10-Q

TABLE OF CONTENTS

FORM 10-Q
PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II — OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT INDEX
Exhibit 10.1 -- Secured Promissory Note
Exhibit 10.2 -- Stock Pledge & Security Agreement
Exhibit 27 -- Financial Data Schedule

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

          (Mark One)

X	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended October 28, 2000, or
	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to ___________________ .

Commission file number 1-12814

COLE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 34-1453189
(I.R.S. employer
identification no.)

5915 Landerbrook Drive
Mayfield Heights, Ohio
(Address of principal executive offices) 44124
(Zip code)

(440) 449-4100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X YES     NO

As of November 20, 2000, 15,621,426 shares of the registrant’s common stock were outstanding.

COLE NATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED OCTOBER 28, 2000
INDEX

		Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of October 28, 2000 and January 29, 2000		1
	Consolidated Statements of Operations for the 13 and 39 weeks ended October 28, 2000 and October 30, 1999		2
	Consolidated Statements of Cash Flows for the 39 weeks ended October 28, 2000 and October 30, 1999		3
	Notes to Consolidated Financial Statements		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		7
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		11
PART II	OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders		12
Item 6.	Exhibits and Reports on Form 8-K		13

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)

			October 28,			January 29,
			2000			2000
ASSETS
Current assets:
	Cash and temporary cash investments		$	9,324		$	28,953
	Accounts receivable, less allowance for doubtful accounts of $5,473 and $7,557, respectively			39,894			41,682
	Current portion of notes receivable			4,965			4,917
	Inventories			147,059			116,514
	Refundable income taxes			1,546			1,546
	Prepaid expenses and other			7,273			6,947
	Deferred income tax benefits			5,186			3,901
		Total current assets		215,247			204,460
Property and equipment, at cost				281,546			267,633
	Less — accumulated depreciation and amortization			(151,550	)		(144,249	)
		Total property and equipment, net		129,996			123,384
Notes receivable, excluding current portion and less reserves for uncollectible amounts of $4,822 and $4,196, respectively				21,964			25,948
Deferred income taxes and other assets				74,454			77,080
Intangible assets, net				153,118			157,399
		Total assets	$	594,779		$	588,271
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Working capital borrowing		$	8,500		$	—
	Current portion of long-term debt			881			1,515
	Accounts payable			59,971			60,388
	Accrued interest			7,358			6,482
	Accrued liabilities			78,114			71,998
	Accrued income taxes			—			178
		Total current liabilities		154,824			140,561
Long-term debt, net of discount and current portion				284,281			284,584
Other long-term liabilities				13,166			16,610
Stockholders’ equity				142,508			146,516
		Total liabilities and stockholders’ equity	$	594,779		$	588,271

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

1

COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

			Thirteen Weeks Ended						Thirty-Nine Weeks Ended
			October 28,			October 30,			October 28,			October 30,
			2000			1999			2000			1999
Net revenue			$	255,950		$	251,165		$	778,384		$	772,566
Costs and expenses:
	Cost of goods sold			83,450			87,012			257,759			266,012
	Operating expenses			158,245			152,475			476,212			452,762
	Depreciation and amortization			9,992			10,514			29,954			28,716
		Total costs and expenses		251,687			250,001			763,925			747,490
Operating income				4,263			1,164			14,459			25,076
Interest and other (income) expense:
	Interest expense			7,196			7,038			21,284			20,841
	Interest and other income			(368	)		(1,117	)		(2,252	)		(2,936	)
		Total interest and other expense, net		6,828			5,921			19,032			17,905
Income (loss) before income taxes				(2,565	)		(4,757	)		(4,573	)		7,171
Income tax provision (benefit)				(1,960	)		(1,951	)		(3,064	)		2,940
Net income (loss)			$	(605	)	$	(2,806	)	$	(1,509	)	$	4,231
Earnings (loss) per common share:
	Basic		$	(.04	)	$	(0.19	)	$	(.10	)	$	.28
	Diluted		$	(.04	)	$	(0.19	)	$	(.10	)	$	.28

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

2

COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

				Thirty-Nine Weeks Ended
				October 28,			October 30,
				2000			1999
Cash flows from operating activities:
	Net income (loss)			$	(1,509	)	$	4,231
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization			29,954			28,716
		Non-cash interest and other expense, net			(738	)		(1,563	)
		Increases (decreases) in cash resulting from changes in assets and liabilities:
			Accounts and notes receivable, prepaid expenses and other assets		5,002			983
			Inventories		(30,545	)		(13,968	)
			Accounts payable, accrued liabilities and other liabilities		4,274			(18,809	)
			Accrued interest		876			1,140
			Accrued, refundable and deferred income taxes		(1,463	)		8,789
			Net cash provided by operating activities		5,851			9,519
Cash flows from investing activities:
	Purchases of property and equipment, net				(25,528	)		(21,025	)
	Systems development costs				(5,567	)		(10,930	)
	Investment in Pearle Europe, net				(914	)		(1,360	)
	Acquisitions of businesses, net				—			(2,281	)
	Other, net				55			(549	)
			Net cash used by investing activities		(31,954	)		(36,145	)
Cash flows from financing activities:
	Proceeds from working capital borrowings				8,500			—
	Repayment of long-term debt				(1,002	)		(1,104	)
	Proceeds from exercise of stock options				916			163
	Common stock repurchased				—			(564	)
	Note receivable in connection with common stock award				(1,128	)		—
	Payment of deferred financing fees				(377	)		(280	)
	Other, net				(435	)		147
			Net cash provided (used) by financing activities		6,474			(1,638	)
Cash and temporary cash investments:
	Net decrease during the period				(19,629	)		(28,264	)
	Balance, beginning of the period				28,953			51,057
	Balance, end of the period			$	9,324		$	22,793

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

3

COLE NATIONAL CORPORATION 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 Corporation and its wholly owned subsidiaries, including Cole National Group, Inc. and its wholly owned subsidiaries (collectively, the “Company”). 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 management believes that the disclosures herein are adequate to make the information not misleading. Results for interim periods are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with Cole National Corporation’s consolidated financial statements for the fiscal year ended January 29, 2000.

      In the opinion of management, the accompanying financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly its financial position as of October 28, 2000 and the results of operations and cash flows for the 39 weeks ended October 28, 2000 and October 30, 1999.

          Inventories

      The accompanying interim consolidated financial statements have been prepared without physical inventories.

          Cash Flows

      Net cash flows from operating activities reflect cash payments for income taxes and interest of $576,000 and $19,571,000 respectively, for the 39 weeks ended October 28, 2000, and $299,000 and $18,902,000 respectively, for the 39 weeks ended October 30, 1999.

          Earnings Per Share

      Earnings per share for the 13 and 39 weeks ended October 28, 2000 and October 30, 1999 have been calculated based on the following weighted average number of common shares and equivalents outstanding:

	Thirteen Weeks				Thirty-nine Weeks
	2000		1999		2000		1999
Basic		15,621,426		14,857,634		15,564,265		14,861,096
Diluted		15,621,426		14,857,634		15,564,265		14,933,562

4

COLE NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

(1) Basis of Presentation and Accounting Policies (continued)

          Total Other Comprehensive Income (Loss)

      Total other comprehensive income (loss) for the 13 and 39 weeks ended October 28, 2000 and October 30, 1999 is as follows (000’s omitted):

	Thirteen Weeks						Thirty-Nine Weeks
	2000			1999			2000			1999
Net income (loss)	$	(605	)	$	(2,806	)	$	(1,509	)	$	4,231
Cumulative translation loss		(2,669	)		(395	)		(3,341	)		(1,281	)
Total comprehensive income (loss)
Total comprehensive income (loss)	$	(3,274	)	$	(3,201	)	$	(4,850	)	$	2,950

(2) Credit Facility

      In June 2000, the credit facility was amended to provide availability under the working capital commitment ranging from $50.0 million to $75.0 million based on Cole National Group’s current debt leverage ratio described in the credit facility. As of October 28, 2000, total availability under the credit facility was $50.0 million. The amendment also modified certain covenants, as well as the permitted levels on indebtedness, dividends, investments, and capital expenditures.

5

COLE NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

(3) Segment Information

      Information on the Company’s reportable segments is as follows (000’s omitted):

			Thirteen Weeks						Thirty-Nine Weeks
			2000			1999			2000			1999
Net revenue:
	Cole Vision		$	200,387		$	197,976		$	598,050		$	602,108
	Things Remembered			55,563			53,189			180,334			170,458
		Consolidated net revenue	$	255,950		$	251,165		$	778,384		$	772,566
Income:
	Cole Vision		$	6,891		$	6,528		$	15,365		$	24,932
	Things Remembered			307			270			9,816			9,408
		Total segment profit		7,198			6,798			25,181			34,340
Unallocated amounts:
	Corporate expenses			2,935			5,634			10,722			9,264
		Consolidated operating income		4,263			1,164			14,459			25,076
		Interest and other expense, net		6,828			5,921			19,032			17,905
		Income (loss) before income taxes	$	(2,565	)	$	(4,757	)	$	(4,573	)	$	7,171

(4) Reclassifications

      Certain fiscal 1999 amounts have been reclassified to conform with the fiscal 2000 presentation.

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations

      The following is a discussion of certain factors affecting Cole National Corporation’s results of operations for the 13 and 39 week periods ended October 28, 2000 and October 30, 1999 (the Company’s third quarter and first nine months, respectively) and its liquidity and capital resources. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this filing and the audited financial statements for the fiscal year ended January 29, 2000 included in the annual report on Form 10-K.

      Fiscal years end on the Saturday closest to January 31 and are identified according to the calendar year in which they begin. For example, the fiscal year ended January 29, 2000 is referred to as “fiscal 1999.” The current fiscal year, which will end February 3, 2001, is referred to as “fiscal 2000.”

Results of Operations

      The following table sets forth certain operating information for the third quarter and first nine months of fiscal 2000 and fiscal 1999 (dollars in millions):

				Third Quarter									First Nine Months
				2000			1999			Change			2000			1999			Change
Net revenue:
		Cole Vision			200.4			198.0			1.2	%		598.1			602.1			(0.7)	%
		Things Remembered			55.6			53.2			4.5			180.3			170.5			5.8
			Total net revenue		256.0			251.2			1.9	%		778.4			772.6			0.8	%
Gross margin					172.5			164.2			5.1	%		520.6			506.6			2.8	%
Operating expenses					158.2			152.5			3.8			476.1			452.8			5.2
Depreciation and amortization					10.0			10.5			(5.0	)		30.0			28.7			4.3
			Operating income		4.3			1.2			266.2	%		14.5			25.1			(42.3)	%
Percentage of net revenue:
		Gross margin			67.4	%		65.4	%		2.0			66.9	%		65.6	%		1.3
		Operating expenses			61.8			60.7			1.1			61.2			58.7			2.5
		Depreciation and amortization			3.9			4.2			(0.3	)		3.8			3.7			0.1
			Operating income		1.7	%		0.5	%		1.2			1.9	%		3.2	%		(1.3	)
Number of retail locations at the end of the period:
		Cole Licensed Brands			1,161			1,199
		Pearle company-owned			444			455
		Pearle franchised			423			412
			Total Cole Vision		2,028			2,066
	Things Remembered				794			811
			Total Cole National		2,822			2,877

7

      The increase in net revenue for the third quarter and first nine months of fiscal 2000 was primarily attributable to increases in consolidated comparable store sales and revenue associated with the MetLife vision care business acquired in October 1999. These increases were partially offset by a reduction in the number of locations, including the closing of all optical departments at Montgomery Ward in December 1999, and by $1.4 million of revenue in fiscal 1999 from the sale of rights under various franchise and other agreements for 13 franchise stores. Changes in comparable store sales by business were:

		Third Quarter			First Nine Months
Cole Licensed Brands			2.2	%		4.2	%
Pearle U.S. company-owned			6.4	%		0.7	%
	Total Cole Vision		3.4	%		2.8	%
Things Remembered			4.0	%		6.3	%
	Total Cole National		3.5	%		3.6	%
Pearle U.S. franchise stores			5.0	%		3.2	%
Pearle U.S. chain-wide			5.6	%		2.0	%

      At Cole Licensed Brands, an increase in the average selling price for the third quarter and first nine months was nearly offset by a decrease in number of units sold, primarily from closing the Montgomery Ward departments. At Pearle company-owned stores, third quarter sales benefited from an increase in both average transaction amount and number of transactions compared to the same period last year. Both measures reflected improvement from first half results. For the first nine months, the average transaction increase at Pearle was offset by a decrease in the number of transactions. At Things Remembered, the comparable store sales increases for the third quarter and first nine months reflected an increase in sales of new merchandise at higher average unit retails, partially offset by a third quarter decrease in the number of transactions.

      The gross margin dollar increase for the third quarter was attributable to the revenue increase at Pearle and Things Remembered, the additional revenue associated with the MetLife vision care business and an improvement in gross margin as a percentage of net revenue. The improvement in the gross margin rate was a result of higher average selling prices in the optical businesses, the additional MetLife vision care revenue and warehouse productivity gains at Things Remembered. At Cole Vision, gross margin rate improved 2.5 and 1.7 percentage points in fiscal 2000 compared to the third quarter and first nine months of last year, respectively. At Things Remembered, gross margin rate increased 0.4 percentage points to last year in the third quarter. Gross margin rate at Things Remembered decreased 0.5 percentage points to last year in the first nine months reflecting the impact of an aggressive merchandise clearance promotion in the first quarter of this year.

      The operating expense increases for the third quarter and first nine months were due primarily to increases in staffing for improved service levels in the optical businesses, increases in expenses associated with the rapid expansion of Target Optical and increases in managed vision care costs (primarily associated with the MetLife vision care business). Third quarter last year included severance costs for the Company's former president and several other executives that totaled $4.7 million of which $0.7 million was charged to depreciation and amortization. A decline in comparable store sales at Pearle company-owned stores during the first six months this year and a $1.8 million first quarter 2000 charge for severance costs recorded in connection with a personnel reduction at Cole Vision also impacted the nine-month comparison. Payroll costs as a percentage of net revenue increased 1.4 percentage points in the third quarter and 1.7 percentage points for the first nine months compared to the same periods a year ago. The Company opened 45 Target Optical stores in the third quarter, bringing the total number of Target Optical stores opened this year to 87. Managed vision care costs increased 0.3 and 0.4 percentage points for the third quarter and first nine months, respectively, compared to those same periods last year.

      The increase in depreciation and amortization for the first nine months of fiscal 2000 compared to the same period last year was primarily attributable to amortization of systems development costs related to the Pearle manufacturing and merchandise/inventory management system implemented in the third quarter last year and amortization of restricted stock awarded in January 2000. Depreciation and amortization expense for last year included the $0.7 million third quarter severance charge.

8

      The increase in operating income for the third quarter of fiscal 2000 compared to the same period last year was primarily due to last year’s severance costs, partially offset by the income from the sale of certain franchise rights last year. Operating income excluding these items was essentially flat to last year, an improvement from first and second quarter results, attributable in large part to the sales improvement at Pearle. The decrease in operating income for the first nine months compared to the same period last year was primarily the result of the increases in operating expenses and depreciation and amortization as noted above.

      The increase in interest and other (income) expense for the third quarter and first nine months compared to the same periods a year ago reflected increased interest expense from seasonal borrowing and less income, due to reduced short-term investments and lower equity income for Pearle Europe. Income tax provisions were recorded in the first nine months of fiscal 2000 and fiscal 1999 using the Company’s estimated annual effective tax rates of 67% and 41%, respectively. At the end of third quarter, the Company reassessed its estimate of the annual effective tax rate for fiscal 2000 increasing the rate from the previous estimate of 55%.

      The net loss for the third quarter decreased to $0.6 million from $2.8 million for the same period last year. For the first nine months of fiscal 2000, net income decreased to a loss of $1.5 million from a profit of $4.2 million for the first nine months of fiscal 1999.

Liquidity and Capital Resources

      The Company’s primary source of liquidity is funds provided from operations of its operating subsidiaries. In addition, its wholly-owned subsidiary, Cole National Group, Inc., and its operating subsidiaries have a working capital line of credit of $75.0 million. By amendment, availability under the working capital commitment ranges from $50.0 million to $75.0 million based on Cole National Group’s current debt leverage ratio described in the credit facility. As of October 28, 2000, total availability under the credit facility was $50.0 million and availability after reduction for commitments under outstanding letters of credit and outstanding borrowings totaled $31.9 million. The maximum working capital borrowings outstanding during the third quarter of fiscal 2000 was $16.5 million. There were no working capital borrowings outstanding at any time during the first six months of fiscal 2000 and during fiscal 1999.

      Operations for the first nine months provided $5.9 million of cash in fiscal 2000 compared to $9.5 million for the same period in fiscal 1999. The primary reason for the $3.6 million reduction in cash provided by operations was the decrease in net income compared to last year. There were also significant, but offsetting, changes in the assets and liabilities for the first nine months of this year compared to the same period last year. Re-merchandising the Pearle stores and opening the Target departments required a larger increase in inventories and a corresponding increase in accounts payable this year. There was a significant decrease in accounts payable and accrued liabilities for the same period last year.

      Cash used by investing activities included capital additions of $25.5 million and $21.0 million for the first nine months of fiscal 2000 and fiscal 1999, respectively. The majority of capital expenditures were for store fixtures, equipment and leasehold improvements for new stores including the Target openings and for the remodeling of existing stores. Investments in systems development costs totaled $5.6 million and $10.9 million in the first nine months of fiscal 2000 and fiscal 1999, respectively. The Company’s net investment in Pearle Europe was increased by $0.9 million and $1.4 million in the first nine months of fiscal 2000 and fiscal 1999, respectively. In fiscal 1999, the Company acquired the managed vision care business of Metlife.

      The Company believes that funds provided from operations, along with funds available under the credit facility, will provide adequate sources of liquidity to allow its operating subsidiaries to continue to expand the number of stores and to fund capital expenditures and systems development costs.

9

Outlook and Forward-Looking Information

      The Company expects significant improvement in fourth quarter earnings at Cole Vision, compared to the same period a year ago, due to improved sales and gross margin performance this year and elimination of extra advertising expenditures at Pearle that were not productive last year. As a result, the Company currently expects that earnings per share for the fourth quarter of fiscal 2000 could be approximately $0.20 to $0.25 compared to a loss of $0.15 per share for the fourth quarter of fiscal 1999. Achieving such results is, of course subject to the usual holiday season sales risk at Things Remembered and other factors outlined in the next paragraph.

      Certain sections of this Form 10-Q, including this Management’s Discussion and Analysis, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forecasted due to a variety of factors that can adversely affect the Company’s operating results, liquidity and financial condition such as risks associated with the timing and achievement of the continuing restructuring and improvements in the operations of the optical business, the Company’s ability to select, stock and price merchandise attractive to customers, success of systems integration, competition in the optical industry, integration of acquired businesses, economic and weather factors affecting consumer spending, operating factors affecting customer satisfaction, including manufacturing quality of optical and engraved goods, the Company’s relationships with host stores and franchisees, the mix of goods sold, pricing and other competitive factors, and the seasonality of the Company’s business. Forward-looking statements are made based upon management’s expectations and beliefs concerning future events impacting the Company. All forward-looking statements involve risk and uncertainty.

10

Item 3. Quantitative and Qualitative Disclosures about Market Risk

      The Company is exposed to market risk from changes in foreign currency exchange rates, which could impact its results of operations and financial condition. Foreign exchange risk arises from the Company’s exposure to fluctuations in foreign currency exchange rates because the Company’s reporting currency is the United States dollar. Management seeks to minimize the exposure to foreign currency fluctuations through natural internal offsets to the fullest extent possible.

11

PART II — OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)	Exhibits.	The following Exhibits are filed herewith and made a part hereof:
	10.1	Secured Promissory Note between Cole National Corporation and Jeffrey A. Cole dated as of November 17, 2000.
	10.2	Stock Pledge and Security Agreement between Cole National Corporation and Jeffrey A. Cole dated as of November 17, 2000.
	27	Financial Data Schedule
(b)	Reports on Form 8-K
		None.

12

SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COLE NATIONAL CORPORATION

By: /s/William P. Lahiff, Jr.

William P. Lahiff, Jr.
Vice President and Controller
(Duly Authorized Officer and Principal
Accounting Officer)

Date: December 7, 2000

13

COLE NATIONAL CORPORATION
FORM 10-Q
QUARTER ENDED OCTOBER 28, 2000

EXHIBIT INDEX

Exhibit
Number	Description
10.1	Secured Promissory Note between Cole National Corporation and Jeffrey A. Cole dated as of November 17, 2000.
10.2	Stock Pledge and Security Agreement between Cole National Corporation and Jeffrey A. Cole dated as of November 17, 2000.
27	Financial Data Schedule

14 EX-10.1 2 l85225aex10-1.txt EXHIBIT 10.1 -- SECURED PROMISSORY NOTE 1 Exhibit 10.1 SECURED PROMISSORY NOTE ----------------------- $666,666.00 Date: November 17, 2000 FOR VALUE RECEIVED, the undersigned, Jeffrey A. Cole, ("Borrower"), hereby unconditionally promises to pay to the order of Cole National Corporation, a Delaware corporation (the "Company"), the principal sum of Six Hundred Sixty-Six Thousand Six Hundred Sixty-Six Dollars and 00/100 ($666,666.00) in lawful money of the United States of America and in immediately available funds, on January 18, 2004 and to pay simple interest (computed on the basis of a 365 day year) on the unpaid principal amount hereof from and after the date of this Secured Promissory Note until the entire principal amount hereof has been paid in full, at the rate of 6.01% per annum. Interest is payable on each anniversary of the date of this Secured Promissory Note with respect to the period ending on such anniversary, and at maturity or upon full prepayment of the principal hereof. Not later than five business days prior to the date on which payment of interest is due, the Company shall give written notice to the Borrower of the amount of the payment due on such date. For purposes of this Promissory Note, a "business day" shall mean any day other than a Saturday, Sunday or federal holiday and shall consist of the time period from 12:01 a.m. through 12:00 Midnight Eastern time. This Secured Promissory Note is delivered as payment of the principal amount of that certain Amended and Restated Secured Promissory Note dated March 15, 1998 from Borrower to Company. Payment of the principal and interest on this Secured Promissory Note is secured with the property ("Pledged Security") pursuant to the terms of the Stock Pledge and Security Agreement dated November 17, 2000 between Borrower and the Company. This Secured Promissory Note is subject to the following further terms and conditions: 1. PAYMENT AND PREPAYMENT. (a) If the Borrower or any of his Permitted Transferees shall sell any of the Pledged Security, such sale shall be made only for cash, and Borrower agrees to promptly deliver to the Company the consideration received by the Borrower on such sale of shares of Stock (net of any taxes due as a result of such sale) as partial payment of the unpaid 2 2 principal and accrued and unpaid interest on this Secured Promissory Note until this Secured Promissory Note is paid in full. In the event this Secured Promissory Note is not paid in full, Borrower shall provide additional collateral in the event the value or principal amount of the remaining Pledged Security is less than the unpaid principal of this Secured Promissory Note. (b) All payments of principal and interest on this Secured Promissory Note shall be made to the Company or its order in lawful money of the United States of America and in immediately available funds at the offices of the Company at its then principal place of business (or at such other place as the holder hereof shall notify Borrower in writing). Borrower may, at his option, prepay this Secured Promissory Note in whole or in part at any time or from time to time without penalty or premium. Any prepayments of any portion of the principal amount of this Secured Promissory Note shall be accompanied by payment of all interest accrued but unpaid hereunder. (c) Concurrently with any payment of any portion of this Secured Promissory Note pursuant to paragraph 1(a) hereof or any prepayment of any portion of the principal amount of this Secured Promissory Note pursuant to paragraph 1(b) hereof, the Company shall make a notation of such application or payment on this Secured Promissory Note. If full payment of all unpaid principal of and accrued and unpaid interest on this Secured Promissory Note is made, this Secured Promissory Note shall be cancelled. Any partial payment or prepayment shall be applied first to accrued and unpaid interest hereon and then to the unpaid installments of principal hereof in the inverse order of their maturity. (d) Borrower, at Borrower"s sole election, may repay any or all of the unpaid principal amount of or interest on this Secured Promissory Note, by delivery to the Company of Cole National Group, Inc. 9-7/8% Senior Notes due 2006 or Cole National Group, Inc. 8-5/8% Senior Notes due 2007, (collectively, the "Bonds") in either case owned by Borrower, having a principal amount equal to the principal amount or interest to be so repaid, notwithstanding the prices at which the Bonds may trade in the public markets. However, the foregoing sentence will not apply, and Borrower will have no right to repay this Secured 3 3 Promissory Note by delivery of Cole National Group, Inc. Senior Notes, if, at the time of delivery to the Company, Cole National Group, Inc. is in default under the indentures pursuant to which the Senior Notes were issued. Unless an Event of Default shall have occurred, all interest paid on the Bonds shall belong to Borrower. 2. CONVERSION DEMAND NOTE. In the event Borrower shall cease to be employed by the Company as the result of: (a) his death or permanent disability, then the unpaid principal of and accrued and unpaid interest of this Secured Promissory Note ("Unpaid Amounts") shall upon demand by the Company given in writing to the Borrower or his estate become due and payable one year from the date of such notice; or (b) his voluntary termination of employment with the consent of the Board of Directors of the Company or through termination without cause, then the Unpaid Amounts shall upon demand by the Company given in writing to the Borrower become due and payable one year from the date of such notice; or (c) his voluntary termination of employment without the consent of the Board of Directors of the Company or his termination by the Company with Cause (as defined in the Employment Agreement ("Employment Agreement") dated December 17, 1998 between the Company and Borrower), then the Unpaid Amounts shall upon demand by the Company given in writing to the Borrower become due and payable thirty (30) days from the date of such notice; or (d) a "Change In Control" as defined in Employment Agreement triggering a payment to Borrower thereunder, then upon demand by the Company given in writing to the Borrower the Unpaid Amounts shall be paid in full at or prior to the time any Change in Control payment is made to Borrower. Notwithstanding anything in this Section 2, in no event shall the Unpaid Amounts be due and payable later than January 18, 2004. 3. EVENTS OF DEFAULT. Upon the occurrence of any of the following events ("Events of Default"): (a) Failure to pay any principal of this Promissory Note, including any prepayments required hereunder, when due which shall remain unremedied for forty-five (45) days after notice by the Company given in writing to the Borrower; or 4 4 (b) Failure to pay any interest due under this Secured Promissory Note which shall remain unremedied for forty-five (45) days after notice by the Company given in writing to the Borrower; or (c) A petition is filed by or against the Borrower seeking the entry of an order for relief under the bankruptcy laws of the United States, as now or hereafter amended or supplemented, or there is an appointment of a permanent receiver or a permanent trustee of all or substantially all the property of the Borrower or an assignment is made by the Borrower for the benefit of creditors; then, and in any such event, the holder of this Secured Promissory Note may declare, by notice of default given to Borrower, the entire principal amount of this Secured Promissory Note to be forthwith due and payable, whereupon the entire principal amount of this Secured Promissory Note outstanding and all accrued and unpaid interest shall become due and payable without presentment, demand, protest and notices of any kind or of dishonor, all of which are hereby expressly waived. Upon the occurrence of an Event of Default, the accrued and unpaid interest hereunder shall thereafter bear the same rate of interest as the principal hereunder, but in no event shall such interest be charged which would violate any applicable usury law. If an Event of Default shall occur hereunder, Borrower shall pay costs of collection, including reasonable attorneys' fees, incurred by the holder in the enforcement hereof. No delay or failure by the holder of this Secured Promissory Note in the exercise of any right or remedy shall preclude other or future exercise thereof or the exercise of any other right or remedy. 4. ADDITIONAL RESTRICTIONS UPON OCCURRENCE OF AN EVENT OF DEFAULT. In case an Event of Default shall occur and be continuing, the Borrower agrees that he will not, without the prior written consent of the Company (which consent shall not be unreasonably withheld), sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, any of the Pledged Security (except for the purpose of curing any Event of Default hereunder) pursuant to Section 1(a) hereof, nor will he create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrances with respect to any of the Pledged Security, or any interest therein, or any proceeds thereof. 5. MISCELLANEOUS. 5 5 (a) The provisions of this Secured Promissory Note shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of laws rules thereof. (b) All notices and other communication hereunder shall be in writing and will be deemed to have been duly given if delivered in person or mailed by certified mail or guaranteed overnight delivery service to the Company at its principal executive offices and to the Borrower at the last address reflected in the Company's records. (c) The paragraph headings contained in this Promissory Note are for reference purposes only and shall not affect in any way the meaning or interpretations of the provisions thereof. IN WITNESS WHEREOF, this Secured Promissory Note has been duly executed and delivered by Borrower on the date first written above. /s/ Jeffrey A. Cole -------------------------------- Borrower: Jeffrey A. Cole Witness: /s/ Cristina C. Garrett - -------------------------------- Cristina C. Garrett EX-10.2 3 l85225aex10-2.txt EXHIBIT 10.2 -- STOCK PLEDGE & SECURITY AGREEMENT 1 Exhibit 10.2 STOCK PLEDGE AND SECURITY AGREEMENT ----------------------------------- THIS STOCK PLEDGE AGREEMENT (this "Agreement") dated as of November 17, 2000 is made by Jeffrey A. Cole, (the "Pledgor") to Cole National Corporation, a Delaware corporation (the "Company"). RECITALS -------- A. The Pledgor has borrowed from the Company the principal amount of Six Hundred Sixty-Six Thousand Six Hundred Sixty-Six Dollars and 00/100 ($666,666.00), and in consideration therefor, has delivered to the Company the Secured Promissory Note ("Promissory Note") of the Pledgor, dated November 17, 2000, for such principal amount. B. The Pledgor wishes to affirm the grant of security and assurance to the Company in order to secure the payment of the principal of and interest on the Promissory Note and to that effect to pledge to the Company the 123,750 shares of Common Stock, par value $0.001 per share (the "Shares") which are restricted as set forth in that certain Restricted Stock Agreement dated December 17, 1998. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: l. PLEDGE. The Pledgor hereby pledges, assigns, hypothecates, transfers, and delivers to the Company, all the Shares (the "Pledged Stock") and hereby grants to the Company, a first lien on, and security interest in, the Pledged Stock and in all proceeds thereof, together with appropriate undated stock powers duly executed in blank, as collateral security for the prompt and complete payment when due (whether at the stated maturity, by acceleration or otherwise) of the unpaid principal of and interest on the Promissory Note. 2 2 2. ADMINISTRATION SECURITY. The following provisions shall govern the administration of the Pledged Stock: (a) So long as no Event of Default has occurred and is continuing (as used herein, "Event of Default" shall mean the occurrence of any Event of Default under the Promissory Note), the Pledgor shall be entitled to act with respect to the Pledged Stock in any manner not inconsistent with the provisions of this Agreement, the Promissory Note or any document or instrument delivered or to be delivered pursuant to or in connection with the Promissory Note. (b) (i) If, while this Agreement is in effect, the Pledgor shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital, or issued in connection with any reorganization), option or rights, in substitution of, in exchange for, or in respect of, any shares of any Pledged Stock, the Pledgor agrees to accept the same as the Company's agent and to hold the same in trust on behalf of and for the benefit of the Company and to deliver the same forthwith to the Company in the exact form received, with the endorsement of the Pledgor when necessary and/or appropriate undated stock powers duly executed in blank, to be held by the Company subject to the terms hereof, as additional collateral security for the payment of the principal of and interest on the Promissory Note. In case any distribution of capital shall be made on or in respect of the Pledged Stock or any property shall be distributed upon or with respect to the Pledged Stock pursuant to the recapitalization or reclassification of the capital of the Company or pursuant to the reorganization of the Company, the property so distributed shall be delivered to the Company to be held by it as additional collateral security for the payment of the principal of and interest on the Promissory Note. All sums of money and property so paid or distributed in respect of the Pledged Stock which are received by the Pledgor shall, until paid or delivered to the Company, be held by the Pledgor in trust as additional collateral security for the payment of the principal of and interest on the Promissory Note. 3 3 (ii) At any time, so long as no Event of Default has occurred and is continuing, Borrower at his option may deliver to the Company in substitution for the Pledged Stock Cole National Group, Inc. 9-7/8% Senior Notes due 2006 or Cole National Group, Inc. 8-5/8% Senior Notes due 2007 (collectively, the "Bonds") in either case owned by the Borrower having a principal amount equal to the unpaid principal amount and past due interest of this Secured Promissory Note. In such event, the Pledged Stock shall be returned to Borrower free of the lien of this Stock Pledge and Security Agreement. Unless an Event of Default shall have occurred and be continuing, all interest paid on the Bonds shall belong to Borrower. (iii) All property at any time pledged with the Company hereunder (whether or not described herein) and all income therefrom and proceeds thereof, are herein collectively sometimes called the "Collateral." (c) Notwithstanding paragraphs l and 2(b) hereof, unless an Event of Default shall have occurred and be continuing, the Pledgor shall be entitled to receive all cash or stock dividends paid in respect of the Pledged Stock and, unless the Company shall have given notice pursuant to paragraph 3 of its intention to exercise all voting and stockholder rights with respect to the Pledged Stock and any stock dividends thereof, to vote the Pledged Stock and any stock dividends thereof and to give consents, waivers and ratifications in respect of the Pledged Stock or the Bonds and any stock dividends on the Pledged Stock; PROVIDED, HOWEVER, that no vote shall be cast or consent, waiver or ratification given or action taken which would impair the Collateral or be inconsistent with or violate any provision of this Agreement, the Promissory Note, or any document or instrument delivered or to be delivered pursuant to or in connection with the Promissory Note. (d) Notwithstanding any payment or payments made by the Pledgor hereunder, or the receipt of any amounts by the Company with respect to the Collateral, or any set-off or application of funds of the Pledgor by the Company, the Pledgor shall not be entitled to be subrogated to any of the rights of the Company against 4 4 any Collateral held by the Company for the payment of the principal of and interest on the Promissory Note until the principal of and interest on the Promissory Note are paid in full. (e) The Pledgor shall immediately upon request by the Company and in confirmation of the security interests hereby created, execute and deliver to the Company such further instruments, deeds, transfers, assurances and agreements, in form and substance satisfactory to the Company, as the Company shall request, including any financing statement and amendments thereto, or any other documents, as required under Delaware law and any other applicable law to protect the security interests created hereunder. (f) Subject to any sale by the Company or other disposition by the Company of the Pledged Stock or any stock dividends thereon or other property Collateral pursuant to this Agreement and subject to Section 6 below, the Pledged Stock, the Bonds and any other Collateral shall be returned to the Pledgor upon full payment of the principal of and interest on the Promissory Note. 3. RIGHTS OF HOLDING. The Company shall not be liable for failure to collect or realize upon the principal of and interest on the Promissory Note or any collateral security therefor, or any part thereof, or for any delay in so doing nor shall the Company be under any obligation to take any action whatsoever with regard thereto. Any or all shares of the Pledged Stock and any stock dividends thereon held by the Company hereunder may, if an Event of Default has occurred and is continuing, provided that the Company shall have given prior written notice of its intention to do so to the Pledgor, be registered in the name of the Company or its nominee, and the Company or its nominee may thereafter exercise all voting and stockholder rights at any meeting of the Company and exercise any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any shares of the Pledged Stock and any stock dividends thereon as if it were the absolute owner thereof, including without limitation, the right to exchange at its discretion, any and all of the Pledged Stock and any stock dividends thereon upon the merger, consolidation, reorganization, recapitalization or other readjustment of the Company or upon the exercise by the Company of any right, 5 5 privilege or option pertaining to any shares of the Pledged Stock and any stock dividends thereon, and in connection therewith, to deposit and deliver any and all of the Pledged Stock and any stock dividends thereon with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but the Company shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing. 4. REMEDIES IN CASE OF AN EVENT OF DEFAULT. (a) In case an Event of Default shall have occurred and be continuing, the Company shall have all of the remedies of a secured party under the Delaware Uniform Commercial Code, and, without limiting the foregoing, shall have the right, subject to any necessary regulatory approvals, to sell, assign and deliver the whole or, from time to time, any part of the Collateral or any interest in any part thereof, at any private sale or at public auction, with or without demand of performance or other demand, advertisement or notice of the time or place of sale or adjournment thereof or otherwise, each of which demands, advertisements and/or notices are hereby expressly waived (except the Company shall give 10 days' notice to the Pledgor of the time and place of any sale pursuant to this Section 4), for cash, on credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as the Company shall, in its sole discretion, determine, the Pledgor hereby waiving and releasing any and all right or equity of redemption whether before or after sale hereunder. At any such sale the Company may bid for and purchase the whole or any part of the Collateral so sold free from any such right or equity of redemption. The Company shall apply the net proceeds of any such sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any and all of the Collateral or in any way relating to its rights hereunder, including reasonable attorney's fees and legal expenses, to the payment in whole or in part of the principal of and interest on the Promissory Note, in such order as the Company may elect, the Pledgor 6 6 remaining liable for any deficiency remaining unpaid after such application, and only after so applying such net proceeds and after the payment by the Company of any other amount required by any provision of law, including, without limitation, Section 9-504(l)(c) of the Uniform Commercial Code, need the Company account for the surplus, if any, to the Pledgor. The Pledgor agrees that the Company need not give more than ten days' notice of the time and place of any public sale or of the time after which a private sale or other intended disposition is to take place and that such notice is reasonable notification of such matters. No notification need be given to the Pledgor if it has signed after default a statement renouncing or modifying any right to notification of sale or other intended disposition. (b) The Pledgor recognizes that the Company may be unable to effect a public sale of all or a part of the Pledged Stock or other securities held as part of the Collateral by reason of certain prohibitions contained in the Securities Act of 1933 (the "Act"), or in the rules and regulations promulgated thereunder, but may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire the Pledged Stock or such other securities for their own account, for investment and not with a view to the distribution or resale thereof. The Pledgor agrees that private sales so made may be at prices and on other terms less favorable to the seller than if the Pledged Stock or such other securities were sold at public sale, and that the Company has no obligation to delay the sale of the Pledged Stock or such other securities for the period of time necessary to permit the registration of the Pledged Stock or such other securities for public sale under the Act. The Pledgor agrees that a private sale or sales made under the foregoing circumstances shall be deemed to have been made in a commercially reasonable manner. (c) If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or disposition by the Company pursuant to this Section 4 of the Pledged Stock or other securities held as part of the Collateral, the Pledgor will execute all 7 7 such applications and other instruments as may be required in connection with securing any such consent, approval or authorization, and will otherwise use his best effort to secure the same. (d) Neither failure nor delay on the part of the Company to exercise any right, remedy, power or privilege provided for herein or by statute or at law or in equity shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 5. PLEDGOR'S OBLIGATIONS NOT AFFECTED. The obligations of the Pledgor under this Agreement shall remain in full force and effect with regard to, and shall not be impaired or affected by: (a) any subordination, amendment or modification of or addition or supplement to the Promissory Note, or any assignment or transfer thereof: (b) any exercise or non-exercise by the Company of any right, remedy, power or privilege under or in respect of this Agreement, the Promissory Note, or any waiver of any such right, remedy, power or privilege; (c) any waiver, consent, extension, indulgence or other action or inaction in respect of this Agreement or the Promissory Note, or any assignment or transfer of any thereof; or (d) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like, of the Company or its successors, whether or not the Pledgor shall have notice or knowledge of any of the foregoing. 6. TRANSFER BY PLEDGOR. Without the prior written consent of the Company, the Pledgor agrees that he will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, nor will he create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the collateral, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Agreement. 7. REPRESENTATION, WARRANTIES AND COVENANTS OF THE PLEDGOR. The Pledgor represents and warrants that (a) he is the legal, record and beneficial owner of, and has good and marketable title to, the Pledged Stock, subject to no pledge, lien, mortgage, hypothecation, security interest, charge, option 8 8 or other encumbrance whatsoever, except the lien and security interest created by this Agreement; (b) he has the authority and legal right to pledge all the Pledged Stock pursuant to this Agreement; and (c) the pledge, assignment and delivery of such Pledged Stock pursuant to this Agreement creates a valid first lien on and a first perfected security interest in such shares of the Pledged Stock, and the proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation, security interest, charge, option or encumbrance or to any agreement purporting to grant to any third party a security interest in the property or assets of the Pledgor which would include the Pledged Stock. The Pledgor covenants and agrees that he will defend the Company's right, title and security interest in and to the Pledged Stock and the proceeds thereof against the claims and demands of all persons whomsoever; and covenants and agrees that he will have like title to and right to pledge any other property at any time hereafter pledged to the Company as Collateral hereunder and will likewise defend the Company's right thereto and security interest therein. 8. ATTORNEY-IN-FACT. The Company or its successor is hereby appointed the attorney-in-fact of the Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which the Company reasonably may deem necessary or advisable to accomplish the purposes hereof, including without limitation, the execution of the applications and other instruments described in Section 4(c), which appointment as attorney-in-fact is irrevocable as one coupled with an interest. 9. TERMINATION. Upon payment in full of the principal of and interest on the Promissory Note and upon the due performance of and compliance with all the provisions of the Promissory Note, this Agreement shall terminate and the Pledgor shall be entitled to the return of such of the Collateral as has not theretofore been sold, released from this Agreement pursuant to Section 6 or otherwise applied pursuant to the provisions of this Agreement. 10. NOTICES. All notices or other communications required or permitted to be given hereunder shall be in writing and will be deemed to have been duly given if delivered in person or mailed by certified mail or guaranteed overnight delivery service to the Company at its principal executive offices and to the Pledgor at the last address reflected in the Company's records. 9 9 11. MISCELLANEOUS. The Company and its assigns shall have no obligation in respect of the Collateral, except to hold and dispose of the same in accordance with the terms of this Agreement. Neither this Agreement nor any provisions hereof may be amended, modified, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the amendment, modification, waiver, discharge or termination is sought. The provisions of this Agreement shall be binding upon the successors and assigns of the Pledgor. The captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, without regard to the rules of conflicts of laws thereof. This Agreement may be executed in multiple counterparts, each of which shall be an original, but all of which taken together shall constitute one instrument. 10 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of November 17, 2000. COLE NATIONAL CORPORATION By /s/ Leslie D. Dunn ----------------------------------------- Its: Sr. Vice President PLEDGOR /s/ Jeffrey A. Cole ------------------------------------------- Name: Jeffrey A. Cole Name of Pledgor: Jeffrey A. Cole Number of Shares pledged: 123,750 Principal amount of Promissory Note: $666,666.00 EX-27 4 l85225aex27.txt EXHIBIT 27 -- FINANCIAL DATA SCHEDULE

<ARTICLE> 5

<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.

<MULTIPLIER> 1,000 <PERIOD-TYPE> 9-MOS <FISCAL-YEAR-END> FEB-03-2001 <PERIOD-START> JAN-30-2000 <PERIOD-END> OCT-28-2000 <CASH> 9,324 <SECURITIES> 0 <RECEIVABLES> 50,332 <ALLOWANCES> 5,473 <INVENTORY> 147,059 <CURRENT-ASSETS> 215,247 <PP&E> 281,546 <DEPRECIATION> 151,550 <TOTAL-ASSETS> 594,779 <CURRENT-LIABILITIES> 154,824 <BONDS> 284,281 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 16 <OTHER-SE> 142,492 <TOTAL-LIABILITY-AND-EQUITY> 594,779 <SALES> 778,384 <TOTAL-REVENUES> 778,384 <CGS> 257,759 <TOTAL-COSTS> 763,925 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 19,032 <INCOME-PRETAX> (4,573) <INCOME-TAX> (3,064) <INCOME-CONTINUING> (1,509) <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> (1,509) <EPS-BASIC> (0.10) <EPS-DILUTED> (0.10)

10-Q 5 l85225ae10-q_pdf.pdf COURTESY COPY FOR COLE NATIONAL CORP. begin 666 DOC.PDF M)5!$1BTQ+C(-"B7BX\_3#0HR(#`@;V)J#0H\/`T*+TQE;F=T:"`Q.#2!!9W)E96UE;G0I5&H-"D54#0HU,RXW,R`W-#0N.#$@;0T*,S`S M+C`Y(#&-H86YG92!! M8W0@;V8@,3DS-"E4:@T*,"`M,2XQ,3DR(%1$#0HH1F]R('1H92!TF%T:6]N7"DI5&H-"C(X+C4P,C<@,BXR,S@S(%1$#0HH,S0M,30U,S$X M.2E4:@T*+3`N.34R-2`M,2XQ,3DQ(%1$#0HH7"A)+E(N4RX@96UP;&]Y97(I M5&H-"BTP+C(V,3D@+3$N,3$Y,B!41`T**&ED96YT:69I8V%T:6]N(&YO+EPI M*51J#0HQ,B`P(#`@,3(@-C&5C M=71I=F4@;V9F:6-E2!C:&5C:R!M87)K('=H971H97(@=&AE(')E9VES=')A;G0@7"@Q M7"D@:&%S(&9I;&5D(&%L;"!R97!O&-H86YG92!!8W0@;V8@,3DS-"!D=7)I;F<@ M=&AE('!R96-E9&EN9R`Q,B!M;VYT:',@7"AO2`R.2PI751*#0HQ+C4R-"`M,2XR,S@R(%1$ M#0I;*#(P,#`I+38T-3,N,R@R,#`P*5U42@T*150-"C`N-2!'#0HP($H@,"!J M(#`N,C0@=R`Q,"!-(%M=,"!D#0HT-3@N.#4@-S@X+C`Q(&T-"C,W-RXP,2`W M.#@N,#$@;`T*,S'!E;G-E2!A;F0@97%U:7!M96YT+"!A="!C;W-T*2TR,#,U M."XY*#(X,2PU-#8I+34R,#,N-"@R-C6%B;&4I+3(V,#@Q+C$H-3DL.32DM,34S.#8H)"DM,S,S+C0H-3DT+#'1'4W1A=&4@/#P-"B]'4S$@ M-R`P(%(-"CX^#0H^/@T*96YD;V)J#0HR,"`P(&]B:@T*/#P-"B],96YG=&@@ M-S0Q,0T*/CX-"G-T'!E;G-E.BE4:@T*,"XT,C@V("TQ M+C(Q-#0@5$0-"ELH26YT97)E'1'4W1A=&4@/#P-"B]'4S$@-R`P(%(-"CX^#0H^/@T*96YD M;V)J#0HR,R`P(&]B:@T*/#P-"B],96YG=&@@-C6%B;&4L(&%C8W)U960@;&EA8FEL:71I97,@86YD(&]T:&5R(&QI86)I M;&ET:65S*2TY-SDP+C,H-"PR-S0I+34X.3,N."A<*#$X+#@P.2DM,3(N."A< M*2E=5$H-"E0J#0I;*$%C8W)U960@:6YT97)E2!A;F0@97%U:7!M96YT+"!N970I+3$U-C4X+C4H7"@R-2PU,C@I M+3$R+C@H7"DI+34U-#@N-2A<*#(Q+#`R-2DM,3(N."A<*2E=5$H-"E0J#0I; M*%-Y&5R8VES92!O9B!S=&]C:R!O<'1I;VYS*2TQ-S@Y,BXX*#DQ M-BDM-S0W-RXQ*#$V,RE=5$H-"E0J#0I;*$-O;6UO;B!S=&]C:R!R97!U2!O=VYE9"`I5&H-"B]&-"`Q(%1F#0HP("TQ+C$R(%1$#0HH2!O=VYE9"!S=6)S:61I87)I97,@7"AC;VQL96-T:79E;'DL M('1H92!<,C(S0V]M<&%N>5PR,C1<*2X@*51J#0I4*@T**$%L;"!S:6=N:69I M8V%N="!I;G1E6EN9R!C;VYS;VQI9&%T960@9FEN86YC:6%L('-T M871E;65N=',@:&%V92!B965N('!R97!A65A2!T;R!P2!I=',@9FEN86YC:6%L('!O6EN9R!I;G1E2P@9F]R('1H92`S.2!W965K2P@ M*51J#0I4*@T**&9O'1' M4W1A=&4@/#P-"B]'4S$@-R`P(%(-"CX^#0H^/@T*96YD;V)J#0HS,"`P(&]B M:@T*/#P-"B],96YG=&@@,S@Q-PT*/CX-"G-T2!W87,@86UE M;F1E9"!T;R!P2!U;F1E2X@07,@;V8@3V-T;V)E5PR,C)S(')E<&]R=&%B;&4@'!E;G-E'1'4W1A M=&4@/#P-"B]'4S$@-R`P(%(-"CX^#0H^/@T*96YD;V)J#0HS-B`P(&]B:@T* M/#P-"B],96YG=&@@.#0R.`T*/CX-"G-T2!A;F0@8V%P:71A;"!R97-O=7)C97,N(%1H:7,@9&ES8W5S M2`R.2P@ M,C`P,"!I;F-L=61E9"!I;B!T:&4@86YN=6%L(')E<&]R="!O;B!&;W)M(#$P M+4LN("E4:@T*,"`M,BXS(%1$#0HH("`@("`@1FES8V%L('EE87)S(&5N9"!O M;B!T:&4@4V%T=7)D87D@8VQO2!B96=I;BX@1F]R(&5X86UP M;&4L('1H92!F:7-C86P@>65A65A'!E;G-EF%T:6]N*2TY M-#@R*#$P+C`I+3(S-#4N-R@Q,"XU*2TR.3@X+C2UO M=VYE9"DM,3`V-C`N,2@T-#0I+3(U.34N-R@T-34I751*#0I4*@T*6RA096%R M;&4@9G)A;F-H:7-E9"DM,3,Q-3DN.2@T,C,I+3(U.34N-R@T,3(I751*#0I% M5`T*,"XU($<-"C,P,RXS,R`T,C`N,S,@;0T*,C@P+C2UO=VYE9"DM,C,U-C(N,R@V+C0I+3$R+C$H)2DM-34Y-BXR*#`N-RDM,3(N M,2@E*5U42@T*,"XS-32!O9F9S970@8GD@ M82!D96-R96%S92!I;B!N=6UB97(@;V8@=6YI=',@2!787)D(&1E<&%R=&UE;G1S M+B!!="`I5&H-"E0J#0HH4&5A2!O9F9S970@8GD@82!T:&ER M9"`I5&H-"E0J#0HH<75A2X@070@5&AI;F=S("E4:@T*5"H-"BA2 M96UE;6)E65A'!E;G-E(&EN8W)E87-E2!T M;R!I;F-R96%S97,@:6X@*51J#0HP("TQ+C$R(%1$#0HH'!E;G-E'!A;G-I;VX@;V8@5&%R9V5T($]P=&EC M86P@86YD(&EN8W)E87-E2=S(&9OF%T:6]N+B!!(&1E8VQI;F4@:6X@ M8V]M<&%R86)L92!S=&]R92!S86QE2UO=VYE M9"!S=&]R97,@9'5R:6YG('1H92!F:7)S="!S:7@@;6]N=&AS('1H:7,@*51J M#0I4*@T**'EE87(@86YD(&$@)#$N."!M:6QL:6]N(&9I2!O<&5N960@-#4@5&%R9V5T($]P=&EC86P@65A2P@8V]M<&%R960@=&\@=&AO65A65A2`R M,#`P+B!$97!R96-I871I;VX@86YD(&%M;W)T:7IA=&EO;B!E>'!E;G-E(&9O M'1'4W1A=&4@/#P-"B]'4S$@ M-R`P(%(-"CX^#0H^/@T*96YD;V)J#0HT-"`P(&]B:@T*/#P-"B],96YG=&@@ M-3$R,PT*/CX-"G-T65A2!D=64@=&\@;&%S="!Y96%R7#(R,G,@65A&-L=61I;F<@=&AE65A"!P"!R871E(&9O2!S;W5R8V4@;V8@;&EQ M=6ED:71Y(&ES(&9U;F1S('!R;W9I9&5D(&9R;VT@;W!E2P@0V]L M92!.871I;VYA;"!'2!W87,@)#4P+C`@;6EL;&EO;B!A;F0@879A:6QA8FEL:71Y("E4 M:@T*5"H-"BAA9G1E6%B;&4@86YD(&%C8W)U960@;&EA8FEL:71I M97,@*51J#0I4*@T**&9O2!I;G9E2!O9B!C M87!I=&%L(&5X<&5N9&ET=7)E&ES=&EN M9R!S=&]R97,N($EN=F5S=&UE;G1S(&EN('-Y2X@5&AE($-O;7!A M;GE<,C(R2X@26X@9FES8V%L(#$Y M.3DL("E4:@T*5"H-"BAT:&4@0V]M<&%N>2!A8W%U:7)E9"!T:&4@;6%N86=E M9"!V:7-I;VX@8V%R92!B=7-I;F5S'1'4W1A=&4@/#P-"B]'4S$@ M-R`P(%(-"CX^#0H^/@T*96YD;V)J#0HT-R`P(&]B:@T*/#P-"B],96YG=&@@ M,C0P.0T*/CX-"G-T2!E>'!E8W1S M('-I9VYI9FEC86YT(&EM<')O=F5M96YT(&EN(&9O=7)T:"!Q=6%R=&5R(&5A M'1R82`I5&H-"E0J#0HH861V M97)T:7-I;F<@97AP96YD:71U2`D,"XR,"!T;R`D,"XR-2!C;VUP M87)E9"!T;R!A(&QO'0@<&%R86=R87!H+B`I5&H-"B]&-"`Q(%1F#0HP("TR+C,@ M5$0-"B@@("`@("!#97)T86EN('-E8W1I;VYS(&]F('1H:7,@1F]R;2`Q,"U1 M+"!I;F-L=61I;F<@=&AI2`I5&H-"E0J#0HH9&EF9F5R(&UA M=&5R:6%L;'D@9G)O;2!T:&]S92!F;W)E8V%S=&5D(&1U92!T;R!A('9A7-T96US(&EN=&5G2P@*51J M#0I4*@T**&EN=&5G2!O9B!O<'1I8V%L(&%N9"!E;F=R879E9"!G;V]D"!O9B!G;V]D M2!O9B!T:&4@0V]M<&%N M>5PR,C)S(&)U2X@*51J#0HR,BXX."`M,BXS(%1$#0HH,3`@*51J#0I%5`T*96YD M'0@70T*+T9O;G0@/#P-"B]&,B`T(#`@4@T*+T8S(#4@,"!2#0HO1C0@ M-B`P(%(-"CX^#0HO17AT1U-T871E(#P\#0HO1U,Q(#<@,"!2#0H^/@T*/CX- M"F5N9&]B:@T*-3`@,"!O8FH-"CP\#0HO3&5N9W1H(#@S,@T*/CX-"G-T2!I'!O5PR M,C)S(&5X<&]S=7)E('1O("E4:@T*5"H-"BAF;'5C='5A=&EO;G,@:6X@9F]R M96EG;B!C=7)R96YC>2!E>&-H86YG92!R871EF4@=&AE(&5X<&]S=7)E('1O(&9O&AI8FET&AI8FET2!!9W)E96UE;G0@8F5T=V5E;B!#;VQE($YA=&EO;F%L($-O M'0@70T*+T9O;G0@/#P-"B]&,B`T(#`@ M4@T*+T8U(#$X(#`@4@T*/CX-"B]%>'1'4W1A=&4@/#P-"B]'4S$@-R`P(%(- M"CX^#0H^/@T*96YD;V)J#0HU-B`P(&]B:@T*/#P-"B],96YG=&@@,3(Q-`T* M/CX-"G-T2!C M875S960@=&AI2!A=71H;W)I>F5D+B`I5&H-"C$P+C4R("TQ+C$R(%1$#0HT+C@Y M(%1C#0HH("`@*51J#0HQ,"XP-SD@,"`P(#$P+C`W.2`R-S4N,C4@.#8V+C`Q M(%1M#0HM,"XP,#`Q(%1C#0HP+C`P,#$@5'<-"BA#3TQ%($Y!5$E/3D%,($-/ M4E!/4D%424].*51J#0HQ,B`P(#`@,3(@,34Q+C@Y(#@U,RXP-2!4;0T*,"!4 M8PT*,"!4=PT**"`I5&H-"E0J#0HH("E4:@T*5"H-"B@@*51J#0HQ,"XP-SD@ M,"`P(#$P+C`W.2`R-S4N,C4@.#$T+C0Q(%1M#0HH0GDZ("]S+U=I;&QI86T@ M4"X@3&%H:69F+"!*&AI M8FET*51J#0HM,"XQ.3`U("TQ+C(S.#(@5$0-"BTP+C`P,#$@5&,-"BA.=6UB M97(I5&H-"D54#0HP($<-"C`@2B`P(&H@,"XR-"!W(#$P($T@6UTP(&0-"CDU M+C2!.;W1E M(&)E='=E96X@0V]L92!.871I;VYA;"!#;W)P;W)A=&EO;B!A;F0@2F5F9G)E M>2!!+B`I751*#0HU+C4Y-3@@+3$N,3$Y,B!41`T**$-O;&4@9&%T960@87,@ M;V8@3F]V96UB97(@,3'0@70T*+T9O;G0@/#P-"B]&,B`T(#`@4@T*+T8S(#4@,"!2#0H^ M/@T*+T5X=$=3=&%T92`\/`T*+T=3,2`W(#`@4@T*/CX-"CX^#0IE;F1O8FH- M"C8Q(#`@;V)J#0H\/`T*+U1Y<&4@+TAA;&9T;VYE#0HO2&%L9G1O;F54>7!E M(#$-"B](86QF=&]N94YA;64@*$1E9F%U;'0I#0HO1G)E<75E;F-Y(#8P#0HO M06YG;&4@-#4-"B]3<&]T1G5N8W1I;VX@+U)O=6YD#0H^/@T*96YD;V)J#0HW M(#`@;V)J#0H\/`T*+U1Y<&4@+T5X=$=3=&%T90T*+U-!(&9A;'-E#0HO3U`@ M9F%L7!E("]&;VYT#0HO4W5B='EP92`O5'EP93$-"B].86UE("]&,@T*+T)A M7!E("]&;VYT#0HO4W5B='EP92`O5'EP93$-"B].86UE("]&,PT*+T)A M7!E("]4>7!E,0T*+TYA;64@+T8T#0HO16YC M;V1I;F<@-C(@,"!2#0HO0F%S949O;G0@+U1I;65S+5)O;6%N#0H^/@T*96YD M;V)J#0HQ."`P(&]B:@T*/#P-"B]4>7!E("]&;VYT#0HO4W5B='EP92`O5'EP M93$-"B].86UE("]&-0T*+T5N8V]D:6YG(#8R(#`@4@T*+T)A7!E("]& M;VYT#0HO4W5B='EP92`O5'EP93$-"B].86UE("]&-@T*+T)AF-A0T*(#$V-B]B7!H96XO"]59&EE M`T*+V%T:6QD92]A9&EE`T*+V5D:65R97-I"]O=&EL9&4O;V1I97)E61I97)E7!E("]086=E#0HO4&%R96YT(#@@,"!2#0HO4F5S;W5R M8V5S(#$Q(#`@4@T*+T-O;G1E;G1S(#$P(#`@4@T*/CX-"F5N9&]B:@T*,3(@ M,"!O8FH-"CP\#0HO5'EP92`O4&%G90T*+U!A7!E("]086=E#0HO4&%R96YT(#@@,"!2#0HO4F5S M;W5R8V5S(#(Q(#`@4@T*+T-O;G1E;G1S(#(P(#`@4@T*/CX-"F5N9&]B:@T* M,C(@,"!O8FH-"CP\#0HO5'EP92`O4&%G90T*+U!A7!E("]086=E#0HO4&%R96YT(#@@,"!2#0HO M4F5S;W5R8V5S(#,Q(#`@4@T*+T-O;G1E;G1S(#,P(#`@4@T*/CX-"F5N9&]B M:@T*,S(@,"!O8FH-"CP\#0HO5'EP92`O4&%G90T*+U!A7!E("]086=E#0HO4&%R96YT(#0R(#`@ M4@T*+U)E7!E("]086=E#0HO4&%R96YT M(#0R(#`@4@T*+U)E7!E("]086=E#0HO M4&%R96YT(#0R(#`@4@T*+U)E7!E M("]#871A;&]G#0HO4&%G97,@-#$@,"!2#0H^/@T*96YD;V)J#0HV-"`P(&]B M:@T*/#P-"B]#')E9@T*,"`V-0T*,#`P,#`P,#`P,"`V-34S-2!F#0HP,#`P,# -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

   1
                                                                    Exhibit 10.1

                             SECURED PROMISSORY NOTE
                             -----------------------

$666,666.00                                              Date: November 17, 2000

                FOR VALUE RECEIVED, the undersigned, Jeffrey A. Cole,
("Borrower"), hereby unconditionally promises to pay to the order of Cole
National Corporation, a Delaware corporation (the "Company"), the principal sum
of Six Hundred Sixty-Six Thousand Six Hundred Sixty-Six Dollars and 00/100
($666,666.00) in lawful money of the United States of America and in immediately
available funds, on January 18, 2004 and to pay simple interest (computed on the
basis of a 365 day year) on the unpaid principal amount hereof from and after
the date of this Secured Promissory Note until the entire principal amount
hereof has been paid in full, at the rate of 6.01% per annum. Interest is
payable on each anniversary of the date of this Secured Promissory Note with
respect to the period ending on such anniversary, and at maturity or upon full
prepayment of the principal hereof. Not later than five business days prior to
the date on which payment of interest is due, the Company shall give written
notice to the Borrower of the amount of the payment due on such date.

                For purposes of this Promissory Note, a "business day" shall
mean any day other than a Saturday, Sunday or federal holiday and shall consist
of the time period from 12:01 a.m. through 12:00 Midnight Eastern time.

                This Secured Promissory Note is delivered as payment of the
principal amount of that certain Amended and Restated Secured Promissory Note
dated March 15, 1998 from Borrower to Company. Payment of the principal and
interest on this Secured Promissory Note is secured with the property ("Pledged
Security") pursuant to the terms of the Stock Pledge and Security Agreement
dated November 17, 2000 between Borrower and the Company. This Secured
Promissory Note is subject to the following further terms and conditions:

                 1. PAYMENT AND PREPAYMENT.

                 (a) If the Borrower or any of his Permitted Transferees shall
                 sell any of the Pledged Security, such sale shall be made only
                 for cash, and Borrower agrees to promptly deliver to the
                 Company the consideration received by the Borrower on such sale
                 of shares of Stock (net of any taxes due as a result of such
                 sale) as partial payment of the unpaid


   2
                                                                               2


                 principal and accrued and unpaid interest on this Secured
                 Promissory Note until this Secured Promissory Note is paid in
                 full. In the event this Secured Promissory Note is not paid in
                 full, Borrower shall provide additional collateral in the event
                 the value or principal amount of the remaining Pledged Security
                 is less than the unpaid principal of this Secured Promissory
                 Note.

                 (b) All payments of principal and interest on this Secured
                 Promissory Note shall be made to the Company or its order in
                 lawful money of the United States of America and in immediately
                 available funds at the offices of the Company at its then
                 principal place of business (or at such other place as the
                 holder hereof shall notify Borrower in writing). Borrower may,
                 at his option, prepay this Secured Promissory Note in whole or
                 in part at any time or from time to time without penalty or
                 premium. Any prepayments of any portion of the principal amount
                 of this Secured Promissory Note shall be accompanied by payment
                 of all interest accrued but unpaid hereunder.

                 (c) Concurrently with any payment of any portion of this
                 Secured Promissory Note pursuant to paragraph 1(a) hereof or
                 any prepayment of any portion of the principal amount of this
                 Secured Promissory Note pursuant to paragraph 1(b) hereof, the
                 Company shall make a notation of such application or payment on
                 this Secured Promissory Note. If full payment of all unpaid
                 principal of and accrued and unpaid interest on this Secured
                 Promissory Note is made, this Secured Promissory Note shall be
                 cancelled. Any partial payment or prepayment shall be applied
                 first to accrued and unpaid interest hereon and then to the
                 unpaid installments of principal hereof in the inverse order of
                 their maturity.

                 (d) Borrower, at Borrower"s sole election, may repay any or all
                 of the unpaid principal amount of or interest on this Secured
                 Promissory Note, by delivery to the Company of Cole National
                 Group, Inc. 9-7/8% Senior Notes due 2006 or Cole National
                 Group, Inc. 8-5/8% Senior Notes due 2007, (collectively, the
                 "Bonds") in either case owned by Borrower, having a principal
                 amount equal to the principal amount or interest to be so
                 repaid, notwithstanding the prices at which the Bonds may trade
                 in the public markets. However, the foregoing sentence will not
                 apply, and Borrower will have no right to repay this Secured

   3
                                                                               3


                  Promissory Note by delivery of Cole National Group, Inc.
                  Senior Notes, if, at the time of delivery to the Company, Cole
                  National Group, Inc. is in default under the indentures
                  pursuant to which the Senior Notes were issued. Unless an
                  Event of Default shall have occurred, all interest paid on the
                  Bonds shall belong to Borrower.

                  2. CONVERSION DEMAND NOTE. In the event Borrower shall cease
to be employed by the Company as the result of:

                  (a) his death or permanent disability, then the unpaid
         principal of and accrued and unpaid interest of this Secured Promissory
         Note ("Unpaid Amounts") shall upon demand by the Company given in
         writing to the Borrower or his estate become due and payable one year
         from the date of such notice; or

                  (b) his voluntary termination of employment with the consent
         of the Board of Directors of the Company or through termination without
         cause, then the Unpaid Amounts shall upon demand by the Company given
         in writing to the Borrower become due and payable one year from the
         date of such notice; or

                  (c) his voluntary termination of employment without the
         consent of the Board of Directors of the Company or his termination by
         the Company with Cause (as defined in the Employment Agreement
         ("Employment Agreement") dated December 17, 1998 between the Company
         and Borrower), then the Unpaid Amounts shall upon demand by the Company
         given in writing to the Borrower become due and payable thirty (30)
         days from the date of such notice; or

                  (d) a "Change In Control" as defined in Employment Agreement
         triggering a payment to Borrower thereunder, then upon demand by the
         Company given in writing to the Borrower the Unpaid Amounts shall be
         paid in full at or prior to the time any Change in Control payment is
         made to Borrower.

         Notwithstanding anything in this Section 2, in no event shall the
Unpaid Amounts be due and payable later than January 18, 2004.

                  3. EVENTS OF DEFAULT. Upon the occurrence of any of the
following events ("Events of Default"):

                  (a) Failure to pay any principal of this Promissory Note,
                  including any prepayments required hereunder, when due which
                  shall remain unremedied for forty-five (45) days after notice
                  by the Company given in writing to the Borrower; or


   4
                                                                               4


                  (b) Failure to pay any interest due under this Secured
                  Promissory Note which shall remain unremedied for forty-five
                  (45) days after notice by the Company given in writing to the
                  Borrower; or

                  (c) A petition is filed by or against the Borrower seeking the
                  entry of an order for relief under the bankruptcy laws of the
                  United States, as now or hereafter amended or supplemented, or
                  there is an appointment of a permanent receiver or a permanent
                  trustee of all or substantially all the property of the
                  Borrower or an assignment is made by the Borrower for the
                  benefit of creditors;

then, and in any such event, the holder of this Secured Promissory Note may
declare, by notice of default given to Borrower, the entire principal amount of
this Secured Promissory Note to be forthwith due and payable, whereupon the
entire principal amount of this Secured Promissory Note outstanding and all
accrued and unpaid interest shall become due and payable without presentment,
demand, protest and notices of any kind or of dishonor, all of which are hereby
expressly waived. Upon the occurrence of an Event of Default, the accrued and
unpaid interest hereunder shall thereafter bear the same rate of interest as the
principal hereunder, but in no event shall such interest be charged which would
violate any applicable usury law. If an Event of Default shall occur hereunder,
Borrower shall pay costs of collection, including reasonable attorneys' fees,
incurred by the holder in the enforcement hereof.

                  No delay or failure by the holder of this Secured Promissory
Note in the exercise of any right or remedy shall preclude other or future
exercise thereof or the exercise of any other right or remedy.

                 4. ADDITIONAL RESTRICTIONS UPON OCCURRENCE OF AN EVENT OF
DEFAULT. In case an Event of Default shall occur and be continuing, the Borrower
agrees that he will not, without the prior written consent of the Company (which
consent shall not be unreasonably withheld), sell, assign, transfer, exchange,
or otherwise dispose of, or grant any option with respect to, any of the Pledged
Security (except for the purpose of curing any Event of Default hereunder)
pursuant to Section 1(a) hereof, nor will he create, incur or permit to exist
any pledge, lien, mortgage, hypothecation, security interest, charge, option or
any other encumbrances with respect to any of the Pledged Security, or any
interest therein, or any proceeds thereof.

                 5. MISCELLANEOUS.
   5
                                                                               5


                  (a) The provisions of this Secured Promissory Note shall be
                  governed by and construed in accordance with the laws of the
                  State of Delaware, without regard to the conflicts of laws
                  rules thereof.

                  (b) All notices and other communication hereunder shall be in
                  writing and will be deemed to have been duly given if
                  delivered in person or mailed by certified mail or guaranteed
                  overnight delivery service to the Company at its principal
                  executive offices and to the Borrower at the last address
                  reflected in the Company's records.

                  (c) The paragraph headings contained in this Promissory Note
                  are for reference purposes only and shall not affect in any
                  way the meaning or interpretations of the provisions thereof.

                  IN WITNESS WHEREOF, this Secured Promissory Note has been duly
executed and delivered by Borrower on the date first written above.

                                                /s/ Jeffrey A. Cole
                                                --------------------------------
                                                Borrower: Jeffrey A. Cole

Witness:

/s/ Cristina C. Garrett
- --------------------------------
Cristina C. Garrett

EX-10.2

   1
                                                                    Exhibit 10.2

                      STOCK PLEDGE AND SECURITY AGREEMENT
                      -----------------------------------


         THIS STOCK PLEDGE AGREEMENT (this "Agreement") dated as of November 17,
2000 is made by Jeffrey A. Cole, (the "Pledgor") to Cole National Corporation, a
Delaware corporation (the "Company").

                                    RECITALS
                                    --------

         A. The Pledgor has borrowed from the Company the principal amount of
Six Hundred Sixty-Six Thousand Six Hundred Sixty-Six Dollars and 00/100
($666,666.00), and in consideration therefor, has delivered to the Company the
Secured Promissory Note ("Promissory Note") of the Pledgor, dated November 17,
2000, for such principal amount.

         B. The Pledgor wishes to affirm the grant of security and assurance to
the Company in order to secure the payment of the principal of and interest on
the Promissory Note and to that effect to pledge to the Company the 123,750
shares of Common Stock, par value $0.001 per share (the "Shares") which are
restricted as set forth in that certain Restricted Stock Agreement dated
December 17, 1998.

                                    AGREEMENT
                                    ---------

         NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:

         l. PLEDGE. The Pledgor hereby pledges, assigns, hypothecates,
transfers, and delivers to the Company, all the Shares (the "Pledged Stock") and
hereby grants to the Company, a first lien on, and security interest in, the
Pledged Stock and in all proceeds thereof, together with appropriate undated
stock powers duly executed in blank, as collateral security for the prompt and
complete payment when due (whether at the stated maturity, by acceleration or
otherwise) of the unpaid principal of and interest on the Promissory Note.


   2
                                                                               2

         2. ADMINISTRATION SECURITY. The following provisions shall govern the
administration of the Pledged Stock:

                         (a) So long as no Event of Default has occurred and is
                continuing (as used herein, "Event of Default" shall mean the
                occurrence of any Event of Default under the Promissory Note),
                the Pledgor shall be entitled to act with respect to the Pledged
                Stock in any manner not inconsistent with the provisions of this
                Agreement, the Promissory Note or any document or instrument
                delivered or to be delivered pursuant to or in connection with
                the Promissory Note.

                         (b) (i) If, while this Agreement is in effect, the
                Pledgor shall become entitled to receive or shall receive any
                stock certificate (including, without limitation, any
                certificate representing a stock dividend or a distribution in
                connection with any reclassification, increase or reduction of
                capital, or issued in connection with any reorganization),
                option or rights, in substitution of, in exchange for, or in
                respect of, any shares of any Pledged Stock, the Pledgor agrees
                to accept the same as the Company's agent and to hold the same
                in trust on behalf of and for the benefit of the Company and to
                deliver the same forthwith to the Company in the exact form
                received, with the endorsement of the Pledgor when necessary
                and/or appropriate undated stock powers duly executed in blank,
                to be held by the Company subject to the terms hereof, as
                additional collateral security for the payment of the principal
                of and interest on the Promissory Note. In case any distribution
                of capital shall be made on or in respect of the Pledged Stock
                or any property shall be distributed upon or with respect to the
                Pledged Stock pursuant to the recapitalization or
                reclassification of the capital of the Company or pursuant to
                the reorganization of the Company, the property so distributed
                shall be delivered to the Company to be held by it as additional
                collateral security for the payment of the principal of and
                interest on the Promissory Note. All sums of money and property
                so paid or distributed in respect of the Pledged Stock which are
                received by the Pledgor shall, until paid or delivered to the
                Company, be held by the Pledgor in trust as additional
                collateral security for the payment of the principal of and
                interest on the Promissory Note.


   3
                                                                               3

                         (ii) At any time, so long as no Event of Default has
                occurred and is continuing, Borrower at his option may deliver
                to the Company in substitution for the Pledged Stock Cole
                National Group, Inc. 9-7/8% Senior Notes due 2006 or Cole
                National Group, Inc. 8-5/8% Senior Notes due 2007 (collectively,
                the "Bonds") in either case owned by the Borrower having a
                principal amount equal to the unpaid principal amount and past
                due interest of this Secured Promissory Note. In such event, the
                Pledged Stock shall be returned to Borrower free of the lien of
                this Stock Pledge and Security Agreement. Unless an Event of
                Default shall have occurred and be continuing, all interest paid
                on the Bonds shall belong to Borrower.

                         (iii) All property at any time pledged with the Company
                hereunder (whether or not described herein) and all income
                therefrom and proceeds thereof, are herein collectively
                sometimes called the "Collateral."

                         (c) Notwithstanding paragraphs l and 2(b) hereof,
                unless an Event of Default shall have occurred and be
                continuing, the Pledgor shall be entitled to receive all cash or
                stock dividends paid in respect of the Pledged Stock and, unless
                the Company shall have given notice pursuant to paragraph 3 of
                its intention to exercise all voting and stockholder rights with
                respect to the Pledged Stock and any stock dividends thereof, to
                vote the Pledged Stock and any stock dividends thereof and to
                give consents, waivers and ratifications in respect of the
                Pledged Stock or the Bonds and any stock dividends on the
                Pledged Stock; PROVIDED, HOWEVER, that no vote shall be cast or
                consent, waiver or ratification given or action taken which
                would impair the Collateral or be inconsistent with or violate
                any provision of this Agreement, the Promissory Note, or any
                document or instrument delivered or to be delivered pursuant to
                or in connection with the Promissory Note.

                         (d) Notwithstanding any payment or payments made by the
                Pledgor hereunder, or the receipt of any amounts by the Company
                with respect to the Collateral, or any set-off or application of
                funds of the Pledgor by the Company, the Pledgor shall not be
                entitled to be subrogated to any of the rights of the Company
                against


   4
                                                                               4

                any Collateral held by the Company for the payment of the
                principal of and interest on the Promissory Note until the
                principal of and interest on the Promissory Note are paid in
                full.

                         (e) The Pledgor shall immediately upon request by the
                Company and in confirmation of the security interests hereby
                created, execute and deliver to the Company such further
                instruments, deeds, transfers, assurances and agreements, in
                form and substance satisfactory to the Company, as the Company
                shall request, including any financing statement and amendments
                thereto, or any other documents, as required under Delaware law
                and any other applicable law to protect the security interests
                created hereunder.

                         (f) Subject to any sale by the Company or other
                disposition by the Company of the Pledged Stock or any stock
                dividends thereon or other property Collateral pursuant to this
                Agreement and subject to Section 6 below, the Pledged Stock, the
                Bonds and any other Collateral shall be returned to the Pledgor
                upon full payment of the principal of and interest on the
                Promissory Note.

                3. RIGHTS OF HOLDING. The Company shall not be liable for
failure to collect or realize upon the principal of and interest on the
Promissory Note or any collateral security therefor, or any part thereof, or for
any delay in so doing nor shall the Company be under any obligation to take any
action whatsoever with regard thereto. Any or all shares of the Pledged Stock
and any stock dividends thereon held by the Company hereunder may, if an Event
of Default has occurred and is continuing, provided that the Company shall have
given prior written notice of its intention to do so to the Pledgor, be
registered in the name of the Company or its nominee, and the Company or its
nominee may thereafter exercise all voting and stockholder rights at any meeting
of the Company and exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any shares
of the Pledged Stock and any stock dividends thereon as if it were the absolute
owner thereof, including without limitation, the right to exchange at its
discretion, any and all of the Pledged Stock and any stock dividends thereon
upon the merger, consolidation, reorganization, recapitalization or other
readjustment of the Company or upon the exercise by the Company of any right,

   5
                                                                               5

privilege or option pertaining to any shares of the Pledged Stock and any stock
dividends thereon, and in connection therewith, to deposit and deliver any and
all of the Pledged Stock and any stock dividends thereon with any committee,
depositary, transfer agent, registrar or other designated agency upon such terms
and conditions as it may determine, all without liability except to account for
property actually received by it, but the Company shall have no duty to exercise
any of the aforesaid rights, privileges or options and shall not be responsible
for any failure to do so or delay in so doing.

                4.       REMEDIES IN CASE OF AN EVENT OF DEFAULT.

                         (a) In case an Event of Default shall have occurred and
                be continuing, the Company shall have all of the remedies of a
                secured party under the Delaware Uniform Commercial Code, and,
                without limiting the foregoing, shall have the right, subject to
                any necessary regulatory approvals, to sell, assign and deliver
                the whole or, from time to time, any part of the Collateral or
                any interest in any part thereof, at any private sale or at
                public auction, with or without demand of performance or other
                demand, advertisement or notice of the time or place of sale or
                adjournment thereof or otherwise, each of which demands,
                advertisements and/or notices are hereby expressly waived
                (except the Company shall give 10 days' notice to the Pledgor of
                the time and place of any sale pursuant to this Section 4), for
                cash, on credit or for other property, for immediate or future
                delivery, and for such price or prices and on such terms as the
                Company shall, in its sole discretion, determine, the Pledgor
                hereby waiving and releasing any and all right or equity of
                redemption whether before or after sale hereunder. At any such
                sale the Company may bid for and purchase the whole or any part
                of the Collateral so sold free from any such right or equity of
                redemption. The Company shall apply the net proceeds of any such
                sale, after deducting all reasonable costs and expenses of every
                kind incurred therein or incidental to the care, safekeeping or
                otherwise of any and all of the Collateral or in any way
                relating to its rights hereunder, including reasonable
                attorney's fees and legal expenses, to the payment in whole or
                in part of the principal of and interest on the Promissory Note,
                in such order as the Company may elect, the Pledgor


   6
                                                                               6

                remaining liable for any deficiency remaining unpaid after such
                application, and only after so applying such net proceeds and
                after the payment by the Company of any other amount required by
                any provision of law, including, without limitation, Section
                9-504(l)(c) of the Uniform Commercial Code, need the Company
                account for the surplus, if any, to the Pledgor. The Pledgor
                agrees that the Company need not give more than ten days' notice
                of the time and place of any public sale or of the time after
                which a private sale or other intended disposition is to take
                place and that such notice is reasonable notification of such
                matters. No notification need be given to the Pledgor if it has
                signed after default a statement renouncing or modifying any
                right to notification of sale or other intended disposition.

                         (b) The Pledgor recognizes that the Company may be
                unable to effect a public sale of all or a part of the Pledged
                Stock or other securities held as part of the Collateral by
                reason of certain prohibitions contained in the Securities Act
                of 1933 (the "Act"), or in the rules and regulations promulgated
                thereunder, but may be compelled to resort to one or more
                private sales to a restricted group of purchasers who will be
                obliged to agree, among other things, to acquire the Pledged
                Stock or such other securities for their own account, for
                investment and not with a view to the distribution or resale
                thereof. The Pledgor agrees that private sales so made may be at
                prices and on other terms less favorable to the seller than if
                the Pledged Stock or such other securities were sold at public
                sale, and that the Company has no obligation to delay the sale
                of the Pledged Stock or such other securities for the period of
                time necessary to permit the registration of the Pledged Stock
                or such other securities for public sale under the Act. The
                Pledgor agrees that a private sale or sales made under the
                foregoing circumstances shall be deemed to have been made in a
                commercially reasonable manner.

                         (c) If any consent, approval or authorization of any
                state, municipal or other governmental department, agency or
                authority should be necessary to effectuate any sale or
                disposition by the Company pursuant to this Section 4 of the
                Pledged Stock or other securities held as part of the
                Collateral, the Pledgor will execute all


   7
                                                                               7

                such applications and other instruments as may be required in
                connection with securing any such consent, approval or
                authorization, and will otherwise use his best effort to secure
                the same.

                         (d) Neither failure nor delay on the part of the
                Company to exercise any right, remedy, power or privilege
                provided for herein or by statute or at law or in equity shall
                operate as a waiver thereof, nor shall any single or partial
                exercise of any such right, remedy, power or privilege preclude
                any other or further exercise thereof or the exercise of any
                other right, remedy, power or privilege.

                5. PLEDGOR'S OBLIGATIONS NOT AFFECTED. The obligations of the
Pledgor under this Agreement shall remain in full force and effect with regard
to, and shall not be impaired or affected by: (a) any subordination, amendment
or modification of or addition or supplement to the Promissory Note, or any
assignment or transfer thereof: (b) any exercise or non-exercise by the Company
of any right, remedy, power or privilege under or in respect of this Agreement,
the Promissory Note, or any waiver of any such right, remedy, power or
privilege; (c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement or the Promissory Note, or any assignment
or transfer of any thereof; or (d) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or the like, of the Company
or its successors, whether or not the Pledgor shall have notice or knowledge of
any of the foregoing.

                6. TRANSFER BY PLEDGOR. Without the prior written consent of the
Company, the Pledgor agrees that he will not sell, assign, transfer, exchange,
or otherwise dispose of, or grant any option with respect to, the Collateral,
nor will he create, incur or permit to exist any pledge, lien, mortgage,
hypothecation, security interest, charge, option or any other encumbrance with
respect to any of the collateral, or any interest therein, or any proceeds
thereof, except for the lien and security interest provided for by this
Agreement.

                7. REPRESENTATION, WARRANTIES AND COVENANTS OF THE PLEDGOR. The
Pledgor represents and warrants that (a) he is the legal, record and beneficial
owner of, and has good and marketable title to, the Pledged Stock, subject to no
pledge, lien, mortgage, hypothecation, security interest, charge, option


   8
                                                                               8

or other encumbrance whatsoever, except the lien and security interest created
by this Agreement; (b) he has the authority and legal right to pledge all the
Pledged Stock pursuant to this Agreement; and (c) the pledge, assignment and
delivery of such Pledged Stock pursuant to this Agreement creates a valid first
lien on and a first perfected security interest in such shares of the Pledged
Stock, and the proceeds thereof, subject to no prior pledge, lien, mortgage,
hypothecation, security interest, charge, option or encumbrance or to any
agreement purporting to grant to any third party a security interest in the
property or assets of the Pledgor which would include the Pledged Stock. The
Pledgor covenants and agrees that he will defend the Company's right, title and
security interest in and to the Pledged Stock and the proceeds thereof against
the claims and demands of all persons whomsoever; and covenants and agrees that
he will have like title to and right to pledge any other property at any time
hereafter pledged to the Company as Collateral hereunder and will likewise
defend the Company's right thereto and security interest therein.

                8. ATTORNEY-IN-FACT. The Company or its successor is hereby
appointed the attorney-in-fact of the Pledgor for the purpose of carrying out
the provisions of this Agreement and taking any action and executing any
instrument which the Company reasonably may deem necessary or advisable to
accomplish the purposes hereof, including without limitation, the execution of
the applications and other instruments described in Section 4(c), which
appointment as attorney-in-fact is irrevocable as one coupled with an interest.

                9. TERMINATION. Upon payment in full of the principal of and
interest on the Promissory Note and upon the due performance of and compliance
with all the provisions of the Promissory Note, this Agreement shall terminate
and the Pledgor shall be entitled to the return of such of the Collateral as has
not theretofore been sold, released from this Agreement pursuant to Section 6 or
otherwise applied pursuant to the provisions of this Agreement.

                10. NOTICES. All notices or other communications required or
permitted to be given hereunder shall be in writing and will be deemed to have
been duly given if delivered in person or mailed by certified mail or guaranteed
overnight delivery service to the Company at its principal executive offices and
to the Pledgor at the last address reflected in the Company's records.
   9
                                                                               9

                11. MISCELLANEOUS. The Company and its assigns shall have no
obligation in respect of the Collateral, except to hold and dispose of the same
in accordance with the terms of this Agreement. Neither this Agreement nor any
provisions hereof may be amended, modified, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the amendment, modification, waiver, discharge or termination is
sought. The provisions of this Agreement shall be binding upon the successors
and assigns of the Pledgor. The captions in this Agreement are for convenience
of reference only and shall not define or limit the provisions hereof. This
Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Delaware, without regard to the rules of conflicts of laws
thereof. This Agreement may be executed in multiple counterparts, each of which
shall be an original, but all of which taken together shall constitute one
instrument.


   10
                                                                              10


                IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of November 17, 2000.

                                     COLE NATIONAL CORPORATION



                                     By /s/ Leslie D. Dunn
                                       -----------------------------------------
                                     Its: Sr. Vice President

                                     PLEDGOR

                                     /s/ Jeffrey A. Cole
                                     -------------------------------------------
                                     Name: Jeffrey A. Cole

Name of Pledgor:                                   Jeffrey A. Cole


Number of Shares pledged:                          123,750


Principal amount of Promissory Note:               $666,666.00

EX-27

 

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS
PART OF THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.

<MULTIPLIER> 1,000

                             
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          FEB-03-2001
<PERIOD-START>                             JAN-30-2000
<PERIOD-END>                               OCT-28-2000
<CASH>                                           9,324
<SECURITIES>                                         0
<RECEIVABLES>                                   50,332
<ALLOWANCES>                                     5,473
<INVENTORY>                                    147,059
<CURRENT-ASSETS>                               215,247
<PP&E>                                         281,546
<DEPRECIATION>                                 151,550
<TOTAL-ASSETS>                                 594,779
<CURRENT-LIABILITIES>                          154,824
<BONDS>                                        284,281
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                            16
<OTHER-SE>                                     142,492
<TOTAL-LIABILITY-AND-EQUITY>                   594,779
<SALES>                                        778,384
<TOTAL-REVENUES>                               778,384
<CGS>                                          257,759
<TOTAL-COSTS>                                  763,925
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              19,032
<INCOME-PRETAX>                                (4,573)
<INCOME-TAX>                                   (3,064)
<INCOME-CONTINUING>                            (1,509)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   (1,509)
<EPS-BASIC>                                     (0.10)
<EPS-DILUTED>                                   (0.10)