUBORDINATED NOTES DUE 2006
-------------------

PROSPECTUS

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

DECEMBER , 1996

===============================================================================
<PAGE> 153

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is a list of the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the Shares being
registered hereby.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................... $ 45,455
Printing costs.................................................................... 50,000
Accounting fees and expenses...................................................... 30,000
Legal fees and expenses (not including Blue Sky).................................. 50,000
Blue Sky fees and expenses........................................................ 10,000
Miscellaneous expenses............................................................ 14,545
--------
Total........................................................................... $200,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article Seventh of the Company's Certificate provides that the Company will
indemnify its officers, directors and each person who is or was serving or who
had agreed to serve at the request of the Board of Directors or an officer of
the Company as an employee or agent of the Company or as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise to the full extent permitted by the General Corporation Law of
the State of Delaware (the "DGCL") or any other applicable laws as from time to
time may be in effect and that the Company may enter into agreements which
provide for indemnification greater or different from that provided in the
Certificate. In addition, the Company has provided in Article Sixth of its
Certificate that no director will be personally liable to the Company or its
stockholders for or with respect to any acts or omissions in the performance of
his or her duties as a director, to the full extent permitted by the DGCL or any
other applicable laws as from time to time may be in effect. The Certificate
further provides that any repeal or modification of Article Seventh or Article
Sixth will not adversely affect the right or protection existing under such
provision prior to such repeal or modification.

Subsection (a) of the Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under standards similar to those set forth in the paragraph above, except that
no indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
that despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.

II-1
<PAGE> 154

Section 145 further provides that, to the extent that a director or officer
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he will be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that any indemnification under subsections (a) and
(b) of Section 145 (unless ordered by a court) will be made by a corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of Section 145; that expenses incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
unless it is ultimately determined that he is not entitled to be indemnified by
the corporation; that indemnification provided for by Section 145 will not be
deemed exclusive of any other rights to which the indemnified party may be
entitled; and that a corporation is empowered to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under Section 145.

The Parent has entered into indemnity agreements (the "Indemnity
Agreements") with the current Directors and executive officers of the Company
and expects to enter into similar agreements with any Director or those
executive officers designated by the Board of Directors of the Company elected
or appointed in the future at the time of their election or appointment.

Pursuant to the Indemnity Agreements, the Parent will indemnify a Director
or officer of the Company (the "Indemnitee") if the Indemnitee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that the Indemnitee is or was a Director or officer of the
Company, or is or was serving at the request of the Company in certain
capacities with another entity, against any and all costs, charges and expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the Indemnitee in connection with the defense or settlement of such
proceeding. Indemnity is available to the Indemnitee unless it proved by clear
and convincing evidence that the Indemnitee's action or failure to act was not
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company.

The Indemnity Agreements mandate advancement of expenses to the Indemnitee
if the Indemnitee provides the Parent with a written promise that (i) he has
reasonably incurred or will reasonably incur actual expenses in defending an
actual civil, criminal, administrative, or investigative action, suit,
proceeding or claim and (ii) he will repay such amount if it is ultimately
determined that he is not entitled to be indemnified by the Parent. In addition,
the Indemnity Agreements provide various procedures and presumptions in favor of
the Indemnitee's right to receive indemnification under the Indemnity Agreement.

Under the Parent's Director and Officer Liability Insurance Policy, each
director and certain officers of the Company are insured against certain
liabilities which might arise in connection with their respective positions with
the Company.

II-2
<PAGE> 155

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

No securities of the Company which were not registered under the Securities
Act have been issued or sold by the Company within the past three years, except
as follows:

On July 19, 1993, the Parent subscribed for and purchased 1,000 shares of
the Company's Common Stock, par value $.01 per share, at a price of $1.00 per
share (an aggregate of $1,000), in reliance on the exemption from registration
afforded by Section 4(2) of the Securities Act.

On March 17, 1995, the Parent purchased 100 shares of the Company's Common
Stock, par value $.01 per share, at a price of $62,000 per share (an aggregate
of $6,200,000), in reliance on the exemption from registration afforded by
Section 4(2) of the Securities Act.

On November 13, 1996, the Company sold the Original Notes in an aggregate
principal amount of $150,000,000 to CIBC Wood Gundy Securities Corp., CS First
Boston Corporation, NationsBanc Capital Markets, Inc. and Smith Barney Inc. The
issuance of the Original Notes was exempt from registration under the Securities
Act pursuant to Section 4(2). In connection therewith, the Company has agreed to
file this registration statement of which this Prospectus is a part.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<S> <C>
2.1 Stock Purchase Agreement, dated as of September 24, 1996, among The Pillsbury
Company, Pearle, Inc. and Cole National Corporation, incorporated by reference to
Exhibit 2.1 of Cole National Corporation's Current Report on Form 8-K, filed with
the Commission on December 2, 1996 (File No. 1-12814).
2.2 Purchase Agreement, dated as of November 15, 1996, among Cole National Corporation
and the Company, incorporated by reference to Exhibit 2.3 of Cole National
Corporation's Current Report on Form 8-K, filed with the Commission on December 2,
1996 (File No. 1-12814).
3.1(i) Certificate of Incorporation of the Company, incorporated by reference to Exhibit
3.1(i) to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
3.2(ii) By-Laws of the Company, incorporated by reference to Exhibit 3.2(ii) to the
Company's Registration Statement on Form S-1 (Registration No. 33-66342).
4.1 Indenture dated as of September 30, 1993 between the Company and Norwest Bank
Minnesota, N.A., as trustee, relating to the 11 1/4% Senior Notes due 2001 (the
form of which Senior Note is included in such Indenture), incorporated by
reference to Exhibit 4.1 to Cole National Corporation's Annual Report on Form 10-K
for the period ended February 3, 1996 (File No. 1-12814).
4.2 The Company by this filing agrees, upon request, to file with the Commission the
instruments defining the rights of holders of long-term debt of the Company and
its subsidiaries where the total amount of securities authorized thereunder does
not exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis.
4.3 Indenture dated November 15, 1996, between the Company and Norwest Bank Minnesota,
National Association, as trustee, relating to the 9 7/8% Senior Subordinated Notes
due 2006 (the form of which Senior Subordinated Note is included in such
Indenture), incorporated by reference to Exhibit 4.1 of Cole National
Corporation's Current Report on Form 8-K, filed with the Commission on December 2,
1996 (File No. 1-12814).
</TABLE>

II-3
<PAGE> 156

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<S> <C>
4.4 Registration Rights Agreement dated November 15, 1996, by and among the Company
and CIBC Wood Gundy Securities Corp., CS First Boston Corporation, NationsBanc
Capital Markets, Inc. and Smith Barney Inc., incorporated by reference to Exhibit
4.2 of Cole National Corporation's Current Report on Form 8-K, filed with the
Commission on December 2, 1996 (File No. 1-12814).
5.1* Opinion of Jones, Day, Reavis & Pogue as to the validity of the securities being
offered.
10.1 Employment Agreement entered into as of April 1, 1996 by and among Cole National
Corporation, the Company, Cole Gift Centers, Inc., Cole Vision Corporation, Things
Remembered, Inc. and Jeffrey A. Cole, incorporated by reference to Exhibit 10.1 to
Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.2 Employment Agreement entered into as of April 1, 1996 by and among Cole National
Corporation, the Company, Cole Gift Centers, Inc., Cole Vision Corporation, Things
Remembered, Inc. and Brian B. Smith, incorporated by reference to Exhibit 10.2 to
Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.3 Agreement dated March 27, 1993 between Cole National Corporation and Joseph
Gaglioti regarding termination of employment, incorporated by reference to Exhibit
10.8 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.4 Agreement dated April 9, 1993 between Cole National Corporation and Wayne L.
Mosley regarding termination of employment, incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.5 1992 Management Stock Option Plan, including forms of Nonqualified Stock Option
Agreement (Time Vesting) and Nonqualified Stock Option Agreement (Performance
Option), as amended, and forms of promissory notes and pledge agreements,
incorporated by reference to Exhibit 10.11 to the Company's Registration Statement
on Form S-1 (Registration No. 33-66342).
10.6 Cole National Corporation 1993 Management Stock Option Plan, including forms of
Nonqualified Stock Option Agreement (1993 Time Vesting) and form of secured
promissory notes and stock pledge agreement, incorporated by reference to Exhibit
10.29 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.7 Form of Option Agreement for Directors of the Company, incorporated by reference
to Exhibit 10.41 to Cole National Corporation's Registration Statement on Form S-1
(Registration No. 33-74228).
10.8 Nonqualified Stock Option Plan for Nonemployee Directors, incorporated by
reference to Exhibit 10.45 to Cole National Corporation's Registration Statement
on Form S-1 (Registration No. 33-74228).
10.9 Form of Nonqualified Stock Option Agreement for Nonemployee Directors,
incorporated by reference to Exhibit 10.9 to Cole National Corporation's Annual
Report on Form 10-K for the period ended February 3, 1996 (File No. 1-12814).
10.10 Cole National Corporation 1996 Management Stock Option Plan, including forms of
Nonqualified Stock Option Agreement (1996 Time Vesting), incorporated by reference
to Exhibit 10.10 to Cole National Corporation's Annual Report on Form 10-K for the
period ended February 3, 1996 (File No. 1-12814).
10.11 Management Bonus Programs, incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (Registration No. 33-66342).
</TABLE>

II-4
<PAGE> 157

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<S> <C>
10.12 Management Bonus Plan, incorporated by reference to Exhibit 10.30 to the Company's
Registration Statement on Form S-1 (Registration No. 33-89996).
10.13 Executive Life Insurance Plan of Cole National Corporation, incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.14 Medical Expense Reimbursement Plan of Cole National Corporation effective as of
February 1, 1992, incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (Registration No. 33-66342).
10.15 Supplemental Retirement Benefit Plan of Cole National Corporation, incorporated by
reference to Exhibit 10.38 to Cole National Corporation's Registration Statement
on Form S-1 (Registration No. 33-74228).
10.16 Supplemental Pension Plan of Cole National Corporation, incorporated by reference
to Exhibit 10.48 to Cole National Corporation's Registration Statement on Form S-1
(Registration No. 33-74228).
10.17 Lease Agreement (Knoxville) dated as of November 28, 1979 by and between Tommy
Hensley, as agent for the real property of Mrs. Don Siegel and Cole Vision
Corporation, as amended and supplemented, incorporated by reference to Exhibit
10.15 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.18 Lease Agreement (Memphis) dated as of October 2, 1991 by and between Shelby
Distribution Park and Cole Vision Corporation, incorporated by reference to
Exhibit 10.16 to the Company's Registration Statement on Form S-1 (Registration
No. 33-66342).
10.19 Lease Agreement (Richmond) dated as of April 23, 1982 by and between Daniel,
Daniel & Daniel and Cole Vision Corporation, as amended and supplemented,
incorporated by reference to Exhibit 10.17 to the Company's Registration Statement
on Form S-1 (Registration No. 33-66342).
10.20 Lease Agreement (Salt Lake) dated as of November 1, 1996 by and between Gibbons
Realty and Cole Vision Corporation, incorporated by reference to Exhibit 10.01 to
Cole National Corporation's Report on Form 10-Q for the period ended November 2,
1996 (File No. 1-12814).
10.21 Form of Lease Agreement Finite 19518 dated as of December 29, 1988 between Sears,
Roebuck and Co. and Cole Vision Corporation, incorporated by reference to Exhibit
10.23 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.22 Lease Agreement (Knoxville) dated as of April 11, 1995 by and between Richard T.
Fox and Cole Vision Corporation, incorporated by reference to Exhibit 10.29 to
Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.23 Form of Indemnification Agreement for Directors of Cole National Corporation,
incorporated by reference to Exhibit 10.19 to the Company's Registration Statement
on Form S-1 (Registration No. 33-66342).
10.24 Form of Indemnification Agreement for Officers of Cole National Corporation,
incorporated by reference to Exhibit 10.20 to the Company's Registration Statement
on Form S-1 (Registration No. 33-66342).
10.25 Master License Agreement dated as of October 2, 1986, between Montgomery Ward &
Co., Incorporated and Cole Vision Corporation, as amended, incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
</TABLE>

II-5
<PAGE> 158

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<S> <C>
10.26 Master License Agreement dated as of June 12, 1986, between Montgomery Ward & Co.,
Incorporated and Bay Cities Optical Company, as amended, incorporated by reference
to Exhibit 10.22 to the Company's Registration Statement on Form S-1 (Registration
No. 33- 66342).
10.27 Form of License Agreement (Optical), incorporated by reference to Exhibit 10.24 to
the Company's Registration Statement on Form S-1 (Registration No. 33-66342).
10.28 Form of License/Lease Agreement (Optical), incorporated by reference to Exhibit
10.25 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.29 License Agreement (Key Shops) dated as of January 15, 1989, between Sears, Roebuck
and Co. and Cole Key Corporation, as amended, incorporated by reference to Exhibit
10.46 to Cole National Corporation's Registration Statement on Form S-1
(Registration No. 33-74228).
10.30 License Agreement (Cards and Gifts) dated as of January 1, 1990 between Sears,
Roebuck and Co. and Cole Key Corporation, as amended, incorporated by reference to
Exhibit 10.47 to Cole National Corporation's Registration Statement on Form S-1
(Registration No. 33-74228).
10.31 Agreement for the Allocation of Federal Income Tax Liability and Benefits among
Members of the Parent Group dated August 23, 1985, as amended, incorporated by
reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.32 Assignment and Assumption Agreement dated as of September 30, 1993 between Cole
National Corporation and the Company, incorporated by reference to Exhibit 10.24
to Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.33 Credit Agreement, dated as of November 15, 1996, among Cole Vision Corporation,
Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and Pearle Service
Corporation and Canadian Imperial Bank of Commerce, incorporated by reference to
Exhibit 99.1 of Cole National Corporation's Current Report on Form 8-K, filed with
the Commission on December 2, 1996 (File No. 1-12814).
10.34 CNG Guarantee and Cash Collateral Agreement, dated as of November 15, 1996, by the
Company and Cole National Corporation, incorporated by reference to Exhibit 99.3
of Cole National Corporation's Current Report on Form 8-K, filed with the
Commission on December 2, 1996 (File No. 1-12814).
10.35 Guarantee and Collateral Agreement, dated as of November 15, 1996, by Cole Vision
Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and
Pearle Service Corporation and Canadian Imperial Bank of Commerce, incorporated by
reference to Exhibit 99.4 of Cole National Corporation's Current Report on Form
8-K, filed with the Commission on December 2, 1996 (File No. 1-12814).
12.1* Statements regarding computation of ratios.
21.1* List of Subsidiaries.
23.1* Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 5.1).
23.2* Consent of Arthur Andersen LLP.
23.3* Consent of KPMG Peat Marwick LLP.
24.1* Powers of Attorney.
25.1* Statement of Eligibility of Trustee, Norwest Bank Minnesota, National Association,
on Form T-1.
</TABLE>

II-6
<PAGE> 159

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ----------------------------------------------------------------------------------
<S> <C>
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
</TABLE>

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

* Filed herewith.

(b) Financial Statement Schedules

<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF DOCUMENT
- --------- --------------------------------------------------------------------------------
<S> <C>
I Condensed Financial Information of Cole National Group, Inc, incorporated by
reference to Schedule I of Cole National Group, Inc.'s Annual Report on Form
10-K for the period ended February 3, 1996 (File No. 33-66342).
</TABLE>

All other financial statement schedules are omitted because they are either
not applicable or the required information is included in the financial
statements or notes thereto appearing elsewhere in this Registration Statement.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered)

II-7
<PAGE> 160

and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

II-8
<PAGE> 161

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on December 19, 1996.

COLE NATIONAL GROUP, INC.

By: /s/ Wayne L. Mosley
-------------------------------
Wayne L. Mosley
Vice President and Controller

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ----------------------------------------- -------------------
<S> <C> <C>
/s/ Jeffrey A. Cole Chairman, Chief Executive Officer, December 19, 1996
- ------------------------------ Chief Financial Officer and Director
Jeffey A. Cole (Principal Executive Officer
and Principal Financial Officer)

/s/ Brian B. Smith President, Chief Operating December 19, 1996
- ------------------------------ Officer and Director
Brian B. Smith

* Vice President, Controller, December 19, 1996
- ------------------------------ Assistant Secretary and
Wayne L. Mosley Assistant Treasurer
(Principal Accounting Officer)

/s/ Timothy F. Finley Director December 19, 1996
- ------------------------------
Timothy F. Finley

/s/ Irwin N. Gold Director December 19, 1996
- ------------------------------
Irwin N. Gold

/s/ Peter V. Handal Director December 19, 1996
- ------------------------------
Peter V. Handal

/s/ Charles A. Ratner Director December 19, 1996
- ------------------------------
Charles A. Ratner
<FN>

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

* The undersigned, pursuant to a Power of Attorney executed by each of the
Directors and officers identified above and filed with the Securities and
Exchange Commission, by signing his name hereto, does hereby sign and execute
this Registration Statement on behalf of each of the persons noted above, in
the capacities indicated.
</TABLE>

<TABLE>
<S> <C>
By: /s/ Wayne L. Mosley December 19, 1996
---------------------------------
Wayne L. Mosley, Attorney-in-Fact
</TABLE>

II-9
<PAGE> 162

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<S> <C>
2.1 Stock Purchase Agreement, dated as of September 24, 1996, among The Pillsbury
Company, Pearle, Inc. and Cole National Corporation, incorporated by reference to
Exhibit 2.1 of Cole National Corporation's Current Report on Form 8-K, filed with
the Commission on December 2, 1996 (File No. 1-12814).
2.2 Purchase Agreement, dated as of November 15, 1996, among Cole National
Corporation and the Company, incorporated by reference to Exhibit 2.3 of Cole
National Corporation's Current Report on Form 8-K, filed with the Commission on
December 2, 1996 (File No. 1- 12814).
3.1(i) Certificate of Incorporation of the Company, incorporated by reference to Exhibit
3.1(i) to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
3.2(ii) By-Laws of the Company, incorporated by reference to Exhibit 3.2(ii) to the
Company's Registration Statement on Form S-1 (Registration No. 33-66342).
4.1 Indenture dated as of September 30, 1993 between the Company and Norwest Bank
Minnesota, N.A., as trustee, relating to the 11 1/4% Senior Notes due 2001 (the
form of which Senior Note is included in such Indenture), incorporated by
reference to Exhibit 4.1 to Cole National Corporation's Annual Report on Form
10-K for the period ended February 3, 1996 (File No. 1-12814).
4.2 The Company by this filing agrees, upon request, to file with the Commission the
instruments defining the rights of holders of long-term debt of the Company and
its subsidiaries where the total amount of securities authorized thereunder does
not exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis.
4.3 Indenture dated November 15, 1996, between the Company and Norwest Bank
Minnesota, National Association, as trustee, relating to the 9 7/8% Senior
Subordinated Notes due 2006 (the form of which Senior Subordinated Note is
included in such Indenture), incorporated by reference to Exhibit 4.1 of Cole
National Corporation's Current Report on Form 8-K, filed with the Commission on
December 2, 1996 (File No. 1-12814).
4.4 Registration Rights Agreement dated November 15, 1996, by and among the Company
and CIBC Wood Gundy Securities Corp., CS First Boston Corporation, NationsBanc
Capital Markets, Inc. and Smith Barney Inc., incorporated by reference to Exhibit
4.2 of Cole National Corporation's Current Report on Form 8-K, filed with the
Commission on December 2, 1996 (File No. 1-12814).
5.1* Opinion of Jones, Day, Reavis & Pogue as to the validity of the securities being
offered.
10.1 Employment Agreement entered into as of April 1, 1996 by and among Cole National
Corporation, the Company, Cole Gift Centers, Inc., Cole Vision Corporation,
Things Remembered, Inc. and Jeffrey A. Cole, incorporated by reference to Exhibit
10.1 to Cole National Corporation's Annual Report on Form 10-K for the period
ended February 3, 1996 (File No. 1-12814).
10.2 Employment Agreement entered into as of April 1, 1996 by and among Cole National
Corporation, the Company, Cole Gift Centers, Inc., Cole Vision Corporation,
Things Remembered, Inc. and Brian B. Smith, incorporated by reference to Exhibit
10.2 to Cole National Corporation's Annual Report on Form 10-K for the period
ended February 3, 1996 (File No. 1-12814).
10.3 Agreement dated March 27, 1993 between Cole National Corporation and Joseph
Gaglioti regarding termination of employment, incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form S-1 (Registration
No. 33-66342).
</TABLE>
<PAGE> 163

<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<S> <C>
10.4 Agreement dated April 9, 1993 between Cole National Corporation and Wayne L.
Mosley regarding termination of employment, incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.5 1992 Management Stock Option Plan, including forms of Nonqualified Stock Option
Agreement (Time Vesting) and Nonqualified Stock Option Agreement (Performance
Option), as amended, and forms of promissory notes and pledge agreements,
incorporated by reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (Registration No. 33-66342).
10.6 Cole National Corporation 1993 Management Stock Option Plan, including forms of
Nonqualified Stock Option Agreement (1993 Time Vesting) and form of secured
promissory notes and stock pledge agreement, incorporated by reference to Exhibit
10.29 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.7 Form of Option Agreement for Directors of the Company, incorporated by reference
to Exhibit 10.41 to Cole National Corporation's Registration Statement on Form
S-1 (Registration No. 33-74228).
10.8 Nonqualified Stock Option Plan for Nonemployee Directors, incorporated by
reference to Exhibit 10.45 to Cole National Corporation's Registration Statement
on Form S-1 (Registration No. 33-74228).
10.9 Form of Nonqualified Stock Option Agreement for Nonemployee Directors,
incorporated by reference to Exhibit 10.9 to Cole National Corporation's Annual
Report on Form 10-K for the period ended February 3, 1996 (File No. 1-12814).
10.10 Cole National Corporation 1996 Management Stock Option Plan, including forms of
Nonqualified Stock Option Agreement (1996 Time Vesting), incorporated by
reference to Exhibit 10.10 to Cole National Corporation's Annual Report on Form
10-K for the period ended February 3, 1996 (File No. 1-12814).
10.11 Management Bonus Programs, incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (Registration No. 33-66342).
10.12 Management Bonus Plan, incorporated by reference to Exhibit 10.30 to the
Company's Registration Statement on Form S-1 (Registration No. 33-89996).
10.13 Executive Life Insurance Plan of Cole National Corporation, incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.14 Medical Expense Reimbursement Plan of Cole National Corporation effective as of
February 1, 1992, incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (Registration No. 33-66342).
10.15 Supplemental Retirement Benefit Plan of Cole National Corporation, incorporated
by reference to Exhibit 10.38 to Cole National Corporation's Registration
Statement on Form S-1 (Registration No. 33-74228).
10.16 Supplemental Pension Plan of Cole National Corporation, incorporated by reference
to Exhibit 10.48 to Cole National Corporation's Registration Statement on Form
S-1 (Registration No. 33-74228).
10.17 Lease Agreement (Knoxville) dated as of November 28, 1979 by and between Tommy
Hensley, as agent for the real property of Mrs. Don Siegel and Cole Vision
Corporation, as amended and supplemented, incorporated by reference to Exhibit
10.15 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.18 Lease Agreement (Memphis) dated as of October 2, 1991 by and between Shelby
Distribution Park and Cole Vision Corporation, incorporated by reference to
Exhibit 10.16 to the Company's Registration Statement on Form S-1 (Registration
No. 33-66342).
</TABLE>
<PAGE> 164

<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<S> <C>
10.19 Lease Agreement (Richmond) dated as of April 23, 1982 by and between Daniel,
Daniel & Daniel and Cole Vision Corporation, as amended and supplemented,
incorporated by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (Registration No. 33-66342).
10.20 Lease Agreement (Salt Lake) dated as of November 1, 1996 by and between Gibbons
Realty and Cole Vision Corporation, incorporated by reference to Exhibit 10.01 to
Cole National Corporation's Report on Form 10-Q for the period ended November 2,
1996 (File No. 1-12814).
10.21 Form of Lease Agreement Finite 19518 dated as of December 29, 1988 between Sears,
Roebuck and Co. and Cole Vision Corporation, incorporated by reference to Exhibit
10.23 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.22 Lease Agreement (Knoxville) dated as of April 11, 1995 by and between Richard T.
Fox and Cole Vision Corporation, incorporated by reference to Exhibit 10.29 to
Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.23 Form of Indemnification Agreement for Directors of Cole National Corporation,
incorporated by reference to Exhibit 10.19 to the Company's Registration
Statement on Form S-1 (Registration No. 33-66342).
10.24 Form of Indemnification Agreement for Officers of Cole National Corporation,
incorporated by reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-1 (Registration No. 33-66342).
10.25 Master License Agreement dated as of October 2, 1986, between Montgomery Ward &
Co., Incorporated and Cole Vision Corporation, as amended, incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.26 Master License Agreement dated as of June 12, 1986, between Montgomery Ward &
Co., Incorporated and Bay Cities Optical Company, as amended, incorporated by
reference to Exhibit 10.22 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
10.27 Form of License Agreement (Optical), incorporated by reference to Exhibit 10.24
to the Company's Registration Statement on Form S-1 (Registration No. 33-66342).
10.28 Form of License/Lease Agreement (Optical), incorporated by reference to Exhibit
10.25 to the Company's Registration Statement on Form S-1 (Registration No.
33-66342).
10.29 License Agreement (Key Shops) dated as of January 15, 1989, between Sears,
Roebuck and Co. and Cole Key Corporation, as amended, incorporated by reference
to Exhibit 10.46 to Cole National Corporation's Registration Statement on Form
S-1 (Registration No. 33-74228).
10.30 License Agreement (Cards and Gifts) dated as of January 1, 1990 between Sears,
Roebuck and Co. and Cole Key Corporation, as amended, incorporated by reference
to Exhibit 10.47 to Cole National Corporation's Registration Statement on Form
S-1 (Registration No. 33-74228).
10.31 Agreement for the Allocation of Federal Income Tax Liability and Benefits among
Members of the Parent Group dated August 23, 1985, as amended, incorporated by
reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1
(Registration No. 33-66342).
</TABLE>
<PAGE> 165

<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<S> <C>
10.32 Assignment and Assumption Agreement dated as of September 30, 1993 between Cole
National Corporation and the Company, incorporated by reference to Exhibit 10.24
to Cole National Corporation's Annual Report on Form 10-K for the period ended
February 3, 1996 (File No. 1-12814).
10.33 Credit Agreement, dated as of November 15, 1996, among Cole Vision Corporation,
Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and Pearle Service
Corporation and Canadian Imperial Bank of Commerce, incorporated by reference to
Exhibit 99.1 of Cole National Corporation's Current Report on Form 8-K, filed
with the Commission on December 2, 1996 (File No. 1-12814).
10.34 CNG Guarantee and Cash Collateral Agreement, dated as of November 15, 1996, by
the Company and Cole National Corporation, incorporated by reference to Exhibit
99.3 of Cole National Corporation's Current Report on Form 8-K, filed with the
Commission on December 2, 1996 (File No. 1-12814).
10.35 Guarantee and Collateral Agreement, dated as of November 15, 1996, by Cole Vision
Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc. and
Pearle Service Corporation and Canadian Imperial Bank of Commerce, incorporated
by reference to Exhibit 99.4 of Cole National Corporation's Current Report on
Form 8-K, filed with the Commission on December 2, 1996 (File No. 1-12814).
12.1* Statements regarding computation of ratios.
21.1* List of Subsidiaries.
23.1* Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 5.1).
23.2* Consent of Arthur Andersen LLP.
23.3* Consent of KPMG Peat Marwick LLP.
24.1* Powers of Attorney.
25.1* Statement of Eligibility of Trustee, Norwest Bank Minnesota, National
Association, on Form T-1.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
<FN>

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

* Filed herewith.
</TABLE>

<PAGE> 1

[Jones, Day, Reavis & Pogue Letterhead]

Exhibit 5.1

December 18, 1996

Cole National Group, Inc.
5915 Landerbrook Drive
Mayfield Heights, Ohio 44124

Re: 9 7/8% Senior Subordinated Notes Due 2006 of
Cole National Group, Inc.
--------------------------------------------

Gentlemen:

We are acting as counsel for Cole National Group, Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance of
$150,000,000 aggregate amount of the Company's 9 7/8% Senior Subordinated
Notes Due 2006 (the "Notes") to be issued pursuant to an Indenture dated as of
November 15, 1996 (the "Indenture") between the Company and Norwest Bank
Minnesota, National Association, as Trustee (the "Trustee") and a Registration
Rights Agreement dated as of November 15, 1996 by and among the Company and
CIBC Wood Gundy Securities Corp., CS First Boston Corporation, NationsBanc
Capital Markets, Inc. and Smith Barney Inc. (the "Registration Rights
Agreement").

We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion, and based thereupon, we are of
the opinion that the Notes have been duly authorized, and when duly executed by
authorized officers of the Company, authenticated by the Trustee, and issued in
accordance with the Indenture and the Registration Rights Agreement will be
binding obligations of the Company, entitled to the benefits of the Indenture.

We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement on Form S-1 filed by the Company to effect registration
of the Notes under the Securities Act of 1933 and to the reference to us under
the caption "Legal Matters" in the Prospectus constituting a part of such
Registration Statement.

Very truly yours,

/s/Jones, Day, Reavis & Pogue

<PAGE> 1
EXHIBIT 12.1

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)

<TABLE>
<CAPTION>
Fiscal Year Ended 39 Weeks Ended
--------------------------------------------------------------- ----------------------
Feb. 1, Jan. 30, Jan. 29, Jan. 28, Feb. 3, Oct. 28, Nov. 2,
1992 1993 1994 1995 1996 1995 1996
--------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from
operations $ 284 $13,127 $19,620 $21,141 $24,549 $ 7,060 $12,437

Fixed charges:
Interest expenses 45,064 18,897 18,029 22,266 22,143 16,403 15,943
Portion of rents representative
of interest factor (a) 8,225 8,668 8,914 9,516 10,396 7,615 8,466
---------------------------------------------------------- --------------------
Total fixed charges 53,289 27,565 26,943 31,782 32,539 24,018 24,409
---------------------------------------------------------- --------------------
Earnings before income taxes
and fixed charges $53,573 $40,692 $46,563 $52,923 $57,088 $31,078 $36,846

Ratio of earnings to fixed charges 1.01 1.48 1.73 1.67 1.75 1.29 1.51
========================================================== ====================

<FN>
(a) One-third of rent included in the calculation is considered an appropriate
portion of rentals representative of the interest factor. Rentals include
leased premises for laboratories, distribution and retailing operations and
certain leased equipment, net of sublease rental income.
</TABLE>

<PAGE> 2

COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)

<TABLE>
<CAPTION>
39 Weeks Ended November 2, 1996 Fiscal Year Ended February 3, 1996
------------------------------------------- ------------------------------------------
Historical Historical
------------------------------- ------------------------------
Company Pearle Combined Pro forma Company Pearle Combined Pro forma
------- ------ -------- --------- ------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from
operations $12,437 ($107,317) ($94,880) $16,316 $24,549 ($21,597) $2,952 $6,378

Fixed charges:
Interest expense 15,943 12,258 28,201 27,131 22,143 16,354 38,497 36,830
Portion of rents representative
of interest factor (a) 8,466 4,386 12,852 12,852 10,396 6,110 16,506 16,506
------- --------- -------- ------- ------- -------- ------- -------
Total fixed charges 24,409 16,644 41,053 39,983 32,539 22,464 55,003 53,336
------- --------- -------- ------- ------- -------- ------- -------

Earnings before income taxes
and fixed charges $36,846 ($90,673) ($53,827) $56,299 $57,088 $867 $57,955 $59,714

Ration of earnings to fixed charges 1.51 (b) (b) 1.41 1.75 (b) 1.05 1.12
======= ========= ======== ======= ======= ======== ======= =======

(b) Pearle's earnings before income taxes and fixed charges were insufficient
to cover fixed charges by $107.3 and $21.6 million for the periods included
in the periods ended November 2, 1996 and February 3, 1996 above,
respectively. As a result, combined earnings before income taxes and fixed
charges would have been insufficient to cover fixed charges by $94.9
million in the period ended November 2, 1996.
</TABLE>

<PAGE> 1
Exhibit 21.1

LIST OF SUBSIDIARIES OF COLE NATIONAL GROUP, INC.

<TABLE>
<CAPTION>
State of Names Subsidiaries
Corporation Name Incorporation Do Business Under
- ---------------- ------------- ------------------

COLE VISION
- -----------
<S> <C> <C>
Bay Cities Optical Company California Montgomery Ward Vision Center

Cole Lens Supply, Inc. Delaware Contact Lens Supply
Contact Lens Supply Co.

Cole Vision Corporation Delaware Sears Optical
Elder-Beerman Optical
Montgomery Ward Vision Center
BJ's Optical Department
Phar-Mor Optical
Target Optical
Optical Factory Outlet

Cole Vision Canada, Inc. New Brunswick, Sears Optical
Canada Vision Club

Cole Vision Services, Inc. Delaware

Western States Optical, Inc. Washington Sears Optical

COLE GIFT
- ---------

Cole Gift Centers, Inc. Delaware Keys N'Engraved Gifts
The Keyshop
The Keyshop (at Sears, Venture
and Montgomery Ward)
The Gift Center
The Gift Center at Sears
Personally Yours
Keys N'Things

Things Remembered, Inc. Delaware Things Remembered
Things Remembered-Engraved
Gifts
Things Engraved
HQ Gifts
Gifts Remembered

OTHER
- -----

Cole Management
Services, Inc. Delaware

PEARLE
- ------

Pearle, Inc. Delaware

Pearle Service Corporation Delaware

Pearle VisionCare, Inc. California Pearle Vision (HMO)

Pearle Vision Center of Commonwealth Pearle Vision Center
Puerto Rico, Inc. of Puerto Rico Pearle Vision Express
Pearle Express

Pearle Vision Center
Canada Limited Ontario, Canada Pearle Vision Center

Pearle Vision, Inc. Delaware Pearle Vision
Pearle Vision Center
Pearle Vision Express
Pearle Eyelab Express
Pearle Eye-Tech Express
Pearle Express

Pearle Vision Managed Care
HMO of Texas, Inc. Texas

</TABLE>

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.

/s/ Arthur Andersen LLP

Arthur Andersen LLP

Cleveland, Ohio,
December 17, 1996

<PAGE> 1
Exhibit 23.3

CONSENT OF INDEPENDENT AUDITORS
-------------------------------

The Board of Directors
Pearle, Inc.:

We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus. The report of KPMG Peat
Marwick LLP refers to a change in accounting for income taxes in 1994.

/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP

Dallas, Texas
December 17, 1996

<PAGE> 1
Exhibit 24.1

DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.

REGISTRATION STATEMENT ON FORM S-1

POWER OF ATTORNEY

The undersigned director and/or officer of Cole National Group, Inc., a
Delaware corporation (the "Corporation"), hereby constitutes and appoints Joseph
Gaglioti and Wayne L. Mosley, or any of them, with full power of substitution
and resubstitution, as attorneys or attorney of the undersigned, for him or her
and in his or her name, place and stead, to sign and file under the Securities
Act of 1933 one or more Registration Statement(s) on Form S-1 relating to the
registration for sale of the Corporation's 9 7/8% Senior Subordinated Notes due
2006, and any and all amendments, supplements and exhibits thereto, including
pre-effective and post-effective amendments or supplements, and any and all
applications or other documents to be filed with the Securities and Exchange
Commission pertaining to such registration(s), with full power and authority to
do and perform any and all acts and things whatsoever required and necessary to
be done in the premises, hereby ratifying and approving the act of said
attorneys and any of them and any such substitute.

EXECUTED as of the 5th day of December, 1996.

/S/ Jeffrey A. Cole Chairman, Chief Executive Officer,
- ---------------------- --------------------------------------
Signature Chief Financial Officer and Director
--------------------------------------
Title

Jeffrey A. Cole
- ----------------------
Name

<PAGE> 2

DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.

REGISTRATION STATEMENT ON FORM S-1

POWER OF ATTORNEY

The undersigned director and/or officer of Cole National Group, Inc., a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jeffrey A. Cole, Joseph Gaglioti and Wayne L. Mosley, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Act of 1933 one or more Registration Statement(s) on
Form S-1 relating to the registration for sale of the Corporation's 9 7/8%
Senior Subordinated Notes due 2006, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.

EXECUTED as of the 5th day of December, 1996.

/S/ Timothy F. Finley Director
- -------------------------------- -------------------------------
Signature Title

Timothy F. Finley
- -------------------------------
Name

<PAGE> 3

DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.

REGISTRATION STATEMENT ON FORM S-1

POWER OF ATTORNEY

EXECUTED as of the 5th day of December, 1996.

/S/ Irwin N. Gold Director
- -------------------------------- -----------------------------
Signature Title

Irwin N. Gold
- -------------------------------
Name

<PAGE> 4

DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.

REGISTRATION STATEMENT ON FORM S-1

POWER OF ATTORNEY

The undersigned director and/or officer of Cole National Group, Inc., a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jeffrey A. Cole, Joseph Gaglioti and Wayne L. Mosley, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Act of 1933 one or more Registration Statement(s) on
Form S-l relating to the registration for sale of the Corporation's 9 7/8%
Senior Subordinated Notes due 2006, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.

EXECUTED as of the 5th day of December, 1996.

/S/ Peter V. Handal Director
- ------------------------------ -------------------------
Signature Title

Peter V. Handal
- ------------------------------
Name

<PAGE> 5

DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.

REGISTRATION STATEMENT ON FORM S-1

POWER OF ATTORNEY

EXECUTED as of the 5th day of December, 1996.

/S/ Charles A. Ratner Director
- ---------------------------------- -------------------------------
Signature Title

Charles A. Ratner
- ----------------------------------
Name

<PAGE> 6

DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.

REGISTRATION STATEMENT ON FORM S-1

POWER OF ATTORNEY

The undersigned director and/or officer of Cole National Group, Inc., a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jeffrey A. Cole, Joseph Gaglioti and Wayne L. Mosley, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Act of 1933 one or more Registration Statement(s) on
Form S-l relating to the registration for sale of the Corporation's 9 7/8%
Senior Subordinated Notes due 2006, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.

EXECUTED as of the 5th day of December, 1996.

/S/ Brian B. Smith President, Chief Operating Officer
- ---------------------------- ------------------------------------
Signature and Director
------------
Title

Brian B. Smith
- ----------------------------
Name

<PAGE> 7

DIRECTOR AND/OR OFFICER OF
COLE NATIONAL GROUP, INC.

REGISTRATION STATEMENT ON FORM S-1

POWER OF ATTORNEY

The undersigned director and/or officer of Cole National Group, Inc., a
Delaware corporation (the "Corporation"), hereby constitutes and appoints
Jeffrey A. Cole and Joseph Gaglioti, or any of them, with full power of
substitution and resubstitution, as attorneys or attorney of the undersigned,
for him or her and in his or her name, place and stead, to sign and file under
the Securities Act of 1933 one or more Registration Statement(s) on Form S-l
relating to the registration for sale of the Corporation's 9 7/8% Senior
Subordinated Notes due 2006, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.

EXECUTED as of the 5th day of December, 1996.

/S/ Wayne L. Mosley Vice President, Controller, Assistant
- --------------------------- -----------------------------------------
Signature Secretary and Assistant Treasurer
-----------------------------------------
Title

Wayne L. Mosley
- --------------------------
Name

<PAGE> 1
Exhibit 25.1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

FORM T-1

STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

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

[ ] CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(b) (2)

NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)

A National Banking Association 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)

Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)

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

COLE NATIONAL GROUP, INC.
(Exact name of obligor as specified in its charter)

Delaware 34-1744334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

5915 Landerbrook Drive
Mayfield Heights, Ohio 44124
(Address of principal executive offices) (Zip code)

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

9-7/8% Senior Subordinated Notes Due 2006
(Title of the indenture securities)

<PAGE> 2

Item 1. GENERAL INFORMATION. Furnish the following information as to the
trustee:

(a) Name and address of each examining or supervising authority
to which it is subject.

Comptroller of the Currency
Treasury Department
Washington, D.C.

Federal Deposit Insurance Corporation
Washington, D.C.

The Board of Governors of the Federal Reserve System
Washington, D.C.

(b) Whether it is authorized to exercise corporate trust powers.

The trustee is authorized to exercise corporate trust
powers.

Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the
trustee, describe each such affiliation.

None with respect to the trustee.

No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.

Item 15. Not applicable.

Item 16. LIST OF EXHIBITS. List below all exhibits filed as a part of this
Statement of Eligibility. Norwest Bank incorporates
by reference into this Form T-1 the exhibits
attached hereto.

Exhibit 1. a. A copy of Articles of Association of the trustee
now in effect.*

b. A copy of the certificate dated May 10, 1983 of name
change from Northwestern National Bank Minneapolis to
Norwest Bank Minneapolis, National Association.*

c. A copy of the certificate dated January 11, 1988, of
name change from Norwest Bank Minneapolis, National
Association to Norwest Bank Minnesota, National
Association.*

Exhibit 2. a. A copy of the certificate of authority of the trustee
to commence business issued June 28, 1872, by the
Comptroller of the Currency to The Northwestern
National Bank of Minneapolis.*

b. A copy of the certificate of the Comptroller of the
Currency dated January 2, 1934, approving the
consolidation of the Northwestern National Bank of
Minneapolis and the Minnesota Loan and Trust Company
of Minneapolis.*
<PAGE> 3

c. A copy of the certificate of the Acting Comptroller of
the Currency dated January 12, 1943, as to change of
corporate title of Northwestern National Bank and Trust
Company of Minneapolis to Northwestern National Bank of
Minneapolis.*

d. A copy of the certificate of the Comptroller of the
Currency dated May 1, 1983, authorizing Norwest Bank
Minneapolis, National Association, to act as
fiduciary.*

Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the Federal
Reserve Board.*

Exhibit 4. Copy of By-laws of the trustee as now in effect.*

Exhibit 5. Not applicable.

Exhibit 6. The consent of the trustee required by Section 321(b) of the
Act.

Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising
or examining authority.

Exhibit 8. Not applicable.

Exhibit 9. Not applicable.

* Incorporated by reference to the exhibit of the same number filed with the
registration statement number 33-66026.
<PAGE> 4

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 4th day of December, 1996.

NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION

/s/ Raymond S. Haverstock
-------------------------
Raymond S. Haverstock
Vice President

<PAGE> 5

EXHIBIT 6

December 4, 1996

Securities and Exchange Commission
Washington, D.C. 20549

Gentlemen:

In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal or State authorities authorized to make such
examination may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.

Very truly yours,

NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION

Raymond S. Haverstock
Assistant Vice President

<PAGE> 6
1

Board of Governors of the Federal Reserve System
OMB Number: 7100-0036

Federal Deposit Insurance Corporation

OMB Number: 3064-0052

Office of the Comptroller of the Currency
OMB Number: 1557-0081

Federal Financial Expires March 31, 1999
Institutions Examination Council

- --------------------------------------------------------------------------------
[logo]

Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------

CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND
FOREIGN OFFICES-FFIEC 031

REPORT AT THE CLOSE OF BUSINESS SEPTEMBER 30, 1996 (960930)
----------
(RCRI 9999)

This report is required by law: 12 U.S.C. Section 324 (State member banks);
12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).

This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.

I, Mark P. Wagener, Director of Bank & Service Accounting Name and Title of
Officer Authorized to Sign Report of the named bank do hereby declare that
these Reports of Condition and Income (including the supporting schedules) have
been prepared in conformance with the instructions issued by the appropriate
Federal regulatory authority and are true to the best of my knowledge and
belief.

/s/ Mark P. Wagener
- -----------------------------------------------
Signature of Officer Authorized to Sign Report
10/29/96
- -----------------------------------------------
Date of Signature

For Banks Submitting Hard Copy Report Forms:

State Member Banks: Return the original and one copy to the appropriate Federal
Reserve District Bank.

State Nonmember Banks: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.

The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.

We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with instructions issued by the appropriate Federal
regulatory authority and is true and correct.

/s/ James R. Campbell
- ------------------------------------------------
Director (Trustee)
/s/ William H. Queenan
- ------------------------------------------------
Director (Trustee)
/s/Scott A. Kisting
- ------------------------------------------------
Director (Trustee)

National Banks: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.

- --------------------------------------------------------------------------------
FDIC Certificate Number _____________
(RCRI 9050)

[Call No. 197 31 09-30-96]

STBK: 27-4095 00017
ST CERT: 27-05208

NORWEST BANK MINNESOTA, NATIONAL ASSN.
SIXTH STREET AND
MARQUETTE AVENUE
MINNEAPOLIS, MN 55479-0016

Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of tne Currency
<PAGE> 7

FFIEC 031
Page i
2
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices
- --------------------------------------------------------------------------------
Table of Contents

Signature Page Cover

Report of Income
<TABLE>
<S> <C>
Schedule RI-Income Statement .....................RI-1, 2, 3
Schedule RI-A--Changes in Equity Capital ...............RI-4

Schedule RI-B--Charge-offs and Recoveries and
Changes in Allowance for Loan and Lease
Losses ......................................RI-4, 5

Schedule RI-C--Applicable Income Taxes by
Taxing Authority ...............................RI-5

Schedule RI-D--Income from
International Operations .......................RI-6

Schedule RI-E--Explanations .........................RI-7, 8

</TABLE>

Disclosure of Estimated Burden

The estimated average burden associated with this information collection is
32.2 hours per respondent and is estimated to vary from l5 to 230 hours per
response, depending on individual circumstances. Burden estimates include the
time for reviewing instructions, gathering and maintaining data in the required
form, and completing the information collection, but exclude the time for
compiling and maintaining business records in the normal course of a
respondent's activities. Comments concerning the accuracy of this burden
estimate and suggestions for reducing this burden should be directed to the
Office of Information and Regulatory Affairs, Office of Management and Budget,
Washington, D.C. 20503, and to one of the following:

Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551

Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219

Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429

Report of Condition
<TABLE>
<S> <C>

Schedule RC-Balance Sheet .........................RC-1, 2

Schedule RC-A--Cash and Balances Due
From Depository Institutions .................RC-3

Schedule RC-B--Securities ......................RC-3, 4, 5

Schedule RC-C--Loans and Lease Financing
Receivables:
Part I. Loans and Leases ..................RC-6, 7
Part II. Loans to Small Businesses and
Small Farms (included in the forms for
June 30 only) ...........................RC-7a, 7b

Schedule RC-D--Trading Assets and Liabilities
(to be completed only by selected banks) ..............RC-8

Schedule RC-E--Deposit Liabilities ............RC-9, 10, 11
Schedule RC-F--Other Assets .........................RC-1l
Schedule RC-G--Cther Liabilities ....................RC-1l

Schedule RC-H--Selected Balance Sheet Items
for Domestic Cffices ........................RC-12

Schedule RC-I--Selected Assets and Liabilities
of IBFs ..................................RC-13

Schedule RC-K--Quarterly Averages ....................RC-13

Schedule RC-L--Off-Balance Sheet
Items ..............................RC-14, 15, 16

Schedule RC-M--Memoranda .........................RC-l7, 18

Schedule RC-N--Past Due and Nonaccrual
Loans, Leases, and Other Assets ..........RC-19, 20

Schedule RC-O--Other Data for Deposit
Insurance Assessments ....................RC-21, 22

Schedule RC-R--Regulatory Capital ................RC-23, 24

Optional Narrative Statement Concerning
the Amounts Reported in the Reports
of Condition and Income ......................RC-25

Special Report (to be completed by all banks)

Schedule RC-J--Repricing Opportunities (sent only to
and to be completed only by savings banks)
</TABLE>

For information or assistance, National and State nonmember banks should contact
the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C.
20429, toll free on (800) 688-FDIC(3342), Monday through Friday between 8:00
a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.
<PAGE> 8

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI- 1
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 3

Transit Number: 91000019
</TABLE>

Consolidated Report of Income
for the period January 1, 1996 - September 30, 1996

All Report of Income schedules are to be reported on a calendar year-to-date
basis in thousands of dollars.

Schedule RI - Income Statement
1480
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income:
a. Interest and fee income on loans:
(1) In domestic offices: RIAD
(a) Loans Secured by real estate OPff 4011. 265,884 1.a.la
(b) Loans to depository institutions 4019. 4,390 1.a.lb
(c) Loans to finance agricultural production and other loans to farmers 4024. 703 1.a.lc
(d) Commercial and industrial loans 4012. 224,945 1.a.1d
(e) Acceptances of other banks 4026. 254 1.a.1e
(f) Loans to individuals for household, family, and other personaL expenditures:
(1) Credit cards and related plans 4054. 17,772 1.a.lfl
(2) Other 4055. 44,536 1.a.1f2
(g) Loans to foreign governments and official institutions 4056. 0 1.a.lg
(h) obligations (other than securities and leases) of states and political
subdivisions in the U.S.:
(l) Taxable obligations 4503. 8 1.a.lhl
(2) Tax-exempt obligations 4504. 1,242 l.a.1h2
(i) All other loans in domestic offices 4058. 172 1.a.li
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs 4059. 7,498 1.a.2
b. Income from lease financing receivables:
(1) Taxable leases 4505. 29,305 1.b.1
(2) Tax-exempt leases 4307. 283 1.b.2
c. Interest income on balances due from depository institutions:(1)
(1) In domestic offices 4105. 139 1.c.1
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs 4106. 45 1.c.2
d. Interest and dividend income on securities:
(l) U.S. Treasury securities and U.S. Government agency and corporation
obligations 4027. 50,316 1.d.1
(2) Securities issued by states and political subdivisions in the U.S.:
(a) Taxable securities 4506. 64 1.d.2a
(b) Tax-exempt securities 4507. 4,802 1.d.2b
(3) Other domestic debt securities 3657. 710 1.d.3
(4) Foreign debt securities 3658. 0 1.d.4
(5) Equity securities (including investments in mutual funds) 3659. 13,448 1.d.5
e. Interest income from trading assets 4069. 7,980 1.e
<FN>

- ----------

(1) Includes interest income on time certificates of deposit not held for
trading.

</TABLE>

<PAGE> 9

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI- 2
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 4

Transit Number: 91000019
</TABLE>

Schedule RI - Continued

<TABLE>
<CAPTION>
Dollar Anounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income (continued)
f. Interest income on federal funds sold and securities purchased
under agreements to resell in domestic offices of the bank RIAD Year-to-date
and of its Edge and Agreement subsidiaries, and in IBFs 4020. 173,659 1.f
g. Total interest income (sum of items 1.a through 1.f) 4107. 848,155 1.g
2. Interest expense:
a. Interest on deposits:
(1) Interest on deposits in domestic offices:
(a) Transaction accounts (NOW accounts, ATS accounts, and
telephone and preauthorized transfer accounts) 4508. 6,799 2.a.1a
(b) Nontransaction accounts:
(1) Money market deposit accounts (MMDA) 4509. 30,945 2.a.1b1
(2) Other savings deposits 4511. 6,767 2.a.1b2
(3) Time certificates of deposit of $ 100,000 or more 4174. 8,629 2.a.1b3
(4) All other time deposits 4512. 74,939 2.a.1b4
(2) Interest on deposits in foreign offices, Edge and
Agreement subsidiaries, and IBFs 4172. 54,785 2.a.2
b. Expense of federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBF 4180. 146,513 2.b
c. Interest on demand notes issued to the U.S. Treasury, trading
liabilities, and other borrowed money 4185. 97,513 2.c
d. Interest on mortgage indebtedness and obligations under
capitalized leases 4072. 78 2.d
e. Interest on subordinated notes and debentures 4200. 7,288 2.e
f. Total interest expense (sum of items 2.a through 2.e) 4073. 434,256 2.f
3. Net interest income (item 1.g minus 2.f) 4074 413,899 3.
4. Provisions:
a. Provision for loan and lease losses 4230 17,745 4.a
b. Provision for allocated transfer risk 4243 0 4.b
5. Noninterest income:
a. Income from fiduciary activities 4070 139,523 5.a
b. Service charges on deposit accounts in domestic offices 4080 56,746 5.b
c. Trading revenue (must equal Schedule RI, sum of Memorandum
items 8.a through 8.d) A220 (9,554) 5.c
d. Other foreign transaction gains (losses) 4076 1,616 5.d
e. Not applicable
f. Other noninterest income:
(1) Other fee income 5407 94,159 5.f.1
(2) All other noninterest income* 5408 51,147 5.f.2
g. Total noninterest income (sum of items 5.a through 5.f) 4079 333,637 5.g
6. a. Realized gains (losses) on held-to-maturity securities 3521 0 6.a
b. Realized gains (losses) on available-for-sale securities 3196 6,628 6.b
7. Noninterest expense:
a. Salaries and employee benefits 4135 229,291 7.a
b. Expenses of premises and fixed assets (net of rental income)
(excluding salaries and employee benefits and mortgage
interest) 4217 61,926 7.b
c. Other noninterest expense* 4092 242,858 7.c
d. Total noninterest expense (sum of items 7.a through 7.c) 4093 534,075
8. Income (loss) before income taxes and extraordinary items and
other adjustments (item 3 plus or minus items 4.a, 4.b, 5.g,
6.a, 6.b, and 7.d) 4301 202,344 8.
9. Applicable income taxes (on item 8) 4302 66,441 9.
10. Income (loss) before extraordinary items and other adjustments
(item 8 minus 9) 4300 135,903 10.
<FN>
- ----------------

* Describe on Schedule RI-E -- Explanations.
</TABLE>
<PAGE> 10

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI- 3
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 5

Transit Number: 91000019
</TABLE>

Schedule RI - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11. Extraordinary items and other adjustments:
a. Extraordinary items and other adjustments, gross of income RIAD Year-to-date
taxes * 4310 0 11.a
b. Applicable income taxes (on item 11.a) * 4315 0 11.b
c. Extraordinary items and other adjustments, net of
income taxes (item 11.a minus 11.b) 4320 0 11.c
12. Net income (loss) (sum of items 10 and 11.c) 4340 135,903 12.
</TABLE>

Memoranda
1481
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired RIAD Year-to-date
after August 7, 1986, that is not deductible for federal income tax purposes 4513. 5 M.1
2. Income from the sale and servicing of mutual funds and annuities in domestic
offices (included in Schedule RI, item 8) 8431. 1,516 M.2
3. Not applicable
4. Not applicable
5. Number of full-time equivalent employees on payroll at end of current period (round to Number
nearest whole number) 4150. 6,088 M.5
6. Not applicable.
7. If the reporting bank has restated its balance sheet as a result of applying push down MM DD YY
accounting this calendar year, report the date of the bank's acquisition 9106. N/A M.7
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments)
(Sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): RIAD Year-to-date
a. Interest rate exposures 8757. (16,223) M.8.a
b. Foreign exchange exposures 8758. 6,669 M.8.b
c. Equity security and index exposures 8759. 0 M.8.c
d. Commodity and other exposures 8760. 0 M.8.d
9. Impact on income of off-balance sheet derivatives held for purposes other than trading:
a. Net increase (decrease) to interest income 8761. (2,648) M.9.a
b. Net (increase) decrease to interest expense 8762. 11,157 M.9.b
c. Other (noninterest) allocations 8763. (5,624) M.9.c
10. Credit losses on off-balance sheet derivatives (see instructions) A251. 0 M.10

<FN>

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

* Describe on Schedule RI-E - Explanations.
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI- 4
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 6

Transit Number: 91000019
</TABLE>

Schedule RI-A - Changes in Equity Capital

Indicate decreases and losses in parentheses.
I483
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total equity capital originally reported in the December 31, 1995, Reports of RIAD
Condition and Income 3215. 1,125,067 1.
2. Equity capital adjustments from amended Reports of Income, net * 3216. 0 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2) 3217. 1,125,067 3.
4. Net income (loss) (must equal Schedule RI, item 12) 4340. 135,903 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net 4346. 0 5.
6. Changes incident to business combinations, net 4356. 15,525 6.
7. LESS: Cash dividends declared on preferred stock 4470. 0 7.
8. LESS: Cash dividends declared on common stock 4460. 65,000 8.
9. Cumulative effect of changes in accounting principles from prior years * (see
instructions for this schedule) 4411. 0 9.
10. Corrections of material accounting errors from prior years * (see instructions for
this schedule) 4412. 0 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities 8433. (10,010) 11.
12. Foreign currency translation adjustments 4414. 1 12.
13. Other transactions with parent holding company * (not included in items 5, 7, or
8 above) 4415. 0 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal
Schedule RC, item 28) 3210. 1,201,486 14.
<FN>
- ------------------------

* Describe on Schedule RI-E - Explanations.
</TABLE>

Schedule RI-B - Charge-offs and Recoveries and Changes in Allowance
for Loan and Lease Losses

Part I. Charge-offs and Recoveries on Loans and Leases

Part I excludes charge-offs and recoveries through the allocated transfer risk
reserve.
I486

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------
calendar year-to-date
(Column A) (Column B)
Charge-offs Recoveries
----------- ----------
<S> <C> <C> <C> <C> <C>
1. Loans secured by real estate: RIAD RIAD
a. To U.S. addressees (domicile) 4651. 2,129 4661. 2,880 1.a
b. To non-U.S. addressees (domicile) 4652. 0 4662. 0 1.b
2. Loans to depository institutions and acceptances of
other banks:
a. To U.S. banks and other U.S. depository
institutions 4653. 0 4663. 0 2.a
b. To foreign banks 4654. 0 4664. 0 2.b
3. Loans to finance agricultural production and other
loans to farmers 4655. 0 4665. 28 3.
4. Commercial and industrial loans:
a. To U.S. addressees (domicile) 4645. 8,023 4617. 6,570 4.a
b. To non-U.S. addressees (domicile) 4646. 0 4618. 214 4.b
5. Loans to individuals for household, family, and other
personal expenditures:
a. Credit cards and related plans 4656. 1,187 4666. 137 5.a
b. Other (includes single payment, installment, and
all student loans) 4657. 5,059 4667. 1,742 5.b
6. Loans to foreign governments and official institutions 4643. 506 4627. 527 6.
7. All other loans 4644. 0 4628. 0 7.
8. Lease financing receivables:
a. Of U.S. addressees (domicile) 4658. 3,431 4668. 586. 8.a
b. Of non-U.S. addressees (domicile) 4659. 0 4669. 0 8.b
9. Total (sum of items 1 through 8) 4635. 20,335 4605. 12,684 9.

</TABLE>

<PAGE> 12

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI- 5
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 7

Transit Number: 91000019
</TABLE>

Schedule RI-B - Continued

Part I. Continued

Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------
calendar year-to-date
(Column A) (Column B)
Charge-offs Recoveries
----------- ----------
<S> <C> <C> <C> <C> <C>
1.-3. Not applicable.
4. Loans to finance commercial real estate, construction, RIAD RIAD
and land development activities (not secured by real
estate) included in Schedule RI-B, part I,
items 4 and 7, above 5409. 0 5410. 0 M.4
5. Loans secured by real estate in domestic offices
(included in Schedule RI-B, part I, item 1, above):
a. Construction and land development 3582. 0 3583. 658 M.5.a
b. Secured by farmland 3584. 0 3585. 0 M.5.b
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by 1-4
family residential properties and extended
under lines of credit 5411. 0 5412. 0 M.5.cl
(2) All other loans secured by 1-4 family
residential properties 5413. 1,443 5414. 157 M.5.c2
d. Secured by multifamily (5 or more) residentiaL
properties 3588. 0 3589. 0 M.5.d
e. Secured by nonfarm nonresidential properties 3590. 686 3591. 2,065 M.5.e
</TABLE>
Part II. Changes in Allowance for Loan and Lease Losses

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIAD
1. Balance originally reported in the December 31, 1995, Reports of Condition and Income 3124. 187,020 1.
2. Recoveries (must equal part I, item 9, column B above) 4605. 12,684 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above) 4635. 20,335 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a) 4230. 17,745 4.
5. Adjustments * (see instructions for this schedule) 4815. 1,724 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC,
item 4.b) 3123. 198,838 6.
<FN>
- -----------------

* Describe on Schedule RI-E . Explanations.
</TABLE>

Schedule RI-C - Applicable Income Taxes by Taxing Authority
I489
<TABLE>
<CAPTION>

Schedule RI-C is to be reported with the December Report of Income. Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIAD
1. Federal 4780. N/A 1.
2. State and local 4790. N/A 2.
3. Foreign 4795. N/A 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) 4770. N/A 4.
RIAD
5. Deferred portion of item 4 4772. N/A 5.

</TABLE>

<PAGE> 13

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI- 6
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 8

Transit Number: 91000019
</TABLE>

Schedule RI-D - Income from International Operations

For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs
where international operations account for more than 10 percent of total
revenues, total assets, or net income.

Part I. Estimated Income from International Operations
I492
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement
subsidiaries, and IBFs: RIAD Year-to-date
a. Interest income booked 4837. N/A 1.a
b. Interest expense booked 4838. N/A 1.b
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries,
and IBFs (item 1.a minus 1.b) 4839. N/A 1.c
2. Adjustments for booking location of international operations:
a. Net interest income attributable to international operations booked at domestic
offices 4840. N/A 2.a
b. Net interest income attributable to domestic business booked at foreign
offices 4841. N/A 2.b
c. Net booking location adjustment (item 2.a minus 2.b) 4842. N/A 2.c
3. Noninterest income and expense attributable to international operations:
a. Noninterest income attributable to international operations 4097. N/A 3.a
b. Provision for loan and lease losses attributable to international operations 4235. N/A 3.b
c. Other noninterest expense attributable to international operations 4239. N/A 3.c
d. Net noninterest income (expense) attributable to internationaL operations (item 3.a
minus 3.b and 3.c) 4843. N/A 3.d
4. Estimated pretax income attributable to international operations before capital
allocation adjustment (sum of items 1.c, 2.c, and 3.d) 4844. N/A 4.
5. Adjustment to pretax income for internal allocations to international operations
to reflect the effects of equity capital on overall bank funding costs 4845. N/A 5.
6. Estimated pretax income attributable to international operations after capital
allocation adjustment (sum of items 4 and 5) 4846. N/A 6.
7. Income taxes attributable to income from international operations as estimated in
item 6 4797. N/A 7.
8. Estimated net income attributable to international operations (item 6 minus 7) 4341. N/A 8.
</TABLE>

Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Intracompany interest income included in item 1.a above 4847. N/A M.1
2. Intracompany interest expense included in item 1.b above 4848. N/A M.2
</TABLE>

PART II. SUPPLEMENTARY DETAILS ON INCOME FROM INTERNATIONAL OPERATIONS
REQUIRED BY THE DEPARTMENTS OF COMMERCE AND TREASURY FOR PURPOSES OF THE U.S.
INTERNATIONAL ACCOUNTS AND THE U.S. NATIONAL INCOME AND PRODUCT ACCOUNTS

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIAD Year-to-date
1. Interest income booked at IBFs 4849. N/A 1.
2. Interest expense booked at IBFs 4850. N/A 2.
3. Noninterest income attributable to international operations booked at domestic
offices (excluding IBFs):
a. Gains (losses) and extraordinary items 5491. N/A 3.a
b. Fees and other noninterest income 5492. N/A 3.b
4. Provision for loan and lease losses attributable to international operations booked at
domestic offices (excluding IBFs) 4852. N/A 4.
5. Other noninterest expense attributable to international operations booked at domestic
offices (excluding IBFs) 4853. N/A 5.

</TABLE>
<PAGE> 14

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI- 7
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 9

Transit Number: 91000019
</TABLE>

Schedule RI-E - Explanations

Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.

Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and
other adjustments in Schedule RI, and all significant items of other noninterest
income and other noninterest expense in Schedule RI. (See instructions for
details.)
I495
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 All other noninterest income (from Schedule RI, item 5.f.(2))
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): RIAD Year-to-date
a. Net gains on other real estate owned 5415. N/A 1.a
b. Net gains on sales of loans 5416. N/A 1.b
c. Net gains on sales of premises and fixed assets 5417. N/A 1.c
Itemize and describe the three largest other amounts that exceed 10% of
Schedule RI, item 5.f.(2):
TEXT RIAD
d. 4461: GAIN ON SALE OF LOAN SERVICING RIGHTS 4461. 24,637 1.d
e. 4462: PROCESSING FEES 4462. 14,107 i.e
f. 4463: RENTAL INCOME 4463. 5,964 1.f
2. Other noninterest expense (from Schedule RI, item 7.c):
a. Amortization expense of intangible assets 4531. 6,605 2.a
Report amounts that exceed 10% of Schedule RI, item 7.c:
b. Net losses on other real estate owned 5418. N/A 2.b
c. Net losses on sales of loans 5419. N/A 2.c
d. Net losses on sales of premises and fixed assets 5420. N/A 2.d
Itemize and describe the three largest other amounts that exceed 10% of
Schedule RI, item 7.c:
TEXT RIAD
e. 4464: PROCESSING FEES 4464. 63,609 2.e
f. 4467: 4467. N/A 2.f
g. 4468: 4468. N/A 2.g
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and applicable
income tax effect (from Schedule RI, item 11.b) (itemize and describe all extraordinary
items and other adjustments):
TEXT RIAD
a. (1) 4469: 4469. 0 3.a.1
(2) Applicable income tax effect 4486 0 3.a.2
b. (1) 4487: 4487. 0 3.b.1
(2) Applicable income tax effect 4488 0 3.b.2
c. (1) 4489: 4489. 0 3.c.1
(2) Applicable income tax effect 4491 0 3.c.2
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A,
item 2) (itemize and describe all adjustments):
TEXT RIAD
a. 4492: 4492. N/A 4.a
b. 4493: 4493. N/A 4.b
5. Cumulative effect of changes in accounting principles from prior years (from Schedule
RI-A, item 9) (itemize and describe all changes in accounting principles):
TEXT RIAD
a. 4494: 4494. N/A 5.a
b. 4495: 4495. N/A 5.b
6. Corrections of material accounting errors from prior years (from Schedule RI-A,
item 10) (itemize and describe all corrections):
TEXT RIAD
a. 4496: 4496. N/A 6.a
b. 4497: 4497. N/A 6.b

</TABLE>
<PAGE> 15

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI- 8
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 10

Transit Number: 91000019
</TABLE>

Schedule RI-E - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13) (itemize
and describe all such transactions):
TEXT RIAD Year-to-date
a. 4498: 4498. N/A 7.a
b. 4499: 4499. N/A 7.b
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II,
item 5) (itemize and describe all adjustments):
TEXT
a. 4521: ACQUISITIONS 4521. 1,732 8.a
b. 4522: SALE OF LOANS 4522. (8) 8.b

</TABLE>

I498 I499

9. Other explanations (the space below is provided for the bank to briefly
describe, at its option, any other significant items affecting the Report
of Income):

No comment: X (RIAD 4769)

Other explanations (please type or print clearly):
(TEXT 4769)
<PAGE> 16

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 1
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 11

Transit Number: 91000019
</TABLE>

Consolidated Report of Condition for Insured Commercial and
State-Chartered Savings Banks for September 30, 1996

All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.

Schedule RC - Balance Sheet
C400
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A): RCFD
a. Noninterest-bearing balances and currency and coin (1) 0081. 1,393,267 1.a
b. Interest-bearing balances (2) 0071. 1,161 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754. 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D) 1773. 1,455,489 2.b
3. Federal funds sold and securities purchased under agreements to resell in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs:
a. Federal funds sold 0276. 4,238,292 3.a
b. Securities purchased under agreements to resell 0277. 476,920 3.b
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income RCFD
(from Schedule RC-C) 2122. 8,953,765 4.a
b. LESS: Allowance for loan and lease losses 3123. 198,838 4.b
c. LESS: Allocated transfer risk reserve 3128. 0 4.c
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) 2125. 8,754,927 4.d
5. Trading assets (from Schedule RC-D) 3545. 15,027 5.
6. Premises and fixed assets (including capitalized leases) 2145. 115,389 6.
7. Other real estate owned (from Schedule RC-M) 2150. 5,543 7.
8. Investments in unconsolidated subsidiaries and associated companies (from
Schedule RC-M) 2130. 0 8.
9. Customers' liability to this bank on acceptances outstanding 2155. 41,230 9.
10. Intangible assets (from Schedule RC-M) 2143. 13,816 10.
11. Other assets (from Schedule RC-F) 2160. 547,878 11.
12. Total assets (sum of items 1 through 11) 2170. 17,058,939 12.

<FN>
- ----------------

(1) Includes cash items in process of collection and unposted debits.

(2) Includes time certificates of deposit not held for trading.
</TABLE>
<PAGE> 17

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 2
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 12

Transit Number: 91000019
</TABLE>

Schedule RC - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of RCON
columns A and C from Schedule RC-E, part I) 2200. 8,212,547 13.a
RCON
(1) Noninterest-bearing (1) 6631. 3,189,790 13.a.1
(2) Interest-bearing 6636. 5,022,757 13.a.2
RCFN
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from
Schedule RC-E, part II) 2200 2,031,917 13.b
RCFN
(1) Noninterest-bearing 6631. 17,530 13.b.1
(2) Interest-bearing 6636. 2,014,387 13.b.2
14. Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and
in IBFs: RCFD
a. Federal funds purchased 0278. 2,729,810 14.a
b. Securities sold under agreements to repurchase 0279. 400,682 14.b
RCON
15. a. Demand notes issued to the U.S. Treasury 2840. 314,011 15.a
RCFD
b. Trading liabilities (from Schedule RC-D) 3548. 13,619 15.b
16. Other borrowed money:
a. With a remaining maturity of one year or less 2332. 8,678 16.a
b. With a remaining maturity of more than one year 2333. 1,608,625 16.b
17. Mortgage indebtedness and obligations under capitalized leases 2910. 1,130 17.
18. Bank's liability on acceptances executed and outstanding 2920. 41,230 18.
19. Subordinated notes and debentures 3200. 195 19.
20. Other liabilities (from Schedule RC-G) 2930. 495,009 20.
21. Total liabilities (sum of items 13 through 20) 2948. 15,857,453 21.
22. Limited-life preferred stock and related surplus 3282. 0 22.

EQUITY CAPITAL
RCFD
23. Perpetual preferred stock and related surplus 3838. 0 23.
24. Common stock 3230. 100,000 24.
25. Surplus (exclude all surplus related to preferred stock) 3839. 606,409 25.
26. a. Undivided profits and capital reserves 3632. 488,915 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities 8434. 6,508 26.b
27. Cumulative foreign currency translation adjustments 3284. (346) 27.
28. Total equity capital (sum of items 23 through 27) 3210. 1,201,486 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of
items 21, 22, and 28) 3300. 17,058,939 29.

Memorandum
To be reported only with the March Report of Condition.

1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the RCFD Number
bank by independent external auditors as of any date during 1995 6724. N/A M.1
<FN>

1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank

2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)

3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)

4 = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)

5 = Review of the bank's financial statements by external auditors

6 = Compilation of the bank's financial statements by external auditors

7 = Other audit procedures (excluding tax preparation work)

8 = No external audit work

- ------------------------------
1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
</TABLE>
<PAGE> 18

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 3
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 13

Transit Number: 91000019
</TABLE>

Schedule RC-A - Cash and Balances Due Prom Depository Institutions

Exclude assets held for trading.
C405
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
Consolidated Bank Domestic Offices
----------------- ----------------
<S> <C> <C> <C> <C> <C>
1. Cash items in process of collection, unposted RCFD RCON
debits, and currency and coin 0022 999,661 1.
a. Cash items in process of collection and unposted
debits 0020. 899,481 1.a
b. Currency and coin 0080. 100,159 1.b
2. Balances due from depository institutions in the U.S. 0082. 39,099 2.
a. U.S. branches and agencies of foreign banks
(including their IBFS) 0083. 0 2.a
b. Other commercial banks in the U.S. and other
depository institutions in the U.S. (including
their IBFS) 0085. 39,429 2.b
3. Balances due from banks in foreign countries and
foreign central banks 0070. 10,662 3.
a. Foreign branches of other U.S. banks 0073 10,662 3.a
b. Other banks in foreign countries and foreign
central banks 0074. 302 3.b
4. Balances due from Federal Reserve Banks 0090. 344,374 0090. 343,988 4.
5. Total (sum of items 1 through 4) (total of column A
must equal Schedule RC, sum of items 1.a and 1.b) 0010. 1,394,428 0010. 1,393,389 5.
</TABLE>

Memorandum
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Noninterest-bearing balances due from commercial banks in the U.S. RCON
(included in item 2, column B above) 0050. 38,228 M.1

</TABLE>

Schedule RC-B - Securities

Exclude assets held for trading.
C410

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------
Held-to-maturity Available-for-sale
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value (1)
-------------- ---------- -------------- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. U.S. Treasury RCFD RCFD RCFD RCFD
securities 0211. 0 0213. 0 1286. 462,175 1287. 461,205 1.
2. U.S. Government
agency and
corporation
obligations (exclude
mortgage-backed
securities):
a. Issued by U.S.
Government RCFD RCFD RCFD RCFD
agencies (2) 1289. 0 1290. 0 1291. 0 1293. 0 2.a
b. Issued by U.S.
Government-
sponsored
agencies (3) 1294. 0 1295. 0 1297. 7,620 1298. 7,610 2.b

<FN>

(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.

(2) Includes Small Business Administration "Guaranteed Loan Pool
Certificates," U.S. Maritime Administration obligations, and Export-Import
Bank participation certificates.

(3) Includes obligations (other than mortgage-backed securities) issued by the
Farm Credit System, the Federal Home Loan Bank System, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Financing Corporation, Resolution Funding Corporation, the Student Loan
Marketing Association, and the Tennessee Valley Authority.
</TABLE>
<PAGE> 19

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 4
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 14

Transit Number: 91000019
</TABLE>

Schedule RC-B - Continued

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------
Held-to-maturity Available-for-sale
(Column A) (Column B) (CoLumn C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
-------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

3. Securities issued by
states and political
subdivisions in the U.S.:
a. General RCFD RCFD RCFD RCFD
obligations 1676. 0 1677. 0 1678. 24,077 1679. 24,926 3.a
b. Revenue
obligations 1681. 0 1686. 0 1690. 74,801 1691. 79,315 3.b
c. Industrial
development
and similar
obligations 1694. 0 1695. 0 1696. 4,508 1697. 5,281 3.c
4. Mortgage-backed
securities (MBS):
a. Pass-through
securities:
(1) Guaranteed
by GNMA 1698. 0 1699. 0 1701. 111,037 1702. 111,448 4a1
(2) Issued by
FNMA and
FHLMC 1703. 0 1705. 0 1706. 512,645 1707. 518,347 4a2
(3) Other pass-
through
securities 1709. 0 1710. 0 1711. 0 1713. 0 4a3
b. Other mortgage-
backed securities
(include CMOs,
REMICs, and
stripped MBS):
(1) Issued or
guaranteed
by FNMA,
FHLMC, or RCFD RCFD RCFD RCFD
GNMA 1714. 0 1715. 0 1716. 27,944 1717. 27,169 4b1
(2) Collateralized
by MBS issued
or guaranteed
by FNMA,
FHLMC, RCFD RCFD RCFD RCFD
or GNMA 1718. 0 1719. 0 1731. 70 1732. 70 4b2
(3) All other
mortgage-
backed
securities 1733. 0 1734. 0 1735. 3,061 1736. 3,067 4b3
5. Other debt securities:
a. Other domestic
debt RCFD RCFD RCFD RCFD
securities 1737. 0 1738. 0 1739. 2,170 1741. 2,192 5.a
b. Foreign debt
securities 1742. 0 1743. 0 1744. 0 1746. 0 5.b
6. Equity securities:
a. Investments
in mutual RCFD RCFD RCFD RCFD
funds 1747. 2,909 1748. 2,909 6.a
b. Other equity
securities
with readily
determinable
fair values 1749. 0 1751. 0 6.b
c. All other
equity
securities(1) 1752. 211,950 1753. 211,950 6.c
7. Total (sum of items
1 through 6)(total
of column A must
equal Schedule RC,
item 2.a)(total
of column D must
equal Schedule RC,
item 2.b) 1754. 0 1771. 0 1772. 1,444,967 1773. 1,455,489 7.

</TABLE>
<PAGE> 20

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 5
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 15

</TABLE>

Transit Number: 91000019

Schedule RC-B - Continued

Memoranda
C412
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
1. Pledged securities (2) 0416. 152,885 M.1
2. Maturity and repricing data for debt securities (2,3,4)(excluding those in nonaccrual
status):
a. Fixed rate debt securities with a remaining maturity of:
(1) Three months or less 0343. 112,673 M.2.a1
(2) Over three months through 12 months 0344. 8,228 M.2.a2
(3) Over one year through five years 0345. 168,235 M.2.a3
(4) Over five years 0346. 768,024 M.2.a4
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1)
through 2.a.(4)) 0347. 1,057,160 M.2.a5
b. Floating rate debt securities with a repricing frequency of:
(1) Quarterly or more frequently 4544. 101,596 M.2.bl
(2) Annually or more frequently, but less frequently than quarterly 4545. 81,874 M.2.b2
(3) Every five years or more frequently, but less frequently than annually 4551. 0 M.2.b3
(4) Less frequently than every five years 4552. 0 M.2.b4
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1)
through 2.b.(4)) 4553. 183,470 M.2.b5
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal
total debt securities from Schedule RC-B, sum of items 1 through 5, columns A and D,
minus nonaccrual debt securities included in Schedule RC-N, item 9, column C) 0393. 1,240,630 M.2.c
3. Not applicable
4. Held-to-maturity debt securities restructured and in compliance with modified terms
(included in Schedule RC-B, items 3 through 5, column A, above) 5365. 0 M.4
5. Not applicable
6. Floating rate debt securities with a remaining maturity of one year or less (2,4)
(included in Memorandum items 2.b.(1) through 2.b.(4) above) 5519. 947 M.6
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale
or trading securities during the calendar year-to-date (report the amortized cost at
date of sale or transfer) 1778. 0 M.7
8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale
accounts in Schedule RC-B, item 4.b):
a. Amortized cost 8780. 92 M.8.a
b. Fair value 8781. 95 M.8.b
9. Structured notes (included in the held-to-maturity and available-for-sale
accounts in Schedule RC-B, items 2, 3, and 5):
a. Amortized cost 8782. 2,601 M.9.a
b. Fair value 8783. 2,600 M.9.b

<FN>
- -----------------
(2) Includes held-to-maturity securities at amortized cost and
available-for-sale securities at fair value.

(3) Exclude equity securities, e.g., investments in mutual funds, Federal
Reserve stock, commen stock; and preferred stock.

(4) Memorandum items 2 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.

</TABLE>

<PAGE> 21
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 6
Minneapolis, MN 55479 Vendor ID: D CERT: 05208
16
Transit Number: 91000019
</TABLE>

Schedule RC-C - Loans and Lease Financing Receivables

Part I. Loans and Leases

Do not deduct the allowance for loan and lease losses from amounts reported in
this schedule. Report total loans and leases, net of unearned income. Exclude
assets held for trading.

C415
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
Consolidated
RCFD Bank RCON Domestic Offices
---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
1. Loans secured by real estate 1410. 3,323,203 1.
a. Construction and land development 1415. 58,017 1.a
b. Secured by farmland (including farm residential and
other improvements) 1420. 1,122 1.b
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by 1-4 family
residential properties and extended under lines
of credit 1797. 114,236 1.cl
(2) All other loans secured by 1-4 family
residential properties:
(a) Secured by first liens 5367. 2,244,850 1.c2a
(b) Secured by junior liens 5368. 445,882 1.c2b
d. Secured by multifamily (5 or more) residential
properties 1460. 56,384 1.d
e. Secured by nonfarm nonresidential properties 1480. 402,712 1.e
2. Loans to depository institutions:
a. To commercial banks in the U.S. 1505. 48,971 2.a
(1) To U.S. branches and agencies of foreign banks 1506. 0 2.a1
(2) To other commercial banks in the U.S. 1507. 58,712 2.a2
b. To other depository institutions in the U.S. 1517. 0 1517. 0 2.b
c. To banks in foreign countries 1510. 298 2.c
(1) To foreign branches of other U.S. banks 1513. 0 2.c1
(2) To other banks in foreign countries 1516. 59,495 2.c2
3. Loans to finance agricultural production and other
Loans to farmers 1590. 4,146 1590. 4,146 3.
4. Commercial and industrial loans:
a. To U.S. addressees (domicile) 1763. 3,166,427 1763. 3,161,189 4.a
b. To non-U.S. addressees (domicile) 1764. 53,355 1764. 150 4.b
5. Acceptances of other banks:
a. Of U.S. banks 1756. 0 1756. 0 5.a
b. Of foreign banks 1757. 3,027 1757. 3,027 5.b
6. Loans to individuals for household, family, and other
personal expenditures (i.e., consumer loans) (includes
purchased paper) 1975. 1,051,711 6.
a. Credit cards and related plans (includes check
credit and other revolving credit plans) 2008. 218,523 6.a
b. Other (includes single payment, installment, and all
student loans) 2011. 833,968 6.b
7. Loans to foreign governments and official institutions
(including foreign central banks) 2081. 5,000 2081. 5,000 7.
8. Obligations (other than securities and leases) of
states and political subdivisions in the U.S. (includes
nonrated industrial development obligations) 2107. 22,132 2107. 22,132 8.
9. Other loans 1563. 578,548 9.
a. Loans for purchasing or carrying securities (secured
and unsecured) 1545. 44,173 9.a
b. All other loans (exclude consumer loans) 1564. 534,375 9.b
10. Lease financing receivables (net of unearned income) 2165. 629,992 10.
a. Of U.S. addressees (domicile) 2182. 629,992 10.a
b. Of non-U.S. addressees (domicile) 2183. 0 10.b
11. LESS: Any unearned income on loans reflected in items
1-9 above 2123. 2,763 2123. 1,875 11.
12. Total loans and leases, net of unearned income (sum of
items 1 through 10 minus item 11) (total of column A
must equal Schedule RC, item 4.a) 2122. 8,953,765 2122. 8,826,492 12.

</TABLE>

<PAGE> 22

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 7
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 17

Transit Number: 91000019
</TABLE>

Schedule RC-C - Continued

Part I. Continued
Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
Consolidated Bank Domestic Offices
------------------ -----------------
RCFD RCON
---- ----
<S> <C> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I,
above 1496. 0 1496. 0 M.1
2. Loans and leases restructured and in compliance with
modified terms (included in Schedule RC-C, part I,
above, and not reported as past due or nonaccrual
in Schedule RC-N, Memorandum item 1):
a. Loans secured by real estate:
(1) To U.S. addressees (domicile) 1687. 0 M.2.a1
(2) To non-U.S. addressees (domicile) 1689. 0 M.2.a2
b. All other loans and all lease financing receivables
(exclude loans to individuals for household, family,
and other personal expenditures) 8691. 0 M.2.b
c. Commercial and industrial loans to and lease
financing receivables of non-U.S. addressees
(domicile) included in Memorandum item 2.b above 8692. 0 M.2.c
3. Maturity and repricing data for loans and leases (1)
(excluding those in nonaccrual status):
a. Fixed rate loans and leases with a remaining maturity
of:
(1) Three months or less 0348. 3,452,096 M.3.a1
(2) Over three months through 12 months 0349. 653,785 M.3.a2
(3) Over one year through five years 0356. 1,757,203 M.3.a3
(4) Over five years 0357. 825,373 M.3.a4
(5) Total fixed rate Loans and leases (sum of
Memorandum items 3.a.(1) through 3.a.(4)) 0358. 6,688,457 M.3.a5
b. Floating rate loans with a repricing frequency of:
(1) Quarterly or more frequently 4554. 1,912,494 M.3.b1
(2) Annually or more frequently, but less frequently
than quarterly 4555. 277,079 M.3.b2
(3) Every five years or more frequently, but less
frequently than annually 4561. 35,110 M.3.b3
(4) Less frequently than every five years 4564. 0 M.3.b4
(5) Total floating rate loans (sum of Memorandum
items 3.b.(1) through 3.b.(4)) 4567. 2,224,683 M.3.b5
c. Total loans and leases (sum of Memorandum items
3.a.(5) and 3.b.(5)) (must equal the sum of total
loans and leases, net, from Schedule RC-C, part I,
item 12, plus unearned income from Schedule RC-C,
part I, item 11, minus total nonaccrual loans and
leases from Schedule RC-N, sum of items 1 through 8,
column C) 1479. 8,913,140 M.3.c
d. Floating rate loans with a remaining maturity of
one year or less (included in Memorandum items 3.b.(1)
through 3.b.(4) above) A246. 765,643 M.3.d
4. Loans to finance commercial real estate, construction,
and land development activities (not secured by real
estate) included in Schedule RC-C, part I, items 4 and
9, column A, page RC-6 (2) 2746. 0 M.4
5. Loans and leases held for sale (included in
Schedule RC-C, part I, above) 5369. 1,655,120 M.5
6. Adjustable rate closed-end loans secured by first liens
on 1-4 family residential properties (included in
Schedule RC-C, part I, item 1.c.(2)(a), column B,
page RC-6) 5370. 285,781 M.6

<FN>
- ----------------------
(1) Memorandum item 3 is not applicable to savings banks that must complete
supplemental Schedule RC-J.

(2) Exclude loans secured by real estate that are included in Schedule RC-C,
part I, item 1, column A.

</TABLE>
<PAGE> 23

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 8
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 18

Transit Number: 91000019
</TABLE>
Schedule RC-D - Trading Assets and Liabilities

Schedule RC-D is to be completed only by banks with $1 billion or more in total
assets or with $2 billion or more in par/notional amount of off-balance sheet
derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e,
columns A through D).

C420
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
RCON
1. U.S. Treasury securities in domestic offices 3531. N/A 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude
mortgage-backed securities) 3532. N/A 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic
offices 3533. N/A 3.
4. Mortgage-backed securities (MBS) in domestic offices:
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA 3534. 0 4.a
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or
GNMA (include CMOs, REMICs, and stripped MBS) 3535. N/A 4.b
c. All other mortgage-backed securities 3536. N/A 4.c
5. Other debt securities in domestic offices 3537. N/A 5.
6. Certificates of deposit in domestic offices 3538. N/A 6.
7. Commercial paper in domestic offices 3539. N/A 7.
8. Bankers acceptances in domestic offices 3540. N/A 8.
9. Other trading assets in domestic offices 3541. N/A 9.
10. Trading assets RCFN
in foreign offices 3542. N/A 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and
equity contracts: RCON
a. In domestic offices 3543. 15,027 11.a
b. In foreign RCFN
offices 3544. N/A 11.b
12. Total trading assets (sum of items 1 through 11) RCFD
(must equal Schedule RC, item 5) 3545. 15,027 12.

LIABILITIES
13. Liability for short positions 3546. N/A 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and
equity contracts 3547. 13,619 14.
15. Total trading liabilities (sum of items 13 and 14)(must equal Schedule RC,
item 15.b) 3548. 13,619 15.

</TABLE>
<PAGE> 24

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 9
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 19

Transit Number: 91000019
</TABLE>

Schedule RC-E - Deposit Liabilities

Part I. Deposits in Domestic Offices
C425
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------------
Transaction Accounts Nontransaction Accounts
(Column A) (Column B) (Column C)
Total transaction Memo: Total demand
accounts (including total deposits (included in Total nontransaction
demand deposits) column A) accounts(including MMDAs)
---------------- --------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Deposits of: RCON RCON RCON
1. Individuals, partnerships and corporations 2201. 3,130,258 2240. 2,671,364 2346 4,551,799 1.
2. U.S. Government 2202. 26,868 2280. 26,868 2520 0 2.
3. States and political subdivisions in
the U.S. 2203. 44,065 2290. 41,392 2530 9,391 3.
4. Commercial banks in the U.S. 2206. 397,081 2310. 397,081 2550 0 4.
5. Other depository institutions in the U.S. 2207. 5,330 2312. 5,330 2349 0 5.
6. Banks in foreign countries 2213. 10,204 2320. 10,204 2236 0 6.
7. Foreign governments and official institu-
tions (including foreign central banks) 2216. 0 2300. 0 2377 0 7.
8. Certified and official checks 2330. 37,551 2330. 37,551 8.
9. Total (sum of items 1 through 8) (sum of
columns A and C must equal Schedule RC,
item 13.a) 2215. 3,651,357 2210. 3,189,790 2385 4,561,190 9.
</TABLE>

Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): RCON
a. Total Individual Retirement Accounts (IRAS) and Keogh Plan accounts 6835. 552,931 M.1.a
b. Total brokered deposits 2365. 0 M.1.b
c. Fully insured brokered deposits (included in Memorandum item 1.b above):
(1) Issued in denominations of less than $100,000 2343. 0 M.1.c1
(2) Issued either in denominations of $100,000 or in denominations greater than
$100,000 and participated out by the broker in shares of $100,000 or less 2344. 0 M.1.c2
d. Maturity data for brokered deposits:
(1) Brokered deposits issued in denominations of less than $100,000
with a remaining maturity of one year or less (included in Memorandum item
1.c.(1) above) A243. 0 M.1.d1
(2) Brokered deposits issued in denominations of $100,000 or more
with a remaining maturity of one year or less (included in Memorandum item
1.b above) A244. 0 M.1.d2
e. Preferred deposits (uninsured deposits of states and political subdivisions in the
U.S. reported in item 3 above which are secured or collateralized as required under
state law) 5590. 45,953 M.1.e
2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.d
must equal item 9, column C above):
a. Savings deposits:
(1) Money market deposit accounts (MMDAs) 6810. 1,630,108 M.2.a1
(2) Other savings deposits (excludes MMDAs) 0352. 969,406 M.2.a2
b. Total time deposits of less than $100,000 6648. 1,770,590 M.2.b
c. Time certificates of deposit of $100,000 or more 6645. 175,060 M.2.c
d. Open-account time deposits of $100,000 or more 6646. 16,026 M.2.d
3. All NOW accounts (included in column A above) 2398. 461,567 M.3
4. Not applicable

</TABLE>

<PAGE> 25

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 10
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 20

Transit Number: 91000019
</TABLE>

Schedule RC-E - Continued

Part I. Continued

Memoranda (Continued)

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000 (sum of Memorandum
items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above): (1)
a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: RCON
(1) Three months or less A225. 364,202 M.5.a1
(2) Over three months through 12 months A226. 703,665 M.5.a2
(3) Over one year A227. 702,723 M.5.a3
b. Floating rate time deposits of less than $100,000 with a repricing frequency of:
(1) Quarterly or more frequently A228. 0 M.5.b1
(2) Annually or more frequently, but less frequently than quarterly A229. 0 M.5.b2
(3) Less frequently than annually A230. 0 M.5.b3
c. Floating rate time deposits of less than $100,000 with a remaining maturity of
one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above) A231. 0 M.5.c
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time
certificates of deposit of $100,000 or more and open-account time deposits of
$100,000 or more) (sum of Memorandum items 6.a.(1) through 6.b.(4) must equal
the sum of Memorandum items 2.c and 2.d above): (1)
a. Fixed rate time deposits of $100,000 or more with a remaining maturity of:
(1) Three months or less A232. 58,200 M.6.a1
(2) Over three months through 12 months A233. 60,996 M.6.a2
(3) Over one year through five years A234. 61,459 M.6.a3
(4) Over five years A235. 10,431 M.6.a4
b. Floating rate time deposits of $100,000 or more with a repricing frequency of:
(1) Quarterly or more frequently A236. 0 M.6.b1
(2) Annually or more frequently, but less frequently than quarterly A237. 0 M.6.b2
(3) Every five years or more frequently, but less frequently than annually A238. 0 M.6.b3
(4) Less frequently than every five years A239. 0 M.6.b4
c. Floating rate time deposits of $100,000 or more with a remaining maturity of
one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above) A240. 0 M.6.c
<FN>
- --------------

(1) Memorandum items 5 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.

</TABLE>

<PAGE> 26

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 11
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 21

Transit Number: 91000019
</TABLE>

Schedule RC-E - Continued

Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits of: RCFN
1. Individuals, partnerships, and corporations 2621. 444,832 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) 2623. 1,558,691 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks,
including their IBFs) 2625. 28,156 3.
4. Foreign governments and official institutions (including foreign central banks) 2650. 0 4.
5. Certified and official checks 2330. 128 5.
6. All other deposits 2668. 110 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) 2200. 2,031,917 7.

</TABLE>

Memorandum
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
RCFN
<S> <C> <C> <C>
1. Time deposits with a remaining maturity of one year or less (included in Part II,
item 7 above) A245. 2,014,387 M.1

</TABLE>

Schedule RC-F - Other Assets
C430
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
1. Income earned, not collected on loans 2164. 54,809 1.
2. Net deferred tax assets (1) 2148. 0 2.
3. Excess residential mortgage servicing fees receivable 5371. 0 3.
4. Other (itemize and describe amounts that exceed 25% of this item) 2168. 493,069 4.
TEXT RCFD
a. 3549: LOAN & FEE PAYMENTS RECEIVABLE-AFFILIATE 3549. 337,097 4.a
b. 3550: ACCOUNTS RECEIVABLE-AFFILIATE 3550. 46,871 4.b
c. 3551: 3551. N/A 4.c
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) 2160. 547,878 5.
</TABLE>

Schedule RC-G - Other Liabilities
C435
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCON
1. a. Interest accrued and unpaid on deposits in domestic offices (2) 3645. 32,541 1.a
b. Other expenses accrued and unpaid (includes accrued RCFD
income taxes payable) 3646. 316,713 1.b
2. Net deferred tax liabilities (1) 3049. 122,851 2.
3. Minority interest in consolidated subsidiaries 3000. 1,097 3.
4. Other (itemize and describe amounts that exceed 25% of this item) 2938. 21,807 4.
TEXT RCFD
a. 3552: 3552. N/A 4.a
b. 3553: 3553. N/A 4.b
c. 3554: 3554. N/A 4.c
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) 2930. 495,009 5.
<FN>

(1) See discussion of deferred income taxes in Glossary entry on "income
taxes."

(2) For savings banks, include "dividends" accrued and unpaid on deposits.

</TABLE>

<PAGE> 27

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 12
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 22

Transit Number: 91000019
</TABLE>

Schedule RC-H - Selected Balance Sheet Items for Domestic Offices

C440
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic Offices
----------------
RCON
1. Customers' liability to this bank on acceptances outstanding 2155. 20,907 1.
2. Bank's liability on acceptances executed and outstanding 2920. 20,907 2.
3. Federal funds sold and securities purchased under agreements to resell 1350. 4,715,212 3.
4. Federal funds purchased and securities sold under agreements to repurchase 2800. 3,130,492 4.
5. Other borrowed money 3190. 1,617,303 5.
EITHER
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs 2163. N/A 6.
OR
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs 2941. 1,915,823 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement
subsidiaries, and IBFs) 2192. 16,912,226 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement
subsidiaries, and IBFs) 3129. 13,794,917 9.

Items 10 - 17 include held-to-maturity and available-for-sale securities in domestic
offices.
10. U.S. Treasury securities 1779. 461,205 10.
11. U.S. Government agency and corporation obligations (excludes mortgage-backed
securities) 1785. 7,610 11.
12. Securities issued by states and political subdivisions in the U.S. 1786. 109,522 12.
13. Mortgage-backed securities (MBS):
a. Pass-through securities:
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA 1787. 629,795 13.a.1
(2) Other pass-through securities 1869. 0 13.a.2
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS):
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA 1877. 27,169 13.b.1
(2) All other mortgage-backed securities 2253. 3,137 13.b.2
14. Other domestic debt securities 3159. 2,192 14.
15. Foreign debt securities 3160. 0 15.
16. Equity securities:
a. Investments in mutual funds 3161. 2,909 16.a
b. Other equity securities with readily determinable fair values 3162. 0 16.b
c. All other equity securities 3169. 211,950 16.c
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through
16) 3170. 1,455,489 17.
</TABLE>

Memorandum (to be completed only by banks with IBFs and other "foreign" offices)

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EITHER
1. Net due from the IBF of the domestic offices of the reporting bank 3051. N/A M.1
OR
2. Net due to the IBF of the domestic offices of the reporting bank 3059. 0 M.2

</TABLE>

<PAGE> 28
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 13
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 23

Transit Number: 91000019
</TABLE>

Schedule RC-I - Selected Assets and Liabilities of IBFs

To be completed only by banks with IBFs and other "foreign" offices.
C445
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFN
----
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) 2133. N/A 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I,
item 12, column A) 2076. N/A 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4,
column A) 2077. N/A 3.
4. Total IBF liabilities (component of Schedule RC, item 21) 2898. N/A 4.
5. IBF deposit liabilities due to banks, including other IBFS (component of Schedule
RC-E, part II, items 2 and 3) 2379. N/A 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5,
and 6) 2381. N/A 6.

</TABLE>

Schedule RC-K - Quarterly Averages (1)
C455
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS RCFD
1. Interest-bearing balances due from depository institutions 3381. 3,680 1.
2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) 3382. 988,625 2.
3. Securities issued by states and political subdivisions in the U.S.(2) 3383. 104,033 3.
4. a. Other debt securities(2) 3647. 6,479 4.a
b. Equity securities (3)(includes investments in mutual funds and Federal Reserve
stock) 3648. 218,933 4.b
5. Federal funds sold and securities purchased under agreements to resell in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs 3365. 3,841,271 5.
6. Loans:
a. Loans in domestic offices: RCON
(1) Total loans 3360. 10,060,379 6.a.1
(2) Loans secured by real estate 3385. 4,722,587 6.a.2
(3) Loans to finance agricultural production and other loans to farmers 3386. 9,381 6.a.3
(4) Commercial and industrial loans 3387. 3,668,950 6.a.4
(5) Loans to individuals for household, family, and other personal expenditures 3388. 1,051,143 6.a.5
b. Total loans in foreign offices, Edge and Agreement subsidiaries, RCFN
and IBFs 3360. 143,991 6.b
7. Trading RCFD
assets 3401. 111,738 7.
8. Lease financing receivables (net of unearned income) 3484. 625,982 8.
9. Total assets(4) 3368. 16,506,469 9.
LIABILITIES
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS
accounts, and telephone and preauthorized transfer accounts) (exclude demand RCON
deposits) 3485. 312,038 10.
11. Nontransaction accounts in domestic offices:
a. Money market deposit accounts (MMDAs) 3486. 1,637,139 11.a
b. Other savings deposits 3487. 1,115,803 11.b
c. Time certificates of deposit of $100,000 or more 3345. 180,789 11.c
d. All other time deposits 3469. 1,828,618 11.d
12. Interest-bearing deposits in foreign offices, Edge and Agreement RCFN
subsidiaries, and IBFs 3404. 1,735,212 12.
13. Federal funds purchased and securities sold under agreements to repurchase in RCFD
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs 3353. 3,252,570 13.
14. Other borrowed money 3355. 1,670,505 14.
<FN>
- ------------------

(1) For all items, banks have the option of reporting either (1) an average of
daily figures for the quarter, or (2) an average of weekly figures (i.e.,
the Wednesday of each week of the quarter).

(2) Quarterly averages for all debt securities should be based on amortized
cost.

(3) Quarterly averages for all equity securities should be based on historical
cost.

(4) The quarterly average for total assets should reflect all debt securities
(not held for trading) at amortized cost, equity securities with readily
determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.

</TABLE>

<PAGE> 29

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 14
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 24

Transit Number: 91000019
</TABLE>

Schedule RC-L - Off-Balance Sheet Items

Please read carefully the instructions for the preparation of Schedule RC-L.
Some of the amounts reported in Schedule RC-L are regarded as volume indicators
and not necessarily as measures of risk.

C460
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Unused commitments:
a. Revolving, open-end lines secured by 1-4 family residential properties, RCFD
e.g., home equity lines 3814. 170,734 1.a
b. Credit card lines 3815. 0 1.b
c. Commercial real estate, construction, and land development:
(1) Commitments to fund loans secured by real estate 3816. 80,684 1.c.1
(2) Commitments to fund loans not secured by real estate 6550. 150 1.c.2
d. Securities underwriting 3817. 0 1.d
e. Other unused commitments 3818. 3,650,754 1.e
2. Financial standby letters of credit and foreign office guarantees 3819. 841,133 2.
a. Amount of financial standby letters of credit RCFD
conveyed to others 3820. 320,471 2.a
3. Performance standby letters of credit and foreign office guarantees 3821. 75,678 3.
a. Amount of performance standby letters of credit RCFD
conveyed to others 3822. 27,020 3.a
4. Commercial and similar letters of credit 3411. 334,387 4.
5. Participations in acceptances (as described in the instructions) conveyed to others
by the reporting bank 3428. 0 5.
6. Participations in acceptances (as described in the instructions) acquired by the
reporting (nonaccepting) bank 3429. 0 6.
7. Securities borrowed 3432. 3,486,560 7.
8. Securities lent (including customers' securities lent where the customer is
indemnified against loss by the reporting bank) 3433. 261,954 8.
9. Loans transferred (i.e., sold or swapped) with recourse that have been treated
as sold for Call Report purposes:
a. FNMA and FHLMC residential mortgage loan pools:
(1) Outstanding principal balance of mortgages transferred as of the
report date 3650. 22,947 9.a.1
(2) Amount of recourse exposure on these mortgages as of the report date 3651. 22,947 9.a.2
b. Private (nongovernment-issued or guaranteed) residential mortgage loan pools:
(1) Outstanding principal balance of mortgages transferred as of the report date 3652. 0 9.b.1
(2) Amount of recourse exposure on these mortgages as of the report date 3653. 0 9.b.2
c. Farmer Mac agricultural mortgage loan pools:
(1) Outstanding principal balance of mortgages transferred as of the report date 3654. 0 9.c.1
(2) Amount of recourse exposure on these mortgages as of the report date 3655. 0 9.c.2
d. Small business obligations transferred with recourse under Section 208 of the
Riegle Community Development and Regulatory Improvement Act of 1994:
(1) Outstanding principal balance of small business obligations transferred as
of the report date A249. 0 9.d.1
(2) Amount of retained recourse on these obligations as of the report date A250. 0 9.d.2
10. When-issued securities:
a. Gross commitments to purchase 3434. 0 10.a
b. Gross commitments to sell 3435. 0 10.b
11. Spot foreign exchange contracts 8765. 282,774 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives)
(itemize and describe each component of this item over 25% of Schedule RC,
item 28, "Total equity capital") 3430. 0 12.
TEXT RCFD
a. 3555: 3555 N/A 12.a
b. 3556: 3556 N/A 12.b
c. 3557: 3557 N/A 12.c
d. 3558: 3558 N/A 12.d

</TABLE>

<PAGE> 30

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 15
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 25

Transit Number: 91000019
</TABLE>

Schedule RC-L - Continued

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
13. All other off-balance sheet assets (exclude off-balance sheet derivatives)
(itemize and describe each component of this item over 25% of Schedule RC,
item 28, "Total equity capital") 5591. 0 13.
TEXT RCON
a. 5592: 5592. N/A 13.a
b. 5593: 5593. N/A 13.b
c. 5594: 5594. N/A 13.c
d. 5595: 5595. N/A 13.d
</TABLE>
C461
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------
(Column A (Column B) (Column C) (Column D)
Off-balance Sheet Equity Commodity
Derivatives Interest Rate Foreign Exchange Derivative And Other
Position Indicators Contracts Contracts Contracts Contracts
- ------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14. Gross amounts (e.g.,
notional amounts)(for
each column, sum of
items 14.a through 14.e
must equal sum of items
15, 16.a, and 16.b):
a. Futures contracts 316,500 103 0 0 14.a
RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696
b. Forward contracts 0 578,924 0 0 14.b
RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700
c. Exchange-traded
option contracts:
(1) Written
options 0 0 0 0 14.c1
RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704
(2) Purchased
options 0 0 0 0 14.c2
RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708
d. Over-the-counter
option contracts:
(1) Written
options 421,925 6,058 0 0 14.d1
RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712
(2) Purchased
options 798,767 8,058 0 0 14.d2
RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716
e. Swaps 3,776,092 0 0 785 14.e
RCFD 3450 RCFD 3826 RCFD 8719 RCFD 8720
15. Total gross notional
amount of derivative
contracts held for
trading 2,723,213 593,143 0 785 15.
RCFD A126 RCFD A127 RCFD 8723 RCFD 8724
16. Total gross notional
amount of derivative
contracts held for
purposes other than
trading:
a. Contracts marked
to market 0 0 0 0 16.a
RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728
b. Contracts not
marked to market 2,590,071 0 0 0 16.b
RCFD 8729 RCFD 8730 RCFD 8731 RCFD 8732
</TABLE>

<PAGE> 31

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 16
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 26

Transit Number: 91000019
</TABLE>

Schedule RC-L - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Off-balance Sheet Equity Commodity
Derivatives Position Interest Rate Foreign Exchange Derivative And Other
Indicators Contracts Contracts Contracts Contracts
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
17. Gross fair
values of
derivative
contracts:
a. Contracts
held for
trading: RCFD RCFD RCFD RCFD
---- ---- ---- ----
(1) Gross
positive
fair
value 8733. 9,592 8734. 5,435 8735. 0 8736. 0 17.a1
(2) Gross
negative
fair
value 8737. 9,126 8738. 4,494 8739. 0 8740. 0 17.a2
b. Contracts
held for
purposes
other than
trading that
are marked to
market:
(1) Gross
positive
fair
value 8741. 0 8742. 0 8743. 0 8744. 0 17.b1
(2) Gross
negative
fair
value 8745. 0 8746. 0 8747. 0 8748. 0 17.b2
c. Contracts
held for
purposes
other than
trading that
are not
marked
to market:
(1) Gross
positive
fair
value 8749. 14,172 8750. 0 8751. 0 8752. 0 17.c1
(2) Gross
negative
fair
value 8753. 67,038 8754. 0 8755. 0 8756. 0 17.c2

</TABLE>
Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
1.-2. Not applicable
3. Unused commitments with an original maturity xceeding one year that are reported
in Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of
commitments that are fee paid or otherwise legally binding) 3833. 3,467,678 M.3
a. Participations in commitments with an original RCFD
maturity exceeding one year conveyed to others 3834 . 50,917 M.3a
4. To be completed only by banks with $1 billion or more in total assets:
Standby letters of credit and foreign office guarantees (both financial and
performance) issued to non-U.S. acdressees (domicile) included in Schedule RC-L,
items 2 and 3, above 3377. N/A M.4
5. Installment loans to individuals for household, family, and other personal
expenditures that have been securitized and sold without recourse (with servicing
retained), amounts outstanding by type of loan:
a. Loans to purchase private passenger automobiles (to be completed for the September
report only) 2741. N/A M.5.a
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY) 2742. 0 M.5.b
c. All other consumer installment credit (including mobile home loans)(to be completed
for the September report only) 2743. N/A M.5.c

</TABLE>

<PAGE> 32

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 17
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 27

Transit Number: 91000019
</TABLE>

Schedule RC-M - Memoranda
C465
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors,
principal shareholders, and their related interests as of the report date:
a. Aggregate amount of all extensions of credit to all executive officers, directors, RCFD
principal shareholders, and their related interests 6164. 36,688 1.a
b. Number of executive officers, directors, and principal
shareholders to whom the amount of all extensions of
credit by the reporting bank (including extensions of
credit to related interests) equals or exceeds the
lesser of $ 500,000 or 5 percent of total capital RCFD Number
as defined for this purpose in agency regulations 6165. 7 1.b
2. Federal funds sold and securities purchased under agreements to resell with U.S.
branches and agencies of foreign banks (1) (included in Schedule RC,
items 3.a and 3.b) 3405. 0 2.
3. Not applicable.
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for
others (include both retained servicing and purchased servicing):
a. Mortgages serviced under a GNMA contract 5500. 0 4.a
b. Mortgages serviced under a FHLMC contract:
(1) Serviced with recourse to servicer 5501. 0 4.b.1
(2) Serviced without recourse to servicer 5502. 0 4.b.2
c. Mortgages serviced under a FNMA contract:
(1) Serviced under a regular option contract 5503. 0 4.c.1
(2) Serviced under a special option contract 5504. 0 4.c.2
d. Mortgages serviced under other servicing contracts 5505. 356,752 4.d
5. To be completed only by banks with $1 billion or more in total assets:
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b
must equal Schedule RC, item 9):
a. U.S. addressees (domicile) 2103. 32,497 5.a
b. Non-U.S. addressees (domicile) 2104. 8,733 5.b
6. Intangible assets:
a. Mortgage servicing rights 3164. 0 6.a
b. Other identifiable intangible assets:
(1) Purchased credit card relationships 5506. 0 6.b.1
(2) All other identifiable intangible assets 5507. 448 6.b.2
c. Goodwill 3163. 13,368 6.c
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) 2143. 13,816 6.d
e. Amount of intangible assets (included in item 6.b.(2) above) that have been
grandfathered or are otherwise qualifying for regulatory capital purposes 6442. 0 6.e
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to
redeem the debt 3295. 0 7.

<FN>

(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this item.

</TABLE>

<PAGE> 33

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 18
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 28

Transit Number: 91000019
</TABLE>

Schedule RC-M - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8. a. Other real estate owned: RCFD
(1) Direct and indirect investments in real estate ventures 5372. 0 8.a.1
(2) All other real estate owned: RCON
(a) Construction and land development in domestic offices 5508. 0 8.a.2a
(b) Farmland in domestic offices 5509. 0 8.a.2b
(c) 1-4 family residential properties in domestic offices 5510. 5,416 8.a.2c
(d) Multifamily (5 or more) residential properties in domestic offices 5511. 0 8.a.2d
(e) Nonfarm nonresidential properties in domestic offices 5512. 127 8.a.2e
(f) In foreign RCFN
offices 5513. 0 8.a.2f
(3) Total (sum of items 8.a.(1) and 8.a.(2)) RCFD
(must equal Schedule RC, item 7) 2150. 5,543 8.a.3
b. Investments in unconsolidated subsidiaries and associated companies:
(1) Direct and indirect investments in real estate ventures 5374. 0 8.b.1
(2) All other investments in unconsolidated subsidiaries and associated companies 5375. 0 8.b.2
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) 2130. 0 8.b.3
c. Total assets of unconsolidated subsidiaries and associated companies 5376. 0 8.c
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC,
item 23, "Perpetual preferred stock and related surplus" 3778. 0 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include
proprietary, private label, and third party mutual funds):
RCON
a. Money market funds 6441. 3,365,630 10.a
b. Equity securities funds 8427. 0 10.b
c. Debt securities funds 8428. 0 10.c
d. Other mutual funds 8429. 30,806 10.d
e. Annuities 8430. 13,693 10.e
f. Sales of proprietary mutual funds and annuities (included in items 10.a through
10.e above) 8784. 3,019,944 10.f

</TABLE>

Memorandum
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interbank holdings of capital instruments (to be completed for the December report only):
RCFD
a. Reciprocal holdings of banking organizations' capital instruments 3836. N/A M.1.a
b. Nonreciprocal holdings of banking organizations' capital instruments 3837. N/A M.1.b
</TABLE>

<PAGE> 34

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 19
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 29

Transit Number: 91000019
</TABLE>

Schedule RC-N - Past Due and Nonaccrual Loans, Leases, and Other Assets

The FFIEC regards the information reported in all of Memorandum item 1, in items
1 through 10, column A, and in Memorandum items 2 through 4, column A, as
confidential.

C470
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B) Column C)
Past due 30 through 89 Past due 90 days or more Nonaccrual
days and still accruing and still accruing
----------------------- ------------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Loans secured by real estate: RCFD RCFD RCFD
a. To U.S. addressees (domicile) 1245. 30,342 1246. 1,293 1247. 7,755 1.a
b. To non-U.S. addressees (domicile) 1248. 0 1249. 0 1250. 0 1.b
2. Loans to depository institutions and
acceptances of other banks:
a. To U.S. banks and other U.S.
depository institutions 5377. 0 5378. 0 5379. 0 2.a
b. To foreign banks 5380. 0 5381. 0 5382. 0 2.b
3. Loans to finance agricultural production
and other loans to farmers 1594. 0 1597. 0 1583. 6 3.
4. Commercial and industrial loans:
a. To U.S. addressees (domicile) 1251. 46,986 1252. 144 1253. 11,218 4.a
b. To non-U.S. addressees (domicile) 1254. 0 1255. 0 1256. 0 4.b
5. Loans to individuals for household,
family, and other personal expenditures:
a. Credit cards and related plans 5383. 167 5384. 689 5385. 0 5.a
b. Other (includes single payment,
installment, and all student loans) 5386. 16,052 5387. 4,303 5388. 126 5.b
6. Loans to foreign governments and
official institutions 5389. 0 5390. 0 5391. 0 6.
7. All other loans 5459. 13 5460. 116 5461. 7,814 7.
8. Lease financing receivables:
a. Of U.S. addressees (domicile) 1257. 0 1258. 0 1259. 16,469 8.a
b. Of non-U.S. addressees (domicile) 1271. 0 1272. 0 1791. 0 8.b
9. Debt securities and other assets (exclude
other real estate owned and other
repossessed assets) 3505. 0 3506. 0 3507. 0 9.

</TABLE>
================================================================================
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed
portions of past due and nonaccrual loans and leases. Report in item 10 below
certain guaranteed loans and leases that have already been included in the
amounts reported in items 1 through 8.

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
10. Loans and leases reported in items 1
through 8 above which are wholly or
partially guaranteed by the U.S. RCFD RCFD RCFD
Government 5612. 1,472 5613. 87 5614. 403 10.
a. Guaranteed portion of loans and leases
included in item 10 above 5615. 1,189 5616. 57 5617. 248 10.a
</TABLE>

<PAGE> 35

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-20
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 30

Transit Number: 91000019
</TABLE>

Schedule RC-N - Continued
Memoranda
C473
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B) (Column C)
Past due 30 through 89 Past due 90 days or more Nonaccrual
days and still accruing and still accruing
----------------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Restructured loans and leases included in
Schedule RC-N, items 1 through 8, above
(and not reported in Schedule RC-C, RCFD RCFD RCFD
Part I, Memorandum item 2) 1658. 0 1659. 0 1661. 0 M.1

2. Loans to finance commercial real estate,
construction, and land development
activities (not secured by real estate)
included in Schedule RC-N, items 4 and
7, above 6558. 0 6559. 0 6560. 0 M.2

3. Loans secured by real estate in domestic
offices (included in Schedule RC-N, item
1, above): RCON RCON RCON
a. Construction and land development 2759. 30 2769. 0 3492. 25 M.3a
b. Secured by farmland 3493. 0 3494. 0 3495. 0 M.3b
c. Secured by 1-4 family residential
properties:
(l) Revolving, open-end loans secured
by 1-4 family residential properties
and extended under lines of credit 5398. 49 5399. 93 5400. 0 M.3c1
(2) All other loans secured by 1-4
family residential properties 5401. 18,355 5402. 1,123 5403. 5,526 M.3c2
d. Secured by multifamily (5 or more)
residential properties 3499. 0 3500. 0 3501. 647 M.3d
e. Secured by nonfarm nonresidential
properties 3502. 11,908 3503. 77 3504. 1,557 M.3e
</TABLE>
<TABLE>
<CAPTION>
(Column A)
Past due 30 through (Column B)
89 days Past due 90 days or more
----------------------- ------------------------
<S> <C> <C> <C> <C> <C>
4. Interest rate, foreign exchange rate, and
other commodity and equity contracts:
a. Book value of amounts carried as RCFD RCFD
assets 3522. 0 3528. 0 M.4.a
b. Replacement cost of contracts with a
positive replacement cost 3529. 0 3530. 0 M.4.b

</TABLE>

<PAGE> 36

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 21
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 31

Transit Number: 91000019
</TABLE>

Schedule RC-O - Other Data for Deposit Insurance Assessments
C475
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Unposted debits (see instructions): RCON
a. Actual amount of all unposted debits 0030. N/A 1.a
OR
b. Separate amount of unposted debits:
(1) Actual amount of unposted debits to demand deposits 0031. 0 1.b1
(2) Actual amount of unposted debits to time and savings deposits (1) 0032. 0 1.b2
2. Unposted credits (see instructions):
a. Actual amount of all unposted credits 3510. N/A 2.a
OR
b. Separate amount of unposted credits:
(1) Actual amount of unposted credits to demand deposits 3512. 0 2.b1
(2) Actual amount of unposted credits to time and savings deposits (1) 3514. 0 2.b2
3. Uninvested trust funds (cash) held in bank's own trust department (not included in
total deposits in domestic offices) 3520. 0 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in
Puerto Rico and U.S. territories and possessions (not included in total deposits):
a. Demand deposits of consolidated subsidiaries 2211. 19,716 4.a
b. Time and savings deposits (1) of consolidated subsidiaries 2351. 0 4.b
c. Interest accrued and unpaid on deposits of consolidated subsidiaries 5514. 0 4.c
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions:
a. Demand deposits in insured branches (included in Schedule RC-E, Part II) 2229. 0 5.a
b. Time and savings deposits (1) in insured branches (included in Schedule RC-E,
Part II) 2383. 0 5.b
c. Interest accrued and unpaid on deposits in insured branches (included in
Schedule RC-G, item 1.b) 5515. 0 5.c

Item 6 is not applicable to state nonmember banks that have not been authorized
by the Federal Reserve to act as pass-through correspondents.

6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on
behalf of its respondent depository institutions that are also reflected as deposit
liabilities of the reporting bank:
a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, item RCON
4 or 5, column B) 2314. 375 6.a
b. Amount reflected in time and savings deposits (1) (included in Schedule RC-E,
Part I, item 4 or 5, column A or C, but not column B) 2315. 0 6.b
7. Unamortized premiums and discounts on time and savings deposits:(1)
a. Unamortized premiums 5516. 46 7.a
b. Unamortized discounts 5517. 84,070 7.b
8. To be completed by banks with "Oakar deposits."
Total "Adjusted Attributable Deposits" of all institutions acquired under
Section 5(d)(3) of the Federal Deposit Insurance Act (from most recent FDIC Oakar
Transaction Worksheet(s)) 5518. 2,403,177 8.
9. Deposits in lifeline accounts 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total
deposits in domestic offices) 8432. 0 10.
<FN>
- -----------------
(1) For FDIC insurance assessment purposes, "time and savings deposits"
consists of nontransaction accounts and all transaction accounts other than
demand deposits.

</TABLE>
<PAGE> 37

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-22
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 32

Transit Number: 91000019
</TABLE>

Schedule RC-O - Continued

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Adjustments to demand deposits reported in Schedule RC-E for certain reciprocal
demand balances:
a. Amount by which demand deposits would be reduced if reciprocal demand balances
between the reporting bank and savings associations were reported on a net basis RCON
rather than a gross basis in Schedule RC-E 8785 0 11.a
b. Amount by which demand deposits would be increased if reciprocal demand balances
between the reporting bank and U.S. branches and agencies of foreign banks were
reported on a gross basis rather than a net basis in Schedule RC-E A181 0 11.b
c. Amount by which demand deposits would be reduced if cash items in process of
collection were included in the calculation of net reciprocal demand balances
between the reporting bank and the domestic offices of U.S. banks and savings
associations in Schedule RC-E A182 0 11.c

</TABLE>

Memoranda
<TABLE>
<CAPTION>
(to be completed each quarter except as noted) Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total deposits in domestic offices of the bank
(sum of Memorandum items 1.a.(1) and 1.b.(1) must equal Schedule RC, item 13.a):
a. Deposit accounts of $100,000 or less: RCON
(1) Amount of deposit accounts of $100,000 or less 2702. 5,045,562 M.1a1
(2) Number of deposit accounts of $100,000 or less RCON Number
(to be completed for the June report only) 3779. N/A M.1a2
b. Deposit accounts of more than $100,000:
(1) Amount of deposit accounts of more than $100,000 2710. 3,166,985 M.1b1
(2) Number of deposit accounts of more than RCON Number
$100,000 2722. 6,225 M.1b2

2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by multiplying the number of
deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by $100,000
and subtracting the result from the amount of deposit accounts of more than $100,000 reported
in Memorandum item 1.b.(1) above.
Indicate in the appropriate box at the right whether your bank has a method or
procedure for determining a better estimate of uninsured deposits than the RCON YES NO
estimate described above 6861. X M.2.a
b. If the box marked YES has been checked, report the estimate of uninsured deposits
determined by using your bank's method or procedure 5597. N/A M.2.b
</TABLE>

C477
- --------------------------------------------------------------------------------

Person to whom questions about the Reports of Condition and Income should be
directed:

BRIAN BARNETT, MANAGER OF BANK ACCOUNTING (612) 667 - 8147

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

Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902)

<PAGE> 38

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-23
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 33

Transit Number: 91000019
</TABLE>

Schedule RC-R - Regulatory Capital

This schedule must be completed by all banks as follows: Banks that reported
total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1995,
must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets
of less than $1 billion must complete items 1 through 3 below or Schedule RC-R
in its entirety, depending on their response to item 1 below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Test for determining the extent to which Schedule RC-R must be completed. C480
To be completed only by banks with total assets of less than $1 billion. RCFD YES NO
Indicate in the appropriate box at the right whether the bank has total 6056 N/A 1.
capital greater than or equal to eight percent of adjusted total assets
For purposes of this test, adjusted total assets equals total assets
less cash, U.S. Treasuries, U.S. Government agency obligations, and 80
percent of U.S. Government-sponsored agency obligations plus the allowance
for loan and lease losses and selected off-balance sheet items as reported
on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to
complete items 2 and 3 below. If the box marked NO has been checked, the
bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's
actual risk-based capital ratio is less than eight percent or that the bank
is not in compliance with the risk-based capital guidelines.
</TABLE>

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------------
NOTE: All banks are required to complete (Column A) (Column B)
items 2 and 3 below. See optional Subordinated Debt (1) and
worksheet for items 3.a through 3.f. Intermediate Term Other Limited-Life
Preferred Stock Capital Instruments
--------------- -------------------
<S> <C> <C> <C> <C> <C>
2. Subordinated debt(1) and other limited-life capital
instruments (original weighted average maturity of at
least five years) with a remaining maturity of: RCFD RCFD
a. One year or less 3780. 8 3786. 0 2.a
b. Over one year through two years 3781. 8 3787. 0 2.b
c. Over two years through three years 3782. 8 3788. 0 2.c
d. Over three years through four years 3783. 8 3789. 0 2.d
e. Over four years through five years 3784. 8 3790. 0 2.e
f. Over five years 3785. 155 3791. 0 2.f
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
3. Amounts used in calculating regulatory capital ratios (report amounts determined by
the bank for its own internal regulatory capital analyses consistent with applicable
capital standards): RCFD
a. Tier 1 capital 8274. 1,182,261 3.a
b. Tier 2 capital 8275. 150,139 3.b
c. Total risk-based capital 3792. 1,132,400 3.c
d. Excess allowance for loan and lease losses A222. 48,871 3.d
e. Risk-weighted assets (net of all deductions, including excess allowances) A223. 11,948,441 3.e
f. "Average total assets" (net of all assets deducted from Tier 1 capital) (2) A224. 16,485,212 3.f
</TABLE>

Items 4-9 and Memoranda items 1 and 2 are to be completed
by banks that answered NO to item 1 above and by banks
with total assets of $1 billion or more.
<TABLE>
<CAPTION>

(Column A) (Column B)
Assets Recorded on the Credit Equivalent Amount
Balance Sheet of Off-Balance Sheet Items (3)
------------- ------------------------------
<S> <C> <C> <C> <C> <C>
4. Assets and credit equivalent amounts of off-balance
sheet items assigned to the Zero percent risk category:
a. Assets recorded on the balance sheet:
(1) Securities issued by, other claims on, and
claims unconditionally guaranteed by, the U.S.
Government and its agencies and other OECD RCFD RCFD
central governments 3794. 573,212 4.a.1
(2) All other 3795. 481,635 4.a.2
b. Credit equivalent amount of off-balance sheet items 3796. 0 4.b
<FN>
- ------------
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.

(2) Do not deduct excess allowance for loan and lease losses.

(3) Do not report in column B the risk-weighted amount of assets reported in
column A.
</TABLE>

<PAGE> 39

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-24
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 34

Transit Number: 91000019
</TABLE>
Schedule RC-R - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
Assets Recorded on the Credit Equivalent Amount
Balance Sheet of Off-Balance Sheet Items(1)
------------- -----------------------------
<S> <C> <C> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance
sheet items assigned to the 20 percent risk category:
a. Assets recorded on the balance sheet:
(1) Claims conditionally guaranteed by the U.S.
Government and its agencies and other OECD RCFD RCFD
central governments 3798. 506,378 5.a.1
(2) Claims collateralized by securities issued by
the U.S. Government and its agencies and other
OECD central governments; by securities issued
by U.S. Government-sponsored agencies; and by
cash on deposit 3799. 0 5.a.2
(3) All other 3800. 6,508,173 5.a.3
b. Credit equivalent amount of off-balance sheet items 3801. 636,500 5.b
6. Assets and credit equivalent amounts of off-balance
sheet items assigned to the 50 percent risk category:
a. Assets recorded on the balance sheet 3802. 1,999,577 6.a
b. Credit equivalent amount of off-balance sheet items 3803. 129,593 6.b
7. Assets and credit equivalent amounts of off-balance
sheet items assigned to the 100 percent risk category:
a. Assets recorded on the balance sheet 3804. 7,168,214 7.a
b. Credit equivalent amount of off-balance sheet items 3805. 2,248,038 7.b
3. On-balance sheet asset values excluded from the
calculation of the risk-based capital ratio(2) 3806. 20,588 8.
9. Total assets recorded on the balance sheet (sum of
items 4.a, 5.a, 6.a, 7.a, and 8, column A) (must equal
Schedule RC, item 12 plus items 4.b and 4.c) 3807. 17,257,777 9.
</TABLE>

Memoranda

<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Current credit exposure across all off-balance sheet derivative contracts covered by RCFD
the risk-based capital standards 8764. 28,461 M.1
</TABLE>
<TABLE>
<CAPTION>
(Column B)
(Column A) With a remaining maturity of (Column C)
Over one year
One year or less through five years Over five years
---------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
2. Notional principal amounts
of off-balance sheet
derivative contracts:(3)
a. Interest rate RCFD RCFD RCFD
contracts 3809. 2,301,742 8766. 1,145,935 8767. 592,182 M.2a
b. Foreign exchange
contracts 3812. 567,541 8769. 14,237 8770. N/A M.2b
c. Gold contracts 8771. N/A 8772. N/A 8773. N/A M.2c
d. Other precious metals
contracts 8774. N/A 8775. N/A 8776. N/A M.2d
e. Other commodity
contracts 8777. N/A 8778. N/A 8779. N/A M.2e
f. Equity derivative
contracts A000. N/A A001. N/A A002. N/A M.2f

<FN>
- --------------

1) Do not report in column B the risk-weighted amount of assets reported in
column A.

2) Include the difference between the fair value and the amortized cost of
available-for-sale securities in item 8 and report the amortized cost of
these securities in items 4 through 7 above. Item 8 also includes
on-balance sheet asset values (or portions thereof) of off-balance sheet
interest rate, foreign exchange rate, and commodity contracts and those
contracts (e.g. future contracts) not subject to risk-based capital.
Exclude from item 8 margin accounts and accrued receivables not included in
the calculation of credit equivalent amounts of off-balance sheet
derivatives as well as any portion of the allowance for loan and lease
losses in excess of the amount that may be included in Tier 2 capital.

3) Exclude foreign exchange contracts with an original maturity of 14 days or
less and all futures contracts.
</TABLE>
<PAGE> 40
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-25
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 35

Transit Number: 91000019
</TABLE>

Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on September 30, 1996

Norwest Bank Minnesota, N.A. Minneapolis MN
- ---------------------------- ----------- --
Legal Title of Bank City State

The management of the reporting bank may, if it wishes, submit a brief narrative
statement on the amounts reported in the reports of Condition and Income. This
optional statement will be made available to the public, along with the publicly
vailable data in the Reports of Condition and Income, in reponse to any
request for individual bank report data. However, the information reported in
column A and in all of Memorandum item 1 of Schedule RC-N is regarded as
confidential and will not be released to the public. BANKS CHOOSING TO SUBMIT
THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT CONTAIN THE
NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE
AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR ANY OTHER
INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD
COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing not to make a
statement may check the "No comment" box below and should make no entries of any
kind in the space provided for the narrative statement; i.e., DO NOT enter in
this space such phrases as "No statement," "Not applicable," "N/A," "No
comment," and "None."

The optional statement must be entered on this sheet. The statement should not
exceed 100 words. Further, regardless of the number of words, the statement
must not exceed 750 characters, including punctuation, indentation, and standard
spacing between words and sentences. If any submission should exceed 750
characters, as defined, it will be truncated at 750 characters with no notice to
the submitting bank and the truncated statement will appear as the bank's
statement both on agency computerized records and in computer-file releases to
the public.

All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who thereby
attests to its accuracy.

If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing narrative
statement will be deleted from the files, and from disclosure; the bank, at its
option, may replace it with a statement, under signature, appropriate to the
amended data.

The optional narrative statement will appear in agency records and in release to
the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
- --------------------------------------------------------------------------------
C471 C472

No comment: X (RCCN 6979)
BANK MANAGEMENT STATEMENT (please type or print clearly) (TEXT 6980):

-------------------------------------- -----------------
Signature of Executive Officer of Bank Date of Signature

<PAGE> 41

<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 09/30/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC-26
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 36

Transit Number: 91000019
</TABLE>

THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- --------------------------------------------------------------------------------
OMB No. For OCC: 1557-0081
OMB No. For FDIC: 3064-0052
OMB No. For Federal Reserve: 7100-0036
Expiration Date: 03/31/99

SPECIAL REPORT
(Dollar Amounts in Thousands)
CLOSE OF BUSINESS DATE: FDIC Certificate Number:
September 30, 1996 05208 C700

- --------------------------------------------------------------------------------
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- --------------------------------------------------------------------------------

The following information is required by Public Laws 90-44 and 102-242, but does
not constitute a part of the Report of Condition. With each Report of Condition,
these Laws require all banks to furnish a report of all loans or other
extensions of credit to its executive officers made since the date of the
previous Report of Condition. Data regarding individual loans or other
extensions of credit are not required. If no such loans or other extensions of
credit were made during the period, insert "none" against subitem (a). (Exclude
the first $15,000 of indebtedness of each executive officer under bank credit
card plan.) See Sections 215.2 and 215.3 of Title 12 of the Code of Federal
Regulations (Federal Reserve Board Regulation O) for the definitions of
"executive officer" and "extension of credit," respectively. Exclude loans and
other extensions of credit to directors and principal shareholders who are not
executive officers.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
RCFD
a. Number of loans made to executive officers since the previous Call Report date 3561. NONE a.
b. Total dollar amount of above loans (in thousands of dollars) 3562. 0 b.
c. Range of interest charged on above loans (example: 9-3/4% = 9.75) 7701/7702. 0.00% to 0.00% c.
</TABLE>

- --------------------------------------------------------------------------------
SIGNATURE AND TITLE OF OFFICER DATE (Month, Day, Year)
AUTHORIZED TO SIGN REPORT

Mark P. Wagener
/s/ Mark P. Wagener Director of Bank & Service Accounting 10/29/96
- --------------------------------------------------------------------------------
NAME AND TITLE OF PERSON TO WHOM (TEXT 8903) AREA CODE/PHONE NUMBER/EXTENSION:
INQUIRIES MAY BE DIRECTED: (TEXT 8904)
(612) 667 - 8147

BRIAN BARNETT, MANAGER OF BANK ACCOUNTING
- --------------------------------------------------------------------------------
FDIC 8040/53 (6-95)

<PAGE> 1
Exhibit 99.1

COLE NATIONAL GROUP, INC.
LETTER OF TRANSMITTAL
9 7/8% Senior Subordinated Notes due 2006
CUSIP 193292AB5

To: Norwest Bank Minnesota, National
Association, The Exchange Agent

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF ORIGINAL
NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION
DATE.
<TABLE>
<CAPTION>

<S> <C>

By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National Association
Corporate Trust Operations Corporate Trust Operations
P.O. Box 1517 Norwest Center
Minneapolis, MN 55480-1517 Sixth and Marquette
Minneapolis, MN 55479-0113

By Hand: By Facsimile:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National Association
Corporate Trust Operations Corporate Trust Operations
Northstar East, 12th Floor (612) 667-4927
608 2nd Avenue Confirm by telephone:
Minneapolis, MN 55479-0113 (612) 667-9764
----------
</TABLE>

Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.

HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES FOR THEIR
ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT
WITHDRAW) THEIR ORIGINAL NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION
DATE.

The undersigned acknowledges receipt of the Prospectus dated December ,
1996 (the "Prospectus") of Cole National Group, Inc. (the "Company") and this
Letter of Transmittal (the "Letter of Transmittal"), which together constitute
the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount
of its 9 7/8% Senior Subordinated Notes due 2006 (the "Exchange Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for each $1,000 principal amount of its outstanding
9 7/8% Senior Subordinated Notes due 2006 (the "Original Notes"), of which
$150,000,000 principal amount is outstanding, upon the terms and conditions
set forth in the Prospectus. Other capitalized terms used but not defined
herein have the meaning given to them in the Prospectus.

<PAGE> 2

For each Original Note accepted for exchange, the holder of such
Original Note will receive an Exchange Note having a principal amount equal to
that of the surrendered Original Note. Interest on the Exchange Notes will
accrue from the last interest payment date on which interest was paid on the
Original Notes surrendered in exchange therefor or, if no interest has been
paid on the Original Notes, from the date of original issue of the Original
Notes. Holders of Original Notes accepted for exchange will be deemed to have
waived the right to receive any other payments or accrued interest on the
Original Notes. The Company reserves the right, at any time or from time to
time, to extend the Exchange Offer at its discretion, in which event the term
"Expiration Date" shall mean the latest time and date to which the Exchange
Offer is extended. The Company shall notify holders of the Original Notes of
any extension by means of a press release or other public announcement prior to
P.M., Exchange York City time, on the next business day after the previously
scheduled Expiration Date.

This Letter of Transmittal is to be used by Holders if: (i)
certificates representing Original Notes are to be physically delivered to the
Exchange Agent herewith by Holders; (ii) tender of Original Notes is to be made
by book-entry transfer to the Exchange Agent's account at The Depository Trust
Company ("DTC"), pursuant to the procedures set forth in the Prospectus under
"The Exchange Offer - Procedures for Tendering" by any financial institution
that is a participant in DTC and whose name appears on a security position
listing as the owner of Original Notes; or (iii) tender of Original Notes is to
be made according to the guaranteed delivery procedures set forth in the
prospectus under "The Exchange Offer - Guaranteed Delivery Procedures."
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.

The term "Holder" with respect to the Exchange Offer means any person:
(i) in whose name Original Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered Holder, or (ii) whose Original Notes are held of record by DTC who
desires to deliver such Original Notes by book-entry transfer at DTC. The
undersigned has completed, executed and delivered this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the
Exchange Offer.

The instructions included with this Letter of Transmittal must be
followed. Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the Exchange Agent. See Instruction 11 herein.

HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR ORIGINAL
NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.

PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<CAPTION>
___________________________________________________________________________________________________
| DESCRIPTION OF 9 7/8% SENIOR SUBORDINATED NOTES DUE 2006 (ORIGINAL NOTES) |
|___________________________________________________________________________________________________|
| <S> | <C> | <C> | <C> |
| | | Aggregate | Principal |
| | | Principal | Amount |
| | | Amount | Tendered |
|Names(s) and Address(es) of Registered Holder(s) | Certificate | Represented | (If less |
| (Please fill in, if blank) | Number(s)* | by Certificate(s) | than all)** |
|_________________________________________________|_____________|___________________|_______________|
| | | | |
|_________________________________________________|_____________|___________________|_______________|
| | | | |
|_________________________________________________|_____________|___________________|_______________|
| | | | |
|_________________________________________________|_____________|___________________|_______________|
| | | | |
|_________________________________________________|_____________|___________________|_______________|
| | | | |
|_________________________________________________|_____________|___________________|_______________|
| | | | |
| | Total | | |
|_________________________________________________|_____________|___________________|_______________|
| <FN> |
| * Need not be completed by Holders tendering by book-entry transfer. |
| |
| ** Unless indicated in the column labeled "Principal Amount Tendered," any |
| tendering Holder of Original Notes will be deemed to have tendered the entire |
| aggregate principal amount represented by the column labeled "Aggregate |
| Principal Amount Represented by Certificate(s)," If the space provided above |
| is inadequate, list the certificate numbers and principal amounts on a |
| separate signed schedule and affix the list to this Letter of Transmittal. |
| |
| The minimum permitted tender is $1,000 in principal amount of Original Notes. All |
| other tenders must be integral multiples of $1,000. |
|___________________________________________________________________________________________________|
</TABLE>

<PAGE> 3

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

SPECIAL PAYMENT
INSTRUCTIONS
(See Instructions 4,5 and 6)

To be completed ONLY if certificates for Original Notes in a
principal amount not tendered or not accepted for exchange, or Exchange
Notes issued in exchange for Original Notes accepted for exchange, are
to be issued in the name of someone other than the undersigned, or if
the Original Notes tendered by book-entry transfer that are not accepted
for exchange are to be credited to an account maintained by DTC.

Issue certificate(s) to:

Name: __________________________________________
(Please Print)

Address: _______________________________________

________________________________________________
(Include Zip Code)

________________________________________________
(Tax identification or Social Security No.)

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

SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4,5 and 6)

To be completed ONLY if certificates for Original Notes in a
principal amount not tendered or not accepted for exchange, or Exchange
Notes issued in exchange for Original Notes accepted for exchange, are
to be sent to someone other than the undersigned, or to the undersigned
at an address other than that shown above.

Mail to:

Name: __________________________________________
(Please Print)

Address: _______________________________________

________________________________________________
(Include Zip Code)

________________________________________________
(Tax Identification or Social Security No.)

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

<PAGE> 4
- --------------------------------------------------------------------------------

[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE
FOLLOWING:

Name of Tendering Institution:_____________________________

DTC Book-Entry Account Number:________________________

Transaction Code Number:_____________________________

[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING:

Name(s) of Registered Holder(s):_________________________________________

Window Ticket Number (if any):____________________________________________

Date of Execution of Notice of Guaranteed Delivery:_______________________

IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:

Account Number:___________________________

Transaction Code Number:__________________

[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS
OR SUPPLEMENTS THERETO.

Name:_____________________________________________________________________

Address:__________________________________________________________________

- --------------------------------------------------------------------------------
<PAGE> 5

Ladies and Gentlemen:

Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Original
Notes indicated above. Subject to and effective upon the acceptance for
exchange of the principal amount of Original Notes tendered in accordance with
this Letter of Transmittal, the undersigned sells, assigns and transfers to, or
upon the order of, the Company all right, title and interest in and to the
Original Notes tendered hereby. The undersigned hereby irrevocably constitutes
and appoints the Exchange Agent its agent and attorney-in-fact (with full
knowledge that the Exchange Agent also acts as the agent of the Company and as
Trustee under the Indenture for the Original Notes and Exchange Notes) with
respect to the tendered Original Notes with full power of substitution to (i)
deliver certificates for such Original Notes to the Company, or transfer
ownership of such Original Notes on the account books maintained by DTC and
deliver all accompanying evidence of transfer and authenticity to, or upon the
order of, the Company and (ii) present such Original Notes for transfer on the
books of the Company and receive all benefits and otherwise exercise all rights
of beneficial ownership of such Original Notes, all in accordance with the
terms and subject to the conditions of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed irrevocable and coupled with
an interest.

The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Original
Notes tendered hereby and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim, when the same are acquired
by the Company. The undersigned hereby further represents that any Exchange
Notes acquired in exchange for Original Notes tendered hereby will have been
acquired in the ordinary course of business of the Holder receiving such
Exchange Notes, whether or not such person is the Holder, that neither the
Holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the Holder nor any such other person is an "affiliate," as defined in
Rule 405 under the Securities Act, of the Company or any of its subsidiaries.

The undersigned also acknowledges that this Exchange Offer is being
made in reliance on an interpretation by the staff of the Securities and
Exchange Commission (the "SEC") that the Exchange Notes issued in exchange for
the Original Notes pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such holders
have no arrangements with any person to participate in the distribution of such
Exchange Notes. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Original Notes that
were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" withing the meaning of the Securities Act.

The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment, transfer and purchase of the Original
Notes tendered hereby. All authority conferred or agreed to be conferred by
this Letter of Transmittal shall survive the death, incapacity or dissolution
of the undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns, trustees in bankruptcy or other legal
representatives of the undersigned. This tender may be withdrawn only in
accordance with the procedures set forth in "The Exchange Offer - Withdrawal of
Tenders" section of the Prospectus.

For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Original Notes when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.

If any tendered Original Notes are not accepted for exchange pursuant
to the Exchange Offer for any reason, certificates for any such unaccepted
Original Notes will be returned (except as noted below with respect to tenders

<PAGE> 6

through DTC), without expense, to the undersigned at the address shown below or
at a different address as may be indicated under Special Delivery Instructions"
as promptly as practicable after the Expiration Date.

The undersigned understands that tenders of Original Notes pursuant to
the procedures described under the caption "The Exchange Offer - Procedures for
Tendering Original Notes" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer.

Unless otherwise indicated under "Special Payment and Delivery
Instructions," please issue the certificates representing the Exchange Notes
issued in exchange for the Original Notes accepted for exchange and return any
Original Notes not tendered or not exchanged in the name(s) of the undersigned
(or in either such event in the case of the Original Notes tendered by DTC, by
credit to the undersigned's account, at DTC). Similarly, unless otherwise
indicated under "Special Payment and Delivery Instructions," please send the
certificates representing the Exchange Notes issued in exchange for the
Original Notes accepted for exchange and any certificates for Original Notes
not tendered or not exchanged (and accompanying documents, as appropriate) to
the undersigned at the address shown below the undersigned's signature(s),
unless, in either event, tender is being made through DTC. In the event that
both "Special Payment Instructions" and "Special Payment and Delivery
Instructions" are completed, please issue the certificates representing the
Exchange Notes issued in exchange for the Original Notes accepted for exchange
and return any Original Notes not tendered or not exchanged in the name(s) of,
and send said certificates to, the person(s) so indicated. The undersigned
recognizes that the Company has no obligation pursuant to the "Special Payment
Instructions" and "Special Delivery Instructions" to transfer any Original
Notes from the name of the registered Holder(s) thereof if the Company does
not accept for exchange any of the Original Notes so tendered.

Holders of Original Notes who wish to tender their Original Notes and
(i) whose Original Notes are not immediately available or (ii) who cannot
deliver their Original Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent, or cannot complete the procedure for
book-entry transfer, prior to the Expiration Date, may tender their Original
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer - Guaranteed Delivery
Procedures." See Instruction 1 regarding the completion of the Letter of
Transmittal printed below.

<PAGE> 7

- --------------------------------------------------------------------------------
PLEASE SIGN HERE WHETHER OR NOT
ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY

X ____________________________________________________________ ________________
Date
X ____________________________________________________________ ________________
Signature(s) of Registered Holder(s) or Authorized Signatory Date

Area Code and Telephone Number: _______________________________________________

The above lines must be signed by the registered Holder(s) of Original
Notes as their name(s) appear(s) on the Original Notes or, if the Original
Notes are tendered by a participant in DTC, as such participant's name appears
on a security position listing as the owner of Original Notes, or by person(s)
authorized to become registered Holder(s) by a properly completed bond power
from the registered Holder(s), a copy of which must be transmitted with this
Letter of Transmittal. If Original Notes to which this Letter of Transmittal
relates are held of record by two or more joint Holders, then all such Holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person must (i)
set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority to act.
See Instruction 4 regarding the completion of this Letter of Transmittal
printed below.

Name(s): _____________________________________________________________________

_______________________________________________________________________________
(Please Print)

Capacity: ____________________________________________________________________

Address: ____________________________________________________________________
(Include Zip Code)

SIGNATURE GUARANTEE BY AN ELIGIBLE INSTITUTION
(If Required by Instruction 4)

Certain signatures must be Guaranteed by an Eligible Institution.

_______________________________________________________________________________
(Authorized Signature)

________________________________________________________________________________
(Title)

_______________________________________________________________________________
(Name of Firm)

Dated: ________________________________________________________________, 1996

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

<PAGE> 8

INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER

1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by noteholders, either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in "The Exchange Offer - Book-Entry
Transfer" section of the Prospectus. Certificates for all physically tendered
Original Notes, or Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed Letter (or manually signed facsimile
hereof) and any other documents required by this Letter, must be received by
the Exchange Agent at the address set forth herein on or prior to the
Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Original Notes tendered hereby must be in
denominations of principal amount of maturity of $1,000 and any integral
multiple thereof.

Noteholders whose certificates for Original Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Original Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer - Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through
an Eligible Institution (as defined in Instruction 4 below), (ii) prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Letter (or facsimile thereof) and Notice
of Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Original Notes and the amount of Original Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five Exchange York Stock Exchange ("NYSE") trading days after the date
of execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Original Notes, or a Book-Entry Confirmation, and any other
documents required by the Letter will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) the certificates for all physically tendered
Original Notes, in proper form for transfer, or Book-Entry Confirmation, as the
case may be, and all other documents required by this Letter, are received by
the Exchange Agent within five NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.

The method of delivery of this Letter, the Original Notes and all other
required documents is at the election and risk of the tendering holders, but
the delivery will be deemed made only when actually received or confirmed by
the Exchange Agent. If Original Notes are sent by mail, it is suggested that
the mailing be made sufficiently in advance of the Expiration Date to permit
the delivery to the Exchange Agent prior to 5:00 p.m., Exchange York City time,
on the Expiration Date.

See "The Exchange Offer" section in the Prospectus.

2. TENDER BY HOLDER. Only a holder of Original Notes may tender such
Original Notes in the Exchange Offer. Any beneficial holder of Original Notes
who is not the registered holder and who wishes to tender should arrange with
the registered holder to execute and deliver this Letter on his or her behalf
or must, prior to completing and executing this Letter and delivering his or
her Original Notes, either make appropriate arrangements to register ownership
of the Original Notes in such holder's name or obtain a properly completed bond
power from the registered holder.

3. PARTIAL TENDERS. Tenders of Original Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Original Notes is tendered, the tendering holder should fill in the principal
amount tendered in the fourth column of the box entitled "Description of 9 7/8%
Senior Subordinated Notes due 2006 (Original Notes)" above. The entire
principal amount of Original Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Original Notes is not tendered, then Original Notes
for the principal amount of Original Notes not tendered and a certificate or
certificates representing Exchange Notes issued in exchange for any Original
Notes accepted will be sent to the Holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter
of Transmittal, promptly after the Original Notes are accepted for exchange.

<PAGE> 9

4. SIGNATURES ON THIS LETTER; POWERS OF ATTORNEY AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter is signed by the registered holder of
the Original Notes tendered hereby, the signature must correspond exactly with
the name as written on the face of the certificates without any change
whatsoever.

If any tendered Original Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.

If any tendered Original Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.

When this Letter is signed by the registered holder or holders of the
Original Notes specified herein and tendered hereby, no endorsements of
certificates or separate powers of attorney are required. If, however, the
Exchange Notes are to be issued, or any untendered Original Notes are to be
reissued, to a person other than the registered holder, then endorsements of
any certificates transmitted hereby or separate powers of attorney are
required. Signatures on such certificate(s) must be guaranteed by an Eligible
Institution.

If this Letter is signed by a person other than the registered holder
or holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names on the registered holder or holders
appear(s) on the certificate(s) and signatures on such certificate(s) must be
guaranteed by an Eligible Institution.

If this Letter or any certificates or powers of attorney are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.

Endorsements on certificates for Original Notes or signatures on powers
of attorney required by this Instruction 4 must be guaranteed by a firm which
is a participant in a recognized signature guarantee medallion program
("Eligible Institutions").

Signatures on this Letter must be guaranteed by an Eligible Institution
unless the Original Notes are tendered (i) by a registered holder of Original
Notes (which term, for purposes of the Exchange Offer, includes any participant
in the Book-Entry Transfer Facility system whose name appears on a security
position listing as the holder of such Original Notes) who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for account of an Eligible Institution.

5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in the applicable box or boxes, the name and address to which
Exchange Notes or substitute Original Notes for principal amounts not tendered
or not accepted for exchange are to be issued or sent, if different from the
name and address of the person signing this Letter of Transmittal (or in the
case of tender of Original Notes through DTC, if different from DTC). In the
case of issuance in a different name, the taxpayer identification or social
security number of the person named must also be indicated. Noteholders
tendering Original Notes by book-entry transfer may request that Original Notes
not exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Original Notes not exchanged will be returned to the name and
address of the person signing this Letter.

6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose offered Original Notes are accepted for exchange must provide the
Company (as payer) with his, her or its correct taxpayer identification number
("TIN"), which, in the case of an exchanging holder who is an individual, is
his or her social security number. If the Company is not provided with the
correct TIN or an adequate basis for exemption, such holder may be subject to a
$50 penalty imposed by the Internal Revenue Service (the "IRS"), and payments
made with respect to Original Notes purchased pursuant to the Exchange Offer
may be subject to backup withholding at a 31% rate. If withholding results in
an overpayment of taxes, a refund may be obtained. Exempt holders (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9."

<PAGE> 10
To prevent backup withholding, each exchanging holder must provide his,
her or its correct TIN by completing the Substitute Form W-9 enclosed herewith,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has been notified by the IRS that he, she or it is subject to backup
withholding as a result of a failure to report all interest or dividends, or
(iii) the IRS has notified the holder that he, she or it is no longer subject
to backup withholding. In order to satisfy the Exchange Agent that a foreign
individual qualifies as an exempt recipient, such holder must submit a
statement signed under penalty of perjury attesting to such exempt status. Such
statements may be obtained from the Exchange Agent. If the Original Notes are
in more than one name or are not in the name of the actual owner, consult the
Substitute Form W-9 for information on which TIN to report. If you do not
provide your TIN to the Company within 60 days, backup withholding will begin
and continue until you furnish your TIN to the Company.

7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Original Notes pursuant to the Exchange Offer.
If, however, certificates representing Exchange Notes or Original Notes for
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the Original Notes tendered hereby, or if tendered
Original Notes are registered in the name of any person other than the person
signing this Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of Original Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or on any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.

Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Original Notes listed in this Letter
of Transmittal.

8. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify specified conditions in the Exchange Offer in the case
of any Original Notes tendered.

9. NO CONDITIONAL TRANSFERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Original Notes,
by execution of this Letter, shall waive any right to receive notice of the
acceptance of their Original Notes for exchange.

Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Original Notes nor shall any of them incur any liability for failure
to give any such notice.

10. MUTILATED, LOST, STOLEN OR DESTROYED Original NOTES. Any tendering
holder whose Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated herein for further
instructions.

11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance for additional copies of the Prospectus, this Letter of
Transmittal and the Notice of Guaranteed Delivery may be directed to the
Exchange Agent at the address specified in the Prospectus.

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

(DO NOT WRITE IN THE SPACE BELOW)

<TABLE>
<CAPTION>
Certificate Original Notes Original Notes
Surrendered Tendered Accepted
----------- -------------- --------------

<S> <C> <C>
------------------- --------------------- ------------------

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

=================== ===================== ==================
</TABLE>

Delivery Prepared by___________ Checked By_____________ Date________________

- --------------------------------------------------------------------------------
<PAGE> 11

PAYER'S NAME: COLE NATIONAL GROUP, INC.
- -------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of the person or entity
whose number you enter in Part 1 below. See instructions if your name has
changed.)

- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City, state and ZIP Code
- -------------------------------------------------------------------------------
List account number(s) here (optional)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
SUBSTITUTE Part I--Please provide your Tax-
FORM W-9 payer Identification Number
("TIN") in the box at right and ________________________________
certify by signing and dating below. Social Security Number

Department of the Treasury OR ______________________________
Internal Revenue Service TIN

________________________________________________________________________________
Part II--Check the box if you are NOT subject to backup withholding under the
provisions of section 3408(a)(1)(C) of the Internal Revenue Code because (1) you
have not been notified that you are subject to backup withholding as a result of
failure to report all interest or dividends or (2) the Internal Revenue Service
has notified you that you are no longer subject to backup withholding. [ ]
________________________________________________________________________________
Part III--AWAITING TIN
</TABLE>
- -------------------------------------------------------------------------------
Payer's request for Taxpayer Identification Number
- -------------------------------------------------------------------------------
Certification--Under the penalties of perjury, I certify that the information
provided on this form is true, correct and complete.
- -------------------------------------------------------------------------------
SIGNATURE DATE , 1996
- -------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.

<PAGE> 12
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9

GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
GIVE THE
FOR THIS TYPE SOCIAL SECURITY
OF ACCOUNT: NUMBER OF --
- -------------------------------------------------------------------------------
<S> <C>
1. An individual's account The individual

2. Two or more individuals The actual owner of the account or, if
combined funds, any one of the
individuals(1)

3. Husband and wife (joint The actual owner of the account or, if
account) joint funds, either person(1)

4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)

5. Adult and minor (joint The adult or, if the minor is the only
account) contributor, the minor(1)

6. Account in the name of The ward, minor, or incompetent
guardian or committee for person(3)
a designated ward, minor
or incompetent person

7. a. The usual revocable The grantor trustee(1)
savings trust account
(grantor is also trustee)

b. So-called trust account The actual owner(1)
that is not a legal and
valid trust under State
law

8. Sole proprietorship The owner(4)
account

9. A valid trust, estate or The legal entity (do not furnish the
pension trust identifying number of the personal
representative or trustee unless the
legal entity itself is not designated
in the account title.)(5)

10. Corporate account The corporation

11. Religious, charitable, or The organization
educational organization
account

12. Partnership account held The partnership
in the name of the business

13. Association, club, or other The organization
tax-exempt organization

14. A broker or registered The broker or nominee
nominee

15. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a State or local government,
school district, or prison)
that receives agricultural
program payments
- -------------------------------------------------------------------------------
<FN>
(1) List first and circle the name of the person whose number you furnish.

(2) Circle the minor's name and furnish the minor's social security number.

(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.

(4) Show the name of the owner.

(5) List first and circle the name of the legal trust, estate, or pension
trust.
</TABLE>

NOTE: IF NO NAME IS CIRCLED WHEN THERE IS MORE THAN ONE NAME, THE NUMBER WILL
BE CONSIDERED TO BE THAT OF THE FIRST NAME LISTED.
<PAGE> 13
Obtaining a Number

If you don't have a taxpayer identification number or you don't know
your number, obtain Form SS-5, Application for a Social Security Number Card,
or Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.

Payees Exempt from Backup Withholding

Payees specifically exempted from backup withholding on ALL payments
include the following:

- A corporation.

- A financial institution.

- An organization exempt from tax under section 501(a), or an
individual retirement plan.

- The United States or any agency or instrumentality thereof.

- A State, the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof.

- A foreign government, a political subdivision of a foreign
government, or any agency or instrumentality thereof.

- An international organization or any agency, or instrumentality
thereof.

- A registered dealer in securities or commodities registered in the
U.S. or a possession of the U.S.

- A real estate investment trust.

- A common trust fund operated by a bank under section 584(a).

- An exempt charitable remainder trust, or a non-exempt trust
described in section 4947(a)(l).

- An entity registered at all times under the Investment Company Act
of 1940.

- A foreign central bank of issue.

Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:

- Payments to nonresident aliens subject to withholding under
section 1441.

- Payments to partnerships not engaged in a trade or business in the
U.S. and which have at least one nonresident partner.

- Payments of patronage dividends where the amount received is not
paid in money.

- Payments made by certain foreign organizations.

- Payments made to a nominee.

Payments of interest not generally subject to backup withholding
include the following

- Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and
you have not provided your correct taxpayer identification number
to the payer.

- Payments of tax-exempt interest (including exempt-interest dividends
under section 852).

- Payments described in section 6049(b)(5) to non-resident aliens.

- Payments on tax-free covenant bonds under section 1451.

- Payments made by certain foreign organizations.

- Payments made to a nominee.

Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM.

Certain payments other than interest, dividends and patronage
dividends, that are not subject to information reporting are also not subject
to backup withholding. For details, see the regulations under sections 6041,
6041A(a), 6045, and 6050A.

Privacy Act Notice -- Section 6109 requires most recipients of
dividend, interest, or other payments to give tax-payer identification numbers
to payers who must report for payments to IRS. IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Beginning January 1, 1994, payers
must generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.

Penalties

(1) Penalty for Failure to Furnish Taxpayer Identification Number. --
If you fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.

(2) Failure to Report Certain Dividend and Interest Payments. -- If
you fail to include any portion of an includible payment for interest,
dividends, or patronage dividends in gross income, such failure will be treated
as being due to negligence and will be subject to a penalty of 5% on any
portion of an underpayment attributable to that failure unless there is clear
and convincing evidence to the contrary.

(3) Civil Penalty for False Information with Respect to Withholding.
- -- If you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.

(4) Criminal Penalty for Falsifying Information. -- Falsifying
certifications or affirmations may subject you to criminal penalties
including fines and/or imprisonment.

FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.

<PAGE> 1
Exhibit 99.2

NOTICE OF GUARANTEED DELIVERY
for
9 7/8% Senior Subordinated Notes Due 2006
of
COLE NATIONAL GROUP, INC.
CUSIP 193292AB5

As set forth in the Prospectus dated December , 1996 (the
"Prospectus"), of Cole National Group, Inc. ("the Company") and in the
accompanying Letter of Transmittal and instructions thereto (the "Letter of
Transmittal"), this form or one substantially equivalent hereto must be used to
accept the Company's Exchange Offer (the "Exchange Offer") to exchange all of
its outstanding 9 7/8% Senior Subordinated Notes due 2006 (the "Original Notes")
for its 9 7/8% Senior Subordinated Notes due 2006, which have been registered
under the Securities Act of 1933, as amended, if certificates for the Original
Notes are not immediately available or if the Original Notes, the Letter of
Transmittal or any other documents required thereby cannot be delivered to the
Exchange Agent, or the procedure for book-entry transfer cannot be completed,
prior to 5:00 P.M., Exchange York City time, on the Expiration Date (as defined
in the Prospectus). This form may be delivered by an Eligible Institution by
hand or transmitted by facsimile transmission, overnight courier or mail to the
Exchange Agent as set forth below. Capitalized terms used but not defined
herein have the meaning given to them in the Prospectus.

________________________________________________________________________________

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON 1997, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS
OF ORIGINAL NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE
BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
________________________________________________________________________________

To: Norwest Bank Minnesota, National Association, The Exchange Agent

By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National
Corporate Trust Operations Association
P.O. Box 1517 Corporate Trust Operations
Minneapolis, MN 55480-1517 Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0113

By Hand: By Facsimile:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National
Corporate Trust Operations Association
Northstar East, 12th Floor Corporate Trust Operations
608 2nd Avenue (612) 667-4927
Minneapolis, MN 55479-0113 Confirm by telephone:
(612) 667-9764

_____________________

DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A
FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.

This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Original Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.

<PAGE> 2
Ladies and Gentlemen:

The undersigned hereby tenders to Cole National Group, Inc. a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which is hereby acknowledged,
Original Notes pursuant to the guaranteed delivery procedures set forth in
Instruction I of the Letter of Transmittal.

The undersigned understands that tenders of Original Notes will be
accepted only in principal amounts equal to $1,000 or integral multiples
thereof. The undersigned understands that tenders of Original Notes pursuant to
the Exchange Offer may not be withdrawn after 5:00 p.m., Exchange York City
time, on the business day prior to the Expiration Date.

All authority herein conferred or agreed to be conferred by this Notice
of Guaranteed Delivery shall survive the death, incapacity or dissolution of
the undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and
other legal representatives of the undersigned.

NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.

Certificate No(s). for Original Notes Address
(if available)

_______________________________________ ____________________________________

Principal Amount of Original Notes Area Code and Tel. No.

_______________________________________ ____________________________________

Name(s) of Record Holder(s) Signature(s)

_______________________________________ ____________________________________

Dated:
____________________________________

If Original Notes will be
delivered by book-entry transfer
at the Depository Trust Company,
Depository Account No:

____________________________________

This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Original Notes exactly as its (their) name(s) appear on
certificates for Original Notes or on a security position listing as the owner
of Original Notes, or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:

<PAGE> 3
________________________________________________________________________________

PLEASE PRINT NAME(S) AND ADDRESS(ES)

Name(s):

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

Capacity:

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

Address(es):

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

________________________________________________________________________________
<PAGE> 4
________________________________________________________________________________

GUARANTEE

(Not To Be Used for Signature Guarantee)

The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a)
represents that the above named person(s) "own(s)" the Original Notes tendered
hereby within the meaning of Rule 14e-4 under the Exchange Act, (b) represents
that such tender of Original Notes complies with Rule 14e-4 under the Exchange
Act and (c) guarantees that delivery to the Exchange Agent of certificates for
the Original Notes tendered hereby, in proper form for transfer (or
confirmation of the book-entry transfer of such Original Notes into the
Exchange Agent's Account at the Depository Trust Company, pursuant to the
procedures for book-entry transfer set forth in the Prospectus), with delivery
of a properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof) with any required signatures and any other required
documents, will be received by the Exchange Agent at one of its addresses set
forth above within five business days after the Expiration Date.

THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND ORIGINAL NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME
PERIOD SET FORTH AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO
THE UNDERSIGNED.

Name of Firm:___________________________________________________________________

Address:________________________________________________________________________
(Zip Code)

Area Code and Tel. No.:_________________________________________________________

Authorized Signature:___________________________________________________________

Name:___________________________________________________________________________
(Please Type or Print)

Title:__________________________________________________________________________

Date:_____________________________________

________________________________________________________________________________

NOTE: DO NOT SEND ORIGINAL NOTES WITH THIS FORM; ORIGINAL NOTES SHOULD BE SENT
WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE
EXCHANGE AGENT WITHIN FIVE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER
THE EXPIRATION DATE.