<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 11)
---------------
THE UNITED STATES SHOE CORPORATION
(Name of Subject Company)
THE UNITED STATES SHOE CORPORATION
(Name of Person(s) Filing Statement)
COMMON SHARES, WITHOUT PAR VALUE
(AND ASSOCIATED PREFERENCE SHARE PURCHASE RIGHTS)
(Title of Class of Securities)
912605102
(CUSIP Number of Class of Securities)
---------------
James J. Crowe, Esq.
Vice President, Secretary and General Counsel
The United States Shoe Corporation
One Eastwood Drive
Cincinnati, Ohio 45227-1197
(513) 527-7000
(Name, address and telephone number of person authorized to receive
notice and communications on behalf of the person(s) filing)
With a copy to:
William F. Henze II, Esq.
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
(212) 326-3939
================================================================================
<PAGE> 2
This Amendment No. 11 amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9 filed on March 16,
1995, as previously amended (the "Schedule 14D-9"), by The United States Shoe
Corporation (the "Company"), with respect to the tender offer by Luxottica
Acquisition Corp., an indirect wholly-owned subsidiary of Luxottica Group
S.p.A., to purchase all outstanding common shares, without par value, of the
Company, including associated preference share purchase rights, at a price of
$28 per share (and associated right), upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated March 3, 1995, as amended
and supplemented, and in the related Letter of Transmittal, as amended and
supplemented (the "Luxottica Offer"), as set forth in this Amendment No. 11.
All capitalized terms not otherwise defined herein shall have the meanings
assigned thereto in the Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND.
Item 3(b)(2) of the Schedule 14D-9 is hereby amended and supplemented by
adding at the end thereof the following:
Annex I is restated in its entirety as attached hereto in order to
provide the information required to be transmitted to holders of Common
Shares pursuant to Rule 14(f)-1 promulgated under the Exchange Act.
2
<PAGE> 3
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 2, 1995
THE UNITED STATES SHOE CORPORATION
By: /s/ Bannus B. Hudson
--------------------------------------------
Name: Bannus B. Hudson
Title: President and Chief Executive Officer
3
<PAGE> 4
ANNEX I
THE UNITED STATES SHOE CORPORATION
ONE EASTWOOD DRIVE
CINCINNATI, OHIO 45227-1197
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14(f)-1 THEREUNDER
------------------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S SHAREHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
------------------------
This Information Statement, which is being mailed on or about May 2, 1995
to the holders of record of common shares, without par value (the "Common
Shares"), of The United States Shoe Corporation, an Ohio corporation (the
"Company"), is being furnished in connection with the designation by Avant-Garde
Optics, Inc., a New York corporation ("Avant-Garde"), of persons (the
"Avant-Garde Designees") to the Board of Directors of the Company (the "Board").
Such designation is to be made pursuant to an Agreement and Plan of Merger,
dated as of April 21, 1995, as amended (the "Merger Agreement"), by and among
the Company, Avant-Garde and Luxottica Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Avant-Garde ("LAC"). As provided in the Merger
Agreement, LAC has amended its tender offer to purchase all of the issued and
outstanding Common Shares (and the associated preference share purchase rights
(the "Rights")) so as, among other things, to increase the price to be paid to
$28.00 per Common Share, net to the seller in cash (as so amended, the
"Luxottica Offer"). The obligation of LAC to accept for payment and pay for
Common Shares tendered pursuant to the Luxottica Offer is subject to certain
conditions, including, without limitation, the condition that the number of
Common Shares being validly tendered and not withdrawn prior to the expiration
of the Luxottica Offer will represent at least two-thirds of all outstanding
Common Shares on a fully diluted basis. The Merger Agreement provides that, at
the effective time (the "Effective Time") of the related business combination
transaction pursuant to which LAC will merge with the Company (the "Merger"),
LAC will be merged with the Company, and, subject to the Merger Agreement, the
Company will be the surviving corporation in the Merger (the "Surviving
Corporation"). By virtue of the Merger, at the Effective Time, (i) each
then-outstanding Common Share not owned by Luxottica Group S.p.A., a corporation
organized under the laws of the Republic of Italy ("Luxottica Group"),
Avant-Garde, LAC or any other subsidiary of Avant-Garde (other than those Common
Shares held in the treasury of the Company or held by any subsidiary of the
Company and Common Shares held by dissenting shareholders) (including the
associated Right) will be cancelled and converted into a right to receive in
cash an amount per Common Share equal to the highest price per Common Share paid
for a Common Share by LAC pursuant to the Luxottica Offer, (ii) each
then-outstanding Common Share (including the associated Right) owned by
Luxottica Group, Avant-Garde, LAC or any other subsidiary of Avant-Garde will be
cancelled, and no payment will be made with respect thereto, (iii) each Common
Share issued and held in the Company's treasury or held by any subsidiary of the
Company will be cancelled and retired, and no payment will be made with respect
thereto, and (iv) each common share of LAC will be converted into and become
500,000 common shares of the Surviving Corporation, which thereafter will
constitute all of the issued and outstanding common shares of the Surviving
Corporation.
Pursuant to the Merger Agreement, if requested by Avant-Garde, the Company
will, promptly following the acceptance for payment of the Common Shares to be
purchased pursuant to the Luxottica Offer, and from time to time thereafter,
take all action necessary to cause at least two-thirds of the number of
directors,
<PAGE> 5
rounded up to the next whole number, of the Company to be persons designated by
Avant-Garde (whether, at the request of Avant-Garde, by increasing the size of
the number of directors of the Company or by seeking the resignation of
directors and causing Avant-Garde's designees to be elected to fill the
vacancies so created) as will give Avant-Garde representation on the Board of
Directors of the Company equal to the product of the number of directors of the
Company and the percentage that such number of Common Shares so purchased bears
to the number of Common Shares outstanding. At such time, the Company has agreed
that it also will take all action permitted by law to cause persons designated
by Avant-Garde to constitute at least the same percentage as is on the Company's
Board of Directors of (i) each committee of the Company's Board of Directors,
(ii) the board of directors of each subsidiary of the Company, and (iii) each
committee, if any, of each such board of directors. The Merger Agreement
provides that, notwithstanding the foregoing, until the Effective Time, the
Company will use its best efforts to assure that the Company's Board of
Directors has at least three directors who are directors on the date of the
Merger Agreement (the "Continuing Directors"); provided further, that, in such
event, if the number of Continuing Directors is reduced below three for any
reason whatsoever, any remaining Continuing Directors (or Continuing Director,
if there is only one remaining) will be entitled to designate three persons to
fill such vacancies who will be deemed to be Continuing Directors for purposes
of the Merger Agreement or, if no Continuing Director then remains, the other
directors will designate three persons to fill such vacancies who are not
shareholders, affiliates or associates of Avant-Garde or LAC and such persons
will be deemed to be Continuing Directors for purposes of the Merger Agreement.
The Merger Agreement provides that the Company will use its best efforts to
cause the person(s) so designated by the Continuing Directors to be elected to
the Board of Directors of the Company. Following the appointment of
Avant-Garde's Designees as described above and prior to the Effective Time, any
action to waive or amend any provision of the Merger Agreement or any
termination of the Merger Agreement by the Company will require the concurrence
of a majority of the Continuing Directors.
The terms of the Merger Agreement, a summary of the events leading up to
the Luxottica Offer and the execution of the Merger Agreement and other
information concerning the Luxottica Offer and the Merger are contained in
Luxottica's Offer to Purchase dated March 3, 1995, as amended and supplemented
(the "Offer to Purchase"), the related Letter of Transmittal (as supplemented),
and the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company,
as amended from time to time (the "Schedule 14D-9"), copies of which have been
mailed to holders of the Common Shares. Certain other documents (including the
Merger Agreement) were filed with the Securities and Exchange Commission (the
"SEC") as exhibits to the Tender Offer Statement on Schedule 14D-1, as amended
from time to time (the "Schedule 14D-1"), of LAC and as exhibits to the Schedule
14D-9. The exhibits to the Schedule 14D-1 and the Schedule 14D-9 may be examined
at and copies thereof may be obtained from the SEC (except that the exhibits
thereto cannot be obtained from the regional offices of the SEC). The discussion
of any such document included herein is qualified in its entirety by reference
to the text of such document.
NO ACTION IS REQUIRED BY HOLDERS OF THE COMMON SHARES IN CONNECTION WITH
THE ELECTION OF THE AVANT-GARDE DESIGNEES TO THE BOARD. HOWEVER, SECTION 14(f)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"),
REQUIRES THE MAILING TO HOLDERS OF THE COMMON SHARES OF THE INFORMATION SET
FORTH IN THIS INFORMATION STATEMENT PRIOR TO A CHANGE IN A MAJORITY OF THE
COMPANY'S DIRECTORS.
The information contained in this Information Statement concerning
Avant-Garde, LAC and the Avant-Garde Designees has been furnished to the Company
by such persons, and the Company assumes no responsibility for the accuracy or
completeness of such information. The principal executive offices of Avant-Garde
and LAC are located at 44 Harbor Park Drive, Port Washington, New York 11050.
A-2
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
General. The outstanding voting securities of the Company as of April 20,
1995 consisted of 46,958,375 Common Shares. The Common Shares are not entitled
to vote in connection with the election of the Avant-Garde Designees to the
Board.
Stock Ownership. The following table sets forth information, as of April
20, 1995 (unless a different date is specified in the notes to the table), with
respect to (a) each person known by the Board of the Company to be the
beneficial owner of more than 5% of the Common Shares, (b) each current director
of the Company, (c) each of the Named Officers (as defined herein) and (d) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE SHARES SUBJECT TO
OF BENEFICIAL OPTIONS EXCERCISABLE PERCENT OF
SHAREHOLDER OWNERSHIP(A) WITHIN 60 DAYS CLASS(B)
- ------------------------------------------------ ----------------- -------------------- ----------
<S> <C> <C> <C>
Mellon Bank Corporation......................... 4,678,000(c) 10.1%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
The Prudential Insurance........................ 3,168,000(d) 6.8%
Company of America
Prudential Plaza
Newark, New Jersey 07102
Sasco Capital, Incorporated..................... 2,971,200(e) 6.4%
10 Sasco Hill Road
Fairfield, Connecticut 06430
Leon G. Cooperman............................... 2,678,100(f) 5.8%
c/o Omega Advisors, Inc.
88 Pine Street
Wall Street Plaza, 31st Floor
New York, New York 10005
Joseph H. Anderer............................... 28,308 13,999 *
Philip E. Beekman............................... 4,999 2,000 *
David M. Browne................................. 103,910(g)(h)(i) 87,750 *
Gilbert Hahn, Jr................................ 28,999 25,999 *
Noel E. Hord.................................... 61,219(g)(i) 31,250 *
Roger L. Howe................................... 18,999 3,999 *
Bannus B. Hudson................................ 242,778(g)(i) 187,000 *
Lorrence T. Kellar.............................. 21,005 13,999 *
Albert M. Kronick............................... 41,999(h) 22,000 *
Thomas Laco..................................... 48,799(h) 5,999 *
Charles S. Mechem, Jr........................... 36,500 24,000 *
John L. Roy..................................... 37,999 25,999 *
Michael M. Searles.............................. 67,175(i) 56,250 *
Phyllis S. Sewell............................... 11,999 5,999 *
K. Brent Somers................................. 71,810(h)(i) 60,000 *
All directors and executive officers as a group
(20 persons).................................. 1,004,804(g)(h)(i) 728,683 2.1%
</TABLE>
- ---------------
* Percent of class is less than 1%
A-3
<PAGE> 7
(a) The SEC has defined "beneficial owner" of a security to include any person
who has or shares voting power or investment power with respect to any
such security or who has the right to acquire beneficial ownership of any
such security within 60 days. Unless otherwise indicated, (i) the amounts
owned reflect direct beneficial ownership, and (ii) the person indicated
has sole voting and investment power. Amounts shown include the number of
Common Shares subject to outstanding options under the Company's stock
option plans that are exercisable within 60 days.
(b) The percentages shown are calculated on the basis that outstanding shares
include Common Shares subject to outstanding options under the Company's
stock option plans that are exercisable by directors and officers within
60 days.
(c) Mellon Bank Corporation, on behalf of itself and its direct or indirect
subsidiaries, Boston Safe Deposit and Trust Company, Mellon Bank, N.A.,
Mellon Capital Management Corporation, The Boston Company Advisors, Inc.,
The Boston Company Asset Management, Inc. and The Dreyfus Corporation, has
reported (in Amendment No. 3 to a Schedule 13G dated March 8, 1995 and
filed with the SEC) that as of that date it had sole voting power with
respect to 3,562,000 Common Shares, shared voting power with respect to
20,000 Common Shares, sole dispositive power with respect to 3,919,000
Common Shares and shared dispositive power with respect to 759,000 Common
Shares.
(d) The Prudential Insurance Company of America has reported (in a Schedule
13G dated February 2, 1995 and filed with the SEC) that as of December 31,
1994 it had sole voting power and sole dispositive power with respect to
265,600 Common Shares and shared voting power and shared dispositive power
with respect to 2,902,400 Common Shares.
(e) Sasco Capital, Incorporated has reported (in a Schedule 13G dated February
3, 1995 and filed with the SEC) that as of that date it had sole voting
power with respect to 1,519,300 Common Shares and beneficial ownership to
direct disposition with respect to 2,971,200 Common Shares.
(f) Leon G. Cooperman of Omega Capital Partners, L.P., Omega Institutional
Partners, L.P., Omega Overseas Partners, Ltd., Omega Overseas Partners II,
Ltd., and Omega Advisors, Inc., has reported (in a Schedule 13D dated
March 6, 1995 and filed with the SEC) that as of that date he had sole
voting power and sole dispositive power with respect to 2,014,300 Common
Shares and shared voting power and shared dispositive power with respect
to 663,800 Common Shares.
(g) Includes restricted Common Shares granted under The United States Shoe
Corporation 1988 Employee Incentive Plan, which total 10,000, 2,985 and
20,000 for Messrs. Hudson, Browne and Hord, respectively, and 32,985 for
all directors and executive officers as a group.
(h) Includes Common Shares in which the reporting person disclaims beneficial
ownership. Messrs. Browne, Kronick and Somers disclaim beneficial
ownership of 33 Common Shares, 2,000 Common Shares and 200 Common Shares,
respectively; such Common Shares are owned by their spouses. Mr. Laco
disclaims beneficial ownership of 2,800 Common Shares; such Common Shares
are held in trust for family members. Directors and executive officers as
a group disclaim beneficial ownership of 5,033 Common Shares.
(i) Includes restricted Common Shares granted in fiscal 1995 under The United
States Shoe Corporation Total Return to Shareholders Plan, which total
9,836, 4,054, 4,469, 4,925 and 2,935 for Messrs. Hudson, Browne, Hord,
Searles and Somers, respectively, and 27,952 for all directors and
executive officers as a group.
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who beneficially own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and with the New York and Pacific Stock Exchanges.
Directors, officers and greater-than-10% beneficial owners are required by SEC
regulation to furnish the Company with copies of all Section 16(a) reports that
they file.
Based solely on its review of copies of such reports received by it, or
written representations from certain reporting persons that no such reports were
required for those persons, the Company believes that during fiscal year 1994
all filing requirements applicable to its directors, officers and
greater-than-10% beneficial owners were complied with.
A-4
<PAGE> 8
DIRECTORS AND EXECUTIVE OFFICERS
The Avant-Garde Designees. The Avant-Garde Designees are listed on
Schedule I annexed hereto, which Schedule includes certain information regarding
such persons.
None of the Avant-Garde Designees or their associates is a director of, or
holds any position with, the Company. Except as set forth below, to the best
knowledge of the Company, none of the Avant-Garde Designees or their associates
beneficially owns any equity securities, or rights to acquire any equity
securities, of the Company or has been involved in any transactions with the
Company or any of its directors or executive officers that are required to be
disclosed pursuant to the rules and regulation of the SEC: Avant-Garde owns
31,375 Common Shares; Mr. Claudio Del Vecchio owns as joint tenant with his wife
5,100 Common Shares; the Avant-Garde Optics, Inc. Employee Profit Sharing Plan
owns 6,700 Common Shares; and the Avant-Garde Optics, Inc. Employee Pension Plan
owns 1,500 Common Shares.
Except as set forth below under "Certain Litigation", to the best knowledge
of the Company, none of the Avant-Garde Designees or any of their associates is
involved in any pending legal proceedings in which such Avant-Garde Designee or
any such associate is a party adverse to the Company or any of its subsidiaries.
Except for sales to the Company by direct or indirect subsidiaries of
Luxottica Group of goods in the ordinary course of business on an arm's length
basis (the aggregate amount of which, during the Company's 1994 fiscal year, was
approximately $5,525,000), to the best knowledge of the Company, none of the
Avant-Garde Designees or any of the members of his or her immediate family was a
party to any transaction or series of transactions since January 29, 1994, or is
a party to any currently proposed transaction or series of transactions, with
the Company or any of its subsidiaries in which the amount involved exceeds
$60,000.
A-5
<PAGE> 9
Current Directors. The following table sets forth certain information with
respect to the current directors of the Company as of April 20, 1995.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS
EXPIRATION EXPERIENCE DIRECTOR
NAME AGE DATE OF TERM AND DIRECTORSHIPS SINCE
- --------------------------------- --- ------------ -------------------------------------- --------
<S> <C> <C> <C> <C>
Joseph H. Anderer................ 70 1996 Consultant to the textile industry. 1980
Director of General Clutch Corp. and
Storage Solutions, Inc.
Philip E. Beekman................ 63 1995 Chairman of the Board and Chief 1992
Executive Officer of Hook-SupeRx,
Inc., a drug store chain, 1987 to
1994. Director of ABEX, Inc., Fisher
Scientific International and the
Ladies Professional Golf Association.
Gilbert Hahn, Jr. ............... 73 1995 Senior Partner with Amram & Hahn, 1970
P.C., Washington, D.C.
Roger L. Howe.................... 60 1995 Chairman of the Board of U.S. 1991
Precision Lens, Inc., a maker of
precision optical equipment, since
1988. Director of Cintas Corporation,
Eagle-Picher Industries, Inc., Star
Banc Corp., Star Bank of Cincinnati,
Atkins and Pierce Company and Baldwin
Piano & Organ Co.
Bannus B. Hudson................. 49 1996 President and Chief Executive Officer 1989
of the Company since 1990; President
and Chief Operating Officer of the
Company, January 1990-March 1990;
President of the LensCrafters
Division, October 1987-March 1990.
Director of the Ohio National Life
Insurance Company.
Lorrence T. Kellar............... 57 1996 Group Vice President, Real Estate and 1986
Finance, of The Kroger Co., a national
grocery store chain. Director of
Multi-Color Corporation and a trustee
of Bartlett Management Trust.
Albert M. Kronick................ 71 1997 Trustee of Retail Property Trust. 1979
Thomas Laco...................... 66 1995 Retired in 1989 as an executive of The 1990
Procter & Gamble Company, a consumer
products company, where he served in
various positions, including Executive
Vice President and Vice Chairman of
the Board. Director of United States
Playing Card Company and Atkins and
Pearce Company.
</TABLE>
A-6
<PAGE> 10
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS
EXPIRATION EXPERIENCE DIRECTOR
NAME AGE DATE OF TERM AND DIRECTORSHIPS SINCE
- --------------------------------- --- ------------ -------------------------------------- --------
<S> <C> <C> <C> <C>
Charles S. Mechem, Jr. .......... 64 1997 Director since 1990. Chairman of the 1990
Board of the Company since 1993;
Commissioner of the Ladies
Professional Golf Association since
1991; director of Star Banc Corp., The
Mead Corporation, J.M. Smucker
Company, The Ohio National Life
Insurance Company and AGCO
Corporation. Director of Great
American Broadcasting Company
(formerly Taft Broadcasting Company),
1967-June 1990, Chairman of its
Executive Committee, June
1990-December 1990; Of Counsel to
Taft, Stettinius & Hollister, June
1990-December 1990.
John L. Roy...................... 66 1997 Chairman of the Board of Hydro Systems 1979
Company, a maker of industrial
cleaning equipment.
Phyllis S. Sewell................ 64 1995 Senior Vice President of Federated 1990
Department Stores, Inc., a retail
department store chain, 1979-1988.
Director of Pitney Bowes, Inc., Lee
Enterprises, Inc. and SYSCO
Corporation.
</TABLE>
Certain Information Regarding the Board of Directors and Committees
Thereof. The Board held nine meetings during fiscal year 1994. Each current
director who held that office throughout the fiscal year attended 75% or more of
those meetings and the meetings held during the fiscal year by all Board
committees on which he or she served.
Committees of the Board of Directors. The Board has an Audit Committee,
the members of which are not officers or employees of the Company. The Audit
Committee, which held 7 meetings during fiscal year 1994, recommends to the
Board the independent auditors to be employed by the Company; consults with the
independent auditors on the scope of the annual audit; approves the fees paid to
the independent auditors for audit and non-audit services; reviews reports of
examination of the independent auditors, internal auditors and regulatory
authorities; and reports to the Board with respect to all of the foregoing. The
members of the Audit Committee are Messrs. Hahn (Chairman), Anderer, Howe and
Kronick.
The Board has a Compensation Committee, the members of which are not
officers or employees of the Company. The Compensation Committee, which held 4
meetings during fiscal year 1994, is responsible for developing and recommending
the Company's executive compensation principles, policies and programs to the
Board. The Compensation Committee also recommends to the Board on an annual
basis the amount and type of compensation to be paid to the Company's executive
officers, including the Chief Executive Officer. The members of the Compensation
Committee are Messrs. Anderer (Chairman), Beekman and Laco, and Mrs. Sewell. See
"Report of the Compensation Committee of the Board", below.
The Board has a Nominating Committee, which held 2 meetings during fiscal
year 1994. The Nominating Committee screens and recommends to the Board
candidates for director and Chief Executive Officer. The members of the
Nominating Committee are Messrs. Kronick (Chairman) and Roy, and Mrs. Sewell.
A-7
<PAGE> 11
COMMITTEE ASSIGNMENTS OF THE DIRECTORS (AS OF APRIL 20, 1995)
<TABLE>
<CAPTION>
NAME COMMITTEE ASSIGNMENTS
- ------------------------------ -------------------------------------
<S> <C>
Joseph H. Anderer............. Audit, Executive and Compensation*
Philip E. Beekman............. Compensation and Retirement
Gilbert Hahn, Jr.............. Executive, Finance and Audit*
Roger L. Howe................. Audit and Nominating
Bannus B. Hudson.............. Executive and Finance
Lorrence T. Kellar............ Executive, Retirement and Finance*
Albert M. Kronick............. Audit, Executive and Nominating*
Thomas Laco................... Compensation and Finance
Charles S. Mechem, Jr......... Executive*
John L. Roy................... Executive, Nominating and Retirement*
Phyllis S. Sewell............. Compensation and Nominating
</TABLE>
- ---------------
* Denotes committee chair.
Certain Litigation
On March 3, 1995, Luxottica Group and LAC (together with Luxottica Group
and Avant-Garde, the "Luxottica Plaintiffs") commenced an action in the United
States District Court for the Southern District of Ohio, Eastern Division (the
"District Court"), by filing a complaint (the "Luxottica Complaint") against the
Company, the directors of the Company, the Commissioner of Securities of Ohio,
the Director of Commerce of Ohio, and the State of Ohio. Since the commencement
of such action, the Luxottica Plaintiffs have filed certain additional claims,
and the Company and its directors have filed certain counterclaims, relating to
the Luxottica Offer with the District Court.
On April 21, 1995, the Company, Avant-Garde and LAC entered into the Merger
Agreement. Pursuant to the Merger Agreement, the parties agreed, promptly, and
in any event not later than April 26, 1995 (unless the Merger Agreement had been
earlier terminated), to use their respective best efforts to obtain a dismissal
without prejudice of the claims (with certain limited exceptions) and
counterclaims filed by each party, with each party bearing its own costs and
attorneys' fees therefor.
On April 25, 1995, all parties to the litigation entered into a Stipulation
of Dismissal of Certain Claims whereby the parties agreed to dismiss without
prejudice all of the claims filed by the Luxottica Plaintiffs (with certain
limited exceptions, such remaining claims to be dismissed without prejudice when
the Luxottica Offer is consummated) and all counterclaims filed by the Company
and its directors; such Stipulation was filed in the District Court on the same
date.
A-8
<PAGE> 12
Executive Officers. The following table sets forth certain information
with respect to the current executive officers of the Company as of April 20,
1995.
<TABLE>
<CAPTION>
NAME TITLE AGE
- ----------------------------------- ---------------------------------------------------- ---
<S> <C> <C>
David M. Browne.................... Executive Vice President, President --
Optical Retailing Group 35
James J. Crowe..................... Vice President -- Secretary and General Counsel 59
Edwin C. Gerth..................... Vice President -- Corporate Controller 56
Noel E. Hord....................... Executive Vice President, President -- Footwear
Group 48
Bannus B. Hudson................... President and Chief Executive Officer 49
James P. Maloney................... Vice President -- Human Resources 55
Charles S. Mechem, Jr. ............ Chairman of the Board 64
Robert J. Petrik................... Vice President -- Treasurer 46
Michael M. Searles................. Executive Vice President, President --
Women's Apparel Retailing Group 46
K. Brent Somers.................... Executive Vice President and Chief Financial Officer 46
David G. Stouffer.................. Vice President -- Corporate Planning 37
</TABLE>
A-9
<PAGE> 13
Business Experience of Executive Officers.
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE -- PAST FIVE YEARS TO PRESENT
- -------------------------- --------------------------------------------------------------------
<S> <C>
David M. Browne........... Executive Vice President of the Company since March 1994;
President -- Optical Retailing Group since February 1992;
President -- LensCrafters Division, March 1990-February 1992;
Executive Vice President of the LensCrafters Division, October
1989-March 1990; Vice President -- Marketing of the LensCrafters
Division, October 1987-October 1989.
James J. Crowe*
Edwin C. Gerth*
Noel E. Hord.............. Executive Vice President of the Company since March 1994;
President -- Footwear Group since May 1993; Group President of Nine
West and Enzo Angiolini divisions of Nine West Group, Inc. (formerly
Fisher-Camuto), January 1991-May 1993; President of Enzo Angiolini
division prior to January 1991.
Bannus B. Hudson.......... (See information in Directors' section above.)
James P. Maloney.......... Vice President -- Human Resources of the Company since January 1994;
Vice President -- Human Resources of the Footwear Group, April
1993-January 1994; Vice President -- Human Resources, Howmet
Corporation, September 1992-April 1993; Director -- Organization
Change, Howmet Corporation, May 1992-September 1992,
Director -- Education and Management Development, Howmet
Corporation, January 1988 -- May 1992.
Charles S. Mechem, Jr..... (See information in Directors' section above.)
Robert J. Petrik*
Michael M. Searles........ Executive Vice President of the Company since March 1994;
President -- Women's Apparel Retailing Group since March 1993;
President of the Kids 'R Us division of Toys 'R Us, Inc. prior to
March 1993.
K. Brent Somers........... Executive Vice President of the Company since March 1994; Chief
Financial Officer since April 1990; Vice President -- Finance of the
Company, April 1990 -- March 1994; Vice President -- Finance and
Accounting and Chief Financial Officer of the LensCrafters Division,
October 1987-April 1990.
David G. Stouffer......... Vice President -- Corporate Planning of the Company since September
1994; Director of Planning of the Company, February 1992-September
1994; Director of Marketing Information of the LensCrafters
Division, January 1991-February 1992; Director of Financial Planning
of the LensCrafters Division, January 1989-January 1991.
</TABLE>
- ---------------
* Has served the company in the present position for at least the past five
years.
A-10
<PAGE> 14
EXECUTIVE COMPENSATION
Summary Compensation Table.
The following information relates to the annual and long-term compensation
for services in all capacities to the Company for the fiscal years ended January
28, 1995, January 29, 1994 and January 30, 1993 of those persons who, at January
28, 1995 were (i) the Chief Executive Officer and (ii) the other four most
highly compensated executive officers of the Company (together with the Chief
Executive Officer, the "Named Officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------------- ------------------------- PAYOUTS
OTHER RESTRICTED SECURITIES --------- ALL OTHER
ANNUAL SHARES UNDERLYING LTIP COMPEN-
COMPEN- AWARDS OPTIONS/SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) ($)(a) (#)(b)(f) ($)(g)(h) ($)(c)
- --------------------------- ---- --------- -------- --------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bannus B. Hudson........... 1994 $602,885 $400,000 $0 $0 40,000 $ 0 $7,171
President 1993 $583,492 $0 $0 $0 40,000 $ 0 $3,492
Chief Executive Officer 1992 $571,214 $0 $0 $0 40,000 $ 0 $3,714
David M. Browne............ 1994 $400,000(i) $400,000 $0 $0 30,000 $ 0 $11,972
Executive Vice President 1993 $332,922 $300,000 $0 $50,000 30,000 $ 0 $7,922
President, Optical 1992 $320,717 $200,000 $0 $0 25,000 $ 0 $9,417
Retailing Group
Noel E. Hord............... 1994 $472,500(i) $285,000 $0 $0 25,000 $ 0 $7,578
Executive Vice President 1993 $549,400(j) $0 $54,886 $190,000 50,000 $ 0 $0
President, Footwear Group(d) 1992 $0 $0 $0 $0 0 $ 0 $0
Michael M. Searles......... 1994 $650,000(e) $0 $0 $0 25,000 $ 0 $3,306
Executive Vice President 1993 $592,300(j) $500,000 $40,385 $0 100,000 $ 0 $0
President, Women's Apparel 1992 $0 $0 $0 $0 0 $ 0 $0
Retailing Group(d)
K. Brent Somers............ 1994 $331,154(i) $250,000 $0 $0 20,000 $ 0 $8,331
Executive Vice President 1993 $280,000 $0 $0 $0 20,000 $ 0 $4,092
Chief Financial Officer 1992 $273,077 $0 $0 $0 12,000 $ 0 $4,364
</TABLE>
- ---------------
(a) As of January 28, 1995, the Company had 67,985 restricted Common Shares
outstanding with an aggregate value (assuming no restrictions) of
$1,385,194. The Named Officers' restricted shareholdings (as of that date)
are as follows: Mr. Hudson -- 25,000 Common Shares/$509,375; Mr. Browne --
7,985 Common Shares/$162,694; Mr. Hord -- 20,000 Common Shares/$407,500;
and Mr. Somers -- 5,000 Common Shares/$101,875. Dividends are paid to
holders of restricted Common Shares. Pursuant to the terms of the Merger
Agreement, the Board will adopt resolutions to terminate all restrictions
on the restricted Common Shares prior to the Merger.
(b) The Company's 1988 Employee Incentive Plan (the "1988 Plan") does not
permit grants of stock appreciation rights. The 1988 Plan (as well as all
of the Company's other plans under which stock options have been awarded)
provides for acceleration of exercisability of options granted thereunder
upon the occurrence of certain events constituting a change of control, as
described in the 1988 Plan.
(c) Amounts listed hereunder reflect contributions by the Company made to
various retirement and deferred compensation plans in which the Named
Officers have participated, and the dollar value of insurance premiums
paid by the Company for the benefit of the Named Officers. Amounts
contributed to the Company's Salaried Employees deferred Compensation Plan
for the benefit of the Named Officers are as follows: Mr.
Hudson -- $3,436; Mr. Browne -- $3,696; Mr. Hord -- $4,620; and Mr.
Somers -- $5,025. The amount contributed to the LensCrafters Tax Incentive
Retirement Savings Plan for the benefit of Mr. Browne was $7,055. The
dollar amount of insurance premiums paid for the
A-11
<PAGE> 15
benefit of the Named Officers are as follows: Mr. Hudson -- $3,735; Mr.
Browne -- $1,221; Mr. Hord -- $2,958; Mr. Searles -- $3,306; and Mr.
Somers -- $3,306.
(d) Messrs. Hord and Searles were first employed by the Company in 1993.
(e) For Mr. Searles, such amount includes a guaranteed payment of $150,000
pursuant to the terms of his employment contract.
(f) Common Shares reflected do not include those Common Shares underlying
options granted to the Named Officers on March 31, 1995, as follows: Mr.
Hudson -- 40,000; Mr. Browne -- 27,000; Mr. Hord -- 23,000; Mr.
Searles -- 20,000; and Mr. Somers -- 18,000.
(g) On March 31, 1995, the Board approved payments to the Named Officers in
accordance with the Total Return to Shareholders Plan (as defined herein).
The payments, relating to the performance period January 1, 1992 through
March 31, 1995, were as follows: Mr. Hudson -- $259,000; Mr. Browne --
$107,000; Mr. Hord -- $118,000; Mr. Searles -- $130,000; and Mr.
Somers -- $77,000. Such payments were made in restricted Common Shares
based upon $26.3125 per Common Share (the average of the March 30, 1995
high and low prices of the Common Shares on the New York Stock Exchange).
These payments are not included in the above table.
(h) The change in control of the Company that is anticipated to occur as a
result of the Merger Agreement would result in the Named Officers
receiving a prorated portion of awards earned under the Total Return to
Shareholders Plan for performance periods that have not been completed as
of the date of the change in control, as provided in such Plan.
(i) On March 31, 1995, the Board approved regular annual salary increases for
1995, including increases for Mr. Browne, from $425,000 to $500,000, Mr.
Hord, from $515,000 to $540,000, and Mr. Somers, from $350,000 to
$370,000. The timing of the approval and effectiveness of such annual
salary increases is consistent with the Company's practices in prior
years.
(j) Such amounts include $250,000 and $150,000 of guaranteed incentive bonus
payments for Messrs. Hord and Searles, respectively, pursuant to the terms
of their employment contracts.
Recent Stock Options Grants.
The following information relates to grants of options awarded to the Named
Officers in fiscal year 1994 under the Corporation's 1988 Employee Incentive
Plan (the "1988 Plan").
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS/SARS EMPLOYEES IN EXERCISE OR EXPIRATION PRESENT VALUE
NAME GRANTED(#)(a)(d) FISCAL YEAR BASE PRICE(/SH) DATE ($)(b)(c)(d)
- --------------------- ---------------- ------------ ---------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Bannus B. Hudson..... 40,000 7.1% $19.06 11/26/04 $ 238,800
David M. Browne...... 30,000 5.3% $19.06 11/26/04 $ 179,100
Noel E. Hord......... 25,000 4.4% $19.06 11/26/04 $ 149,250
Michael M. Searles... 25,000 4.4% $19.06 11/26/04 $ 149,250
K. Brent Somers...... 20,000 3.5% $19.06 11/26/04 $ 119,400
</TABLE>
- ---------------
(a) Options granted to the Named Officers were granted on May 26, 1994 and
first become exercisable on May 26, 1995. All options granted are subject
to a vesting schedule, with 25% of the total grant exercisable on the
first anniversary of the grant and the remainder exercisable in 25%
increments at each anniversary of the grant. In the event of death or
disability, outstanding options may be exercised by the optionee or his or
her personal representative for a period of one year following such event.
In the event of retirement or any other termination, outstanding options
may be exercised for a period of three months following such event. All
outstanding options automatically vest and become exercisable in the event
of an "Event of Acceleration" as defined in the plan, which includes the
occurrence of
A-12
<PAGE> 16
certain events constituting a change of control as described therein. See
footnote (c). All options were granted at an exercise price equal to the
average of the high and low prices on the New York Stock
Exchange -- Composite Transactions of the Company's Common Shares on the
date of grant.
(b) The estimate of grant date present value in the above table is determined
using the Black-Scholes model. The material assumptions and adjustments
incorporated in the Black-Scholes model in estimating the value of the
options reflected in the above table include the following: (1) an
exercise price on the options of $19.06, each equal to the fair market
value of the underlying Common Shares on the date of grant; (2) option
terms of 10.5 years; (3) interest rates representing the interest rate on
U.S. Treasury securities with maturity dates corresponding to that of the
option term as of the date of grant; (4) volatility of 38% calculated
using daily stock prices for the one-year period prior to the date of
grant; (5) dividends at the rate of $0.32 per share representing the
annualized dividends paid with respect to a Common Share at the date of
grant; and (6) a reduction of approximately 19% to reflect the probability
of forfeiture due to termination prior to vesting, and a reduction of
approximately 20% to reflect the probability of a shortened option term
due to termination of employment prior to the option expiration date. See
footnote (c).
(c) Based on the Luxottica Offer's $28 per Common Share purchase price, the
value of the options granted to each Named Officer in fiscal year 1994
($28 per Common Share purchase price, less the option exercise price) is
as follows: Mr. Hudson -- $357,600; Mr. Browne -- $268,200; Mr. Hord --
$223,500; Mr. Searles -- $223,500; and Mr. Somers -- $178,800. Pursuant to
the terms of the Merger Agreement and in accordance with the terms of the
1988 Plan, all options will become fully exercisable and vested, and each
such option will be cancelled in exchange for a payment equal to the
difference between $28 and the exercise price of such option.
(d) The number of options granted to each Named Officer on March 31, 1995, at
an exercise price of $26.25 per Common Share, and the value of such
options based on the Luxottica Offer's $28 per Common Share purchase price
($28 per Common Share purchase price, less the option exercise price) are
as follows: Mr. Hudson -- 40,000/$70,000; Mr. Browne -- 27,000/$47,250;
Mr. Hord -- 23,000/$40,250; Mr. Searles -- 20,000/$35,000; and Mr.
Somers -- 18,000/$31,500. These options were granted in fiscal year 1995.
Accordingly, the option grants and their related values are not included
in the above table.
Aggregated Option Exercises.
The following information relates to options to purchase Common Shares
granted in fiscal year 1994 and prior years under the 1988 Plan, the 1987 Key
Personnel Stock Option Plan and the 1983 Key Personnel Stock Option Plan to the
Named Officers and held by them at January 28, 1995.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES VALUE FY-END FY-END(c)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($)(a) UNEXERCISABLE(#)(b)(e) UNEXERCISABLE($)(b)(d)(e)
- -------------------------------- ----------- -------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
Bannus B. Hudson................ -- -- 149,500/ 97,500 $400,785/$453,538
David M. Browne................. 2,500 $ 9,063 61,500/ 70,000 $231,598/$325,388
Noel E. Hord.................... -- -- 12,500/ 62,500 $135,938/$440,688
Michael M. Searles.............. -- -- 25,000/100,000 $218,750/$689,125
K. Brent Somers................. 2,400 $ 17,700 44,500/ 43,500 $148,754/$201,113
</TABLE>
- ---------------
(a) Aggregate market value of the shares covered by the option, less the
aggregate price paid by the Named Officer.
(b) The Common Shares represented by the "Unexercisable" amounts could not be
acquired by the respective Named Officer as of January 28, 1995, and
future exercisability is subject to continuing employment by the Company
and incremental vesting for periods up to four years, depending upon the
A-13
<PAGE> 17
individual Named Officer, subject to acceleration for retirement, death,
disability or in the event of a change in control (as defined in the
respective plans). Pursuant to the terms of the Merger Agreement and in
accordance with the terms of the plans, all options will become fully
exercisable and vested, and each such option will be cancelled in exchange
for a payment equal to the difference, if any, between $28 and the
exercise price of such option.
(c) Amounts reflecting gains on outstanding options based upon the closing
price of the Common Shares on January 27, 1995, the last trading day of
the fiscal year.
(d) Based on the Luxottica Offer's $28 per Common Share purchase price, the
value of the options held by each Named Officer at the end of fiscal year
1994 ($28 per Common Share purchase price, less the option exercise price)
is as follows (exercisable/unexercisable): Mr. Hudson --
$1,206,366/$1,196,975; Mr. Browne -- $650,666/$859,138; Mr.
Hord -- $231,250/$917,250; Mr. Searles -- $409,375/$1,451,625; and Mr.
Somers -- $448,759/$532,800.
(e) The number of options granted to each Named Officer on March 31, 1995, at
an exercise price of $26.25 per share, and the value of such options based
on the Luxottica Offer's $28 per Common Share purchase price ($28 per
Common Share purchase price, less the option exercise price) are as
follows: Mr. Hudson -- 40,000/$70,000; Mr. Browne -- 27,000/$47,250; Mr.
Hord -- 23,000/$40,250; Mr. Searles -- 20,000/$35,000; and Mr.
Somers -- 18,000/$31,500. These options were granted in fiscal year 1995.
Accordingly, the option grants, none of which are currently exercisable,
and their related values are not included in the above table.
Long-Term Incentive Plans -- Awards in Last Fiscal Year.
On July 29, 1994, the Board adopted the Total Return to Shareholders Plan
(the "TRS Plan") to replace the Company's Key Executive Long-Term Incentive
Program (the "LTI Program"). Under the TRS Plan, beginning in 1994 and for each
year thereafter, a 39-month performance period will be established, and for each
performance period a target award will be determined for each participant in the
TRS Plan. The target award generally will be based upon median competitive
levels for long-term incentive opportunities, as determined by the Compensation
Committee of the Board. At the end of each 39-month period, the total return for
that period (share price appreciation plus reinvested dividends) for an
investment in Common Shares will be compared with a similar investment in the
shares of a designated peer group of corporations. Awards will then be made to
participants based on the Company's ranking in the peer group, ranging from 50%
of the participant's target award if the Company is in the 40th percentile to
200% of a participant's target award if the Company is in at least the 90th
percentile. No awards will be made if the Company's ranking in the peer group is
below the 40th percentile. All awards under the TRS Plan will be in cash or in
Common Shares, which will be restricted and subject to forfeiture if the
participant terminates his or her employment during the three-year period
following the award. The Plan also provides for payouts in the event of a change
in control of the Company. A transition plan is in effect whereby executives may
earn prorated awards based on total share price appreciation for the 39-month
periods ending at the close of the first calendar quarters in 1995 and 1996. The
LTI Program will be phased out during this transition period.
On April 21, 1995, the Board adopted a restatement of the TRS Plan that
clarified certain of its terms and provisions by the addition of various details
and explanatory material. In particular, the restatement included a description
of the Compensation Committee's authority to administer and modify the plan, to
select participants and to establish target awards; definitions of certain key
terms used in the plan; a list of the 21 companies included in the Company's
peer group (which is the same list used for purposes of its annual proxy
statement); procedures by participants for the designation of beneficiaries; a
designation of dates on which values are to be determined; an explanation of the
consequences of termination of employment under various circumstances, including
normal retirement, disability and death; automatic adjustment of the number of
restricted Common Shares subject to an award in the case of stock splits,
reorganizations and other fundamental changes in the structure of the Company;
and reservation of the Company's right to register and/or qualify the Common
Shares under federal or state securities laws if such registration and/or
qualification is deemed necessary. The restatement also made it clear that the
"change in control" definition used in the TRS Plan is similar to those used in
the Company's Severance Compensation Agreements (as defined herein) and in the
Company's Economic Bridge Program; that in the event of a change in control as
to
A-14
<PAGE> 18
any participant, such participant will be entitled to a prorated number of
Common Shares or cash earned under performance periods that have not been
completed at the time such change in control occurs; and that Common Shares
previously awarded to that participant will be unrestricted.
No payouts were made in fiscal 1994 under the LTI Program. The following
information relates to long-term incentive awards made to the Named Officers in
fiscal 1994 under the TRS Plan. See footnote (c) for payments made to the Named
Officers approved on March 31, 1995.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF PERFORMANCE UNDER NON-STOCK
SHARES, UNITS OR OTHER PRICE-BASED PLANS(d)
OR OTHER PERIOD UNTIL ------------------------------
RIGHTS AWARDED MATURATION OR THRESHOLD TARGET MAXIMUM
NAME ($)(a)(b) PAYOUT(c) ($) ($) ($)(c)
- --------------------------- -------------- ----------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Bannus B. Hudson........... $129,000 1/1/92 through 3/31/95 $ 65,000 $129,000 $259,000
$259,000 1/1/93 through 3/31/96 $129,000 $259,000 $517,000
$388,000 1/1/94 through 3/31/97 $194,000 $388,000 $776,000
David M. Browne............ $ 53,000 1/1/92 through 3/31/95 $ 27,000 $ 53,000 $107,000
$107,000 1/1/93 through 3/31/96 $ 53,000 $107,000 $213,000
$160,000 1/1/94 through 3/31/97 $ 80,000 $160,000 $320,000
Noel E. Hord............... $ 59,000 1/1/92 through 3/31/95 $ 29,000 $ 59,000 $118,000
$118,000 1/1/93 through 3/31/96 $ 59,000 $118,000 $235,000
$176,000 1/1/94 through 3/31/97 $ 88,000 $176,000 $352,000
Michael M. Searles......... $ 65,000 1/1/92 through 3/31/95 $ 32,000 $ 65,000 $130,000
$130,000 1/1/93 through 3/31/96 $ 65,000 $130,000 $259,000
$194,000 1/1/94 through 3/31/97 $ 97,000 $194,000 $388,000
K. Brent Somers............ $ 39,000 1/1/92 through 3/31/95 $ 19,000 $ 39,000 $ 77,000
$ 77,000 1/1/93 through 3/31/96 $ 39,000 $ 77,000 $155,000
$116,000 1/1/94 through 3/31/97 $ 58,000 $116,000 $232,000
</TABLE>
- ---------------
(a) Amounts represent the dollar value of potential target payouts which, if
earned, will be made following the end of the performance period
indicated. At the end of each performance period, the Compensation
Committee will approve the payout earned for such period, and will make
such payout in cash or the dollar value of the payout will be converted to
restricted Common Shares based upon the average of the high and low prices
of the Common Shares on the New York Stock Exchange on the trading day
preceding the day of such approval. All restrictions on such restricted
Common Shares will lapse after three years. Additionally, the TRS plan
provides for payouts in the event of a change in control. See footnote
(d).
(b) In this initial year of transition from the LTI Program to the TRS Plan, a
target award was set for the "initial performance period" (the performance
period ending March 31, 1997) and the two "transitional performance
periods" (the two performance periods ending March 31, 1995 and March 31,
1996), with the target awards for the transitional performance periods
being set at 33% and 67% of the initial performance period target award,
respectively. The remaining portion of each participant's target award for
the transitional performance periods will be earned in accordance with the
LTI Program, which is being phased out.
(c) On March 31, 1995, the Board approved payments to the Named Officers in
accordance with the TRS Plan. The payments, relating to the performance
period January 1, 1992 through March 31, 1995, were as follows: Mr.
Hudson -- $259,000; Mr. Browne -- $107,000; Mr. Hord -- $118,000; Mr.
Searles -- $130,000; and Mr. Somers -- $77,000. Such payments were made in
restricted Common Shares based upon $26.3125 per Common Share (the average
of the March 30, 1995 high and low prices of the Common Shares on the New
York Stock Exchange). Following is the value of these restricted Common
Shares based on Luxottica's $28 per Common Share price: Mr.
Hudson -- $275,000; Mr. Browne -- $114,000; Mr. Hord -- $125,000; Mr.
Searles -- $138,000; and Mr. Somers -- $82,000.
(d) The change in control of the Company that is anticipated to occur as a
result of the Merger Agreement would result in the Named Officers
receiving a prorated portion of awards earned under the TRS Plan for
performance periods that have not been completed as of the date of the
change in control, as provided in the Plan.
A-15
<PAGE> 19
Pension and Retirement Supplemental Income Plans.
For many years the Company has maintained several pension and profit
sharing plans for the benefit of its employees. Prior to 1995, employees of the
Footwear, Optical Retailing and Corporate Center Groups were included in a
traditional defined benefits pension plan which, upon retirement, provided a
monthly benefit based on compensation and years of service. Employees of the
Women's Specialty Retailing Group were covered under a profit sharing plan.
Beginning in January 1995, the Company adopted a single, simplified pension
plan that covers all employees, other than those covered by the hourly pension
plans of the Footwear Group. Effective January 1, 1995, benefits under the U.S.
Specialty Retailing Division Profit Sharing Plan for eligible employees of the
Women's Specialty Retailing Group were frozen and participants in such plan
became eligible to participate in The United States Shoe Corporation Pension
Plan (formerly the Salaried Employees Pension Plan) (the "Pension Plan").
Effective January 1, 1995, the method for calculating benefit accruals
under the Pension Plan was changed from a final average pay formula to a cash
balance formula for eligible associates other than those in the Footwear Group.
Accordingly, the method for calculating benefit accruals for Mr. Hord is a final
average pay formula, whereas the method for the remaining Named Officers is a
cash balance formula. Under the cash balance formula, each quarter participants
receive a benefit credit equal to a percentage of their annualized quarterly
compensation based upon their years of service as follows: 1 to 4 years of
service, 1.375%; 5 to 14 years of service, 1.8125%; and 15 or more years of
service, 2.5%. The cash balance account also is credited with assumed "earnings"
each quarter at a rate equal to 1% over the average 90-day Treasury Bill rate.
Each participant's initial cash balance will be equal to the present value of
such participant's accrued benefit as of December 31, 1994. Participants who
have attained age 50 and completed a minimum of 10 years of service as of
January 1, 1995 may receive additional benefit credits based on the
participant's age and years of service with the Company.
The Company also provides a non-qualified Supplemental Executive Salaried
Employees Benefit Plan (the "Supplemental Employees Benefit Plan") which
recognizes retirement benefits for compensation in excess of limits imposed
under the Pension Plan pursuant to the Internal Revenue Code. The estimated
annual benefits (under both plans) payable upon retirement at normal retirement
age (as defined in the Pension Plan and the Supplemental Employees Benefit Plan)
for each of the Named Officers is as follows: Mr. Hudson -- $240,000; Mr.
Browne -- $272,000; Mr. Hord -- $104,000; Mr. Searles -- $173,000, and Mr.
Somers -- $211,000. On April 21, 1995, the Board adopted amendments to the
Supplemental Employees Benefit Plan to provide, in the case of active or retired
Corporate Center Group employees (including Mr. Hudson and Mr. Somers), for a
lump sum payout of the present value of each such employee's accrued benefit
under the Supplemental Employees Benefit Plan immediately prior to the Merger.
Compensation of Directors.
Directors who are not employees of the Company ("Outside Directors") are
paid directors' fees for their services at the rate of $25,000 per year each, as
well as attendance fees of $750 per meeting for service on certain committees.
Directors who chair committees receive an additional annual fee of $3,000. Total
payments to such directors for the Company's last fiscal year amounted to
$288,000. The Company has agreed to pay Charles S. Mechem, Jr., Chairman of the
Board of Directors, $125,000 annually for his services as a part-time employee
in lieu of his annual retainer.
In addition to such payments, since 1985, Outside Directors have received
stock options under the 1985 Outside Directors Stock Option Plan (the "1985
Director Plan"), which terminated on May 31, 1990, and under the 1991 Outside
Directors Stock Option Plan (the "1991 Director Plan"). Mr. Mechem is not
eligible to participate in the 1991 Director Plan because of his part-time
employee status with the Company.
Under the 1991 Director Plan an option is granted automatically on each
annual meeting date, as long as the Plan is in effect, to each Outside Director
who continues in office after such annual meeting, to purchase 2,000 Common
Shares (subject to adjustment as described below); such grants are further
subject to the limit
A-16
<PAGE> 20
on the maximum number of Common Shares that can be issued or transferred
pursuant to the exercise of options under the 1991 Director Plan. In no event
will an Outside Director be granted options to purchase, in the aggregate, more
than 20,000 Common Shares under the 1991 Director Plan (subject to adjustment
for changes in the Company's capitalization, such as a stock split, stock
dividend, recapitalization, consolidation or similar change that affects equity
interests in the Company).
Each option granted to an Outside Director under the 1991 Director Plan has
an exercise price equal to the fair market value of the Common Shares subject to
the option (determined at the time the option is granted). Options may be
exercised by payment to the Company of the exercise price in cash or in Common
Shares already owned by the optionee. No stock option granted under the 1991
Director Plan may be exercised more than ten years from the date the option is
granted. Each option granted to an Outside Director will be exercisable for
one-third of the Common Shares subject to the option after one year from the
date of grant and for an additional one-third of the Common Shares after each
successive one-year period. Such right to exercise is cumulative. A Director to
whom an option is granted under the 1991 Director Plan may not, during his or
her lifetime, transfer the option to any other person. The 1991 Director Plan
also provides that upon the occurrence of certain events constituting a change
in control, as defined in the 1991 Director Plan, any unexercised or partially
exercised options will become immediately exercisable, and will remain
exercisable for as long as they would be otherwise exercisable. The 1985
Director Plan was substantially similar to the 1991 Director Plan, and options
granted under the 1985 Director Plan are subject to similar terms and conditions
as those granted under the 1991 Director Plan. Pursuant to the terms of the
Merger Agreement and in accordance with the terms of the plans, all options will
become fully exercisable and vested, and each such option will be cancelled in
exchange for a payment equal to the difference, if any, between $28 and the
exercise price of such option.
During the Company's last fiscal year, options to purchase 18,000 shares
were granted to Outside Directors at an exercise price of $19.06 under the 1991
Director Plan. During fiscal 1994, 6,000 options were exercised under the 1985
Director Plan and 3,999 shares were exercised under the 1991 Director Plan.
Options to purchase 105,326 Common Shares currently are exercisable under the
1985 Director Plan and the 1991 Director Plan.
On February 2, 1995, the Board approved the adoption of a new retirement
plan for directors who are not employees of the Company (the "Retirement Plan
for Outside Directors"). Under such plan, a member of the Board who retires with
five or more years of service as a director will receive a quarterly retirement
benefit commencing at age 72 (or if later, when such director retires) and
payable for life equal to the quarterly retainer paid to Outside Directors
immediately prior to the retirement of the director. Payments under the
Retirement Plan for Outside Directors terminate upon the death of the director.
On April 21, 1995, the Board (including by the unanimous vote of the directors
who are not eligible to participate in the Retirement Plan for Outside
Directors) approved amendments to such plan to provide for its termination
immediately prior to the Merger and the payment of a lump sum to each
participant therein which is the actuarial equivalent of such participant's
accrued benefit under the Retirement Plan for Outside Directors.
Mr. Mechem, the Chairman of the Board, is not eligible to participate in
the Retirement Plan for Outside Directors or in the 1991 Director Plan because
of his part-time employee status with the Company. However, as a part-time
employee, Mr. Mechem was granted options (i) on April 23, 1993 under The United
States Shoe Corporation 1983 Key Personnel Stock Option Plan to purchase 10,000
Common Shares at an exercise price of $10.56 per Common Share, (ii) on May 26,
1994 under the 1988 Plan to purchase 10,000 Common Shares at an exercise price
of $19.06 per Common Share, and (iii) on March 31, 1995 under the 1988 Plan to
purchase 10,000 Common Shares at an exercise price of $26.25 per Common Share.
The Company also maintains The United States Shoe Corporation Deferred
Compensation Plan for Non-Management Directors (the "Deferred Compensation
Plan"). Pursuant to the terms of the Deferred Compensation Plan, a director may
elect to defer payment of his or her directors' fees. Upon a director's
termination of service, the Company will distribute to such director the
deferred compensation to which he or she is entitled in cash in a lump sum or,
at the director's election, in quarterly installments, the amount payable to be
based on sums available from assumed investments in Common Shares, other
securities or cash.
A-17
<PAGE> 21
On April 21, 1995, the Board took action to terminate the Deferred Compensation
Plan effective upon the Merger. Upon termination of the Deferred Compensation
Plan, the Company will, pursuant to the terms of the Deferred Compensation Plan,
distribute the deferred compensation account balances to Mr. Anderer and Mr.
Kellar, the two Directors on behalf of whom such accounts are currently
maintained.
Employment Contracts, Termination of Employment and Change in Control
Arrangements.
The Company has entered into employment contracts with certain of its
executives, including all of the Named Officers. Generally, such contracts have
terms of three to five years (with automatic renewals) and require the payment
of salaries at certain minimum levels during their respective terms. The Named
Officers' current annual salaries are set forth in the Summary Compensation
Table above. Some of the contracts also provide for front-end payments of cash,
options and/or restricted Common Shares.
The employment contracts permit either the officer or the Company to
terminate the employment relationship by providing written notice of termination
not less than a specified time prior to the respective contract's automatic
renewal date -- generally, six months. The contracts also permit the individual
officers to terminate their respective contracts upon shorter notice under
certain circumstances -- generally, if the Company changes the officer's
assignment to a position of lesser responsibility or if the Company experiences
a "change of control." In any such event the Company has agreed to pay a
termination payment equivalent to the officer's current annual salary, payable
in monthly installments over a one-year period (in the case of the Chief
Executive Officer, the payment is equivalent to twice his current salary,
payable over a two-year period). If the officer dies or becomes disabled while
employed under the contract, the Company will pay him or his beneficiary twice
the amount of his then current salary in monthly installments over a ten-year
period.
The Named Officers' employment contracts have current terms ending on the
following dates and require payment of the minimum annual salaries indicated:
Mr. Hudson, July 31, 1998, $650,000; Mr. Browne, December 31, 1996, $425,000;
Mr. Hord, May 31, 1997, $450,000; Mr. Searles, March 31, 1996, $500,000; and Mr.
Somers, March 31, 1996, $280,000. Mr. Hord's employment contract provides for
annual incentive payments in fiscal years 1993 through 1996 in an amount equal
to 1.5% of the annual operating income (after capital costs) of the Footwear
Group with a minimum payment of $250,000 in each of the fiscal years 1993
through 1995. Mr. Searles' employment contract provides for annual incentive
payments in fiscal years 1993 through 1995 in an amount equal to 0.7% of the
annual operating income (after capital costs) of the Women's Apparel Retailing
Group with a minimum payment of $150,000 in each of the fiscal years 1993 and
1994.
The Company also has provided Severance Compensation Agreements to
seventeen of its present senior executives, including all of the Named Officers.
On September 23, 1994, the Board of Directors approved the entry by the Company
into Amended and Restated Severance Compensation Agreements (each, a "Severance
Compensation Agreement") with the senior executives of the Company for the
stated purpose of reinforcing and encouraging the continued attention and
dedication of members of the Company's management to their assigned duties in
the event of a Change in Control (as defined in the Severance Compensation
Agreements) of the Company. The terms of all such agreements, as amended, are
identical.
The Severance Compensation Agreements provide certain payments and benefits
to executives whose employment is terminated within two years after a Change in
Control. No payments or benefits will be made if the termination occurs for
cause or is due to the executive's retirement, death, or disability. In the
event of a compensated termination of an executive before the expiration of two
years following a Change in Control, the executive will be paid the following:
(i) all salary due to the date of termination; (ii) unused vacation pay; (iii) a
prorated share of the executive's Annual Bonus Target (as defined in the
Severance Compensation Agreements) under the Company's annual incentive cash
bonus plan; (iv) a prorated share of the executive's TRS Bonus Target (as
defined in the Severance Compensation Agreements) under the TRS Plan; and (v) an
amount equal to three times the sum of the executive's annualized base salary
and Annual Bonus Target, reduced by amounts payable to the executive under
clauses (ii), (iii) and (iv) above and provided further that the amounts
described above would be further reduced if the Net After Tax Amount (as defined
in the Severance Agreements) received by the executive would be increased by
such a reduction because such reduced amounts would not be subject to the excise
tax on "excess parachute payments" imposed by Section
A-18
<PAGE> 22
4999 of the Internal Revenue Code of 1986. Such amount will be paid in a lump
sum on the 10th day after the date of termination.
In addition to the payments described, the Company also has agreed to
maintain for the Named Officers all medical, health and accident, and life
insurance, as well as any disability plans, to which he or she was entitled
immediately prior to termination. The coverage will remain in effect for the
earlier of two years after termination or until the executive begins full-time
employment with a new employer. The executive has no obligation to mitigate
benefits or payments owed by the Company by seeking employment before the end of
the two-year period.
The Severance Compensation Agreements do not reduce any other contractual
rights an executive may have under the Company's Economic Bridge Program (as
defined below), but payments under the Severance Compensation Agreements are in
lieu of, and not in addition to, any payments to which an executive would be
entitled under the Economic Bridge Program. Any successor to or assignee of the
Company will be required to assume the obligations of the Severance Compensation
Agreements, including the payment of all legal fees and expenses incurred by
executives as a result of the Company contesting certain aspects of such
Agreements.
Trusts formed for the purpose of ensuring payment of all amounts due under
the Severance Compensation Agreements have been implemented with PNC Bank, Ohio,
National Association, Cincinnati, Ohio, serving as Trustee. An amount equal to
the aggregate amount payable under each of the Severance Compensation Agreements
has been paid into the corresponding trust as a result of the Luxottica Offer.
On February 2, 1995, the Board adopted revisions to The United States Shoe
Corporation Economic Bridge Program for employees of the Company (as
supplemented and amended, the "Economic Bridge Program"). The Economic Bridge
Program provides a salary bridge benefit and continuation of group medical,
dental and life insurance benefits upon an involuntary termination of employment
under stated circumstances, or upon voluntary termination of employment after a
"change in control" (as defined in the Economic Bridge Program) if the covered
employee is not offered comparable employment and coverage under a comparable
economic bridge program after the change in control. The amount of the salary
bridge benefits for executive officers generally is equal to 36 weeks of base
salary plus one week of base salary for each year of service with the Company
plus one week of base salary for each year of age over age 40, not to exceed 64
weeks total. If an eligible employee's employment ends at or within two years
after a change in control has occurred, the amount of the salary bridge benefits
for executive generally is equal to 48 weeks of base salary plus two weeks of
base salary for each year of service with the Company plus one week of base
salary for each year of age over age 40, not to exceed 78 weeks total. Group
medical, dental and life insurance benefits are provided for the number of weeks
for which salary bridge benefits are payable. Individuals with Severance
Compensation Agreements are subject to provisions in such agreements which
provide that any payments under the Severance Compensation Agreements will be in
lieu of and not in addition to any payment to which the individual would
otherwise be entitled under the Economic Bridge Program in the event of a change
in control, as defined in the Economic Bridge Program.
Report of the Compensation Committee of the Board.
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board (the "Committee") is responsible
for developing principles, policies and programs relating to the compensation of
the Company's executives and recommending such principles, policies and programs
to the Board. In addition, the Committee recommends to the Board the
compensation to be paid to the Chief Executive Officer and, with advice from the
Chief Executive Officer, to each of the other Named Officers. The Company's
executive compensation program is designed to:
- Provide compensation arrangements that will assist the Company in
attracting, retaining and motivating better-performing executives.
A-19
<PAGE> 23
- Provide a direct link between executive compensation and the interests of
the Company's shareholders by tying a significant portion of each
executive's compensation to the performance of that executive's business
group and to the price performance of the Company's Common Shares.
- Provide top performers with opportunities to earn compensation at levels
within the top quartile of ranges offered by companies of similar size,
business characteristics and complexity, and with which the Company
competes for executive talent (the "Comparison Framework").
- Assist executives in achieving and maintaining desired levels of Common
Share ownership through stock option and restricted share awards. Desired
levels of Common Share ownership are the following amounts (based on
market value of the Common Shares): Chief Executive Officer, three times
annual salary; senior executives, two times annual salary; and other
executives of the Company, same as annual salary.
The Committee strives to establish total compensation levels that are
competitive with companies in the Comparison Framework. When establishing total
compensation levels, the Committee examines the practices of those companies
included in the Company's "peer group" for stock price performance and the
practices of other retailing and specialty retailing companies. In addition, the
Committee works with compensation consultants to ensure that the Committee's
analysis of compensation levels is supported by survey data and other indicia of
comparability.
The Committee is composed of four non-employee directors of the Company. No
member of the Committee has any insider or interlocking relationship with the
Company, as those terms are defined by applicable rules and regulations of the
SEC.
COMPENSATION OF EXECUTIVE OFFICERS
Compensation packages include base salaries, annual incentive cash bonuses,
stock option awards, restricted share awards and long-term incentive payouts.
Incentive compensation includes bonuses, stock options, restricted share awards
and long-term incentive payouts and may represent between one-third and
two-thirds of an executive officer's potential annual compensation, depending
upon the executive's position. The portion of an executive officer's total
compensation that is incentive compensation increases with the level of
responsibility of the executive officer.
BASE SALARIES
The Committee generally seeks to establish base salaries at levels that are
competitive with the median levels of base salaries for executives with similar
roles and responsibilities at companies within the Comparison Framework. In
making salary increase decisions each year, the Committee primarily considers
(a) each executive's individual performance compared with the Committee's
expectations regarding that performance and (b) each executive's salary relative
to the mid-point of that executive's salary range, which represents the median
salary level of executives with similar roles and responsibilities at companies
within the Comparison Framework. All of the Named Officers have written
employment agreements with terms of three to five years, subject to extension by
agreement of the parties. See "Employment Contracts, Termination of Employment
and Change in Control Arrangements." Such agreements establish minimum base
salaries.
In fiscal 1994, David M. Browne, President of the Optical Retailing Group,
received a salary increase from $325,000 to $425,000, Noel Hord, President of
the Footwear Group, received a salary increase from $450,000 to $515,000, and K.
Brent Somers, Chief Financial Officer, received a salary increase from $280,000
to $350,000. These salary increases were based on each executive's strong
individual performance compared with the Committee's expectations. Additionally,
the Committee's recommendations with respect to Messrs. Browne and Somers were
intended to adjust their respective salaries to levels competitive with those of
executives with similar roles and responsibilities at companies within the
Comparison Framework.
A-20
<PAGE> 24
ANNUAL INCENTIVE CASH BONUSES
The Committee administers an annual incentive cash bonus program for
executive officers, as well as for other management employees. Each year the
Committee recommends to the Board individual and aggregate target cash bonus
amounts for executive officers that reflect approximate median levels of bonuses
for executives with similar roles and responsibilities at companies within the
Comparison Framework. The program is structured to pay minimum bonuses if the
pertinent business group (or groups) meets its threshold annual operating income
goal. Median bonuses are paid if the business group (or groups) meets its
targeted operating income goal, and larger bonuses are paid if the business
group (or groups) exceeds its operating income goal. Generally, bonuses are not
paid if the business group (or groups) fails to achieve its threshold operating
income goal; however, the Committee retains discretion to award annual incentive
cash bonuses based on exceptional individual performance that is related to
performance considerations other than financial.
In fiscal 1994, an incentive award formula was established at the beginning
of the year for each business group within the Company based on the operating
income results of such business group; that formula included threshold, target
and maximum levels. A similar incentive award formula, which also included
threshold, target and maximum levels, was established for individuals in the
Corporate Center Group based on the operating income results of each of the
Company's three business groups. In fiscal 1994, Mr. Browne received a cash
bonus above his target award amount reflecting the fact that the Optical
Retailing Group significantly exceeded its targeted operating income goal and
reflecting his strong individual performance. Mr. Somers received a cash bonus
in fiscal 1994 above his target award amount reflecting the facts that the
Optical Retailing Group significantly exceeded its target operating income
results and the Footwear Group met its target operating income and reflecting
his strong individual performance.
Pursuant to the terms of his employment contract, Mr. Hord received an
incentive cash bonus based upon 1.5% of the operating income (after capital
costs) of the Footwear Group and his strong individual performance. Based on the
financial performance of the Women's Specialty Retailing Group, Mr. Searles did
not receive a performance based incentive bonus; he did, however, receive a
guaranteed payment of $150,000 pursuant to the terms of his employment contract.
OPTION GRANTS AND RESTRICTED SHARE AWARDS
Grants of options and awards of restricted Common Shares are made to
executive officers pursuant to The United States Shoe Corporation 1988 Employee
Incentive Plan (the "1988 Plan"). Option grants are designed to align the
long-term interests of the Company's executives with those of the Company's
shareholders. Additionally, option grants provide a favorable mechanism through
which the Company's executives can achieve equity ownership in the Company.
The size of an option grant is based on the executive's level of
responsibility and the Committee's expectations regarding the executive's future
contribution to the Company. The size of the grant, when combined with the
executive's Total Return to Shareholders Plan and Key Executive Long-Term
Incentive Plan opportunity, as set forth below, is designed to provide a median
level of long-term incentive opportunity when compared to such opportunities for
executives with similar roles and responsibilities at companies within the
Comparison Framework. Options are granted at an exercise price equal to the
average of the high and low stock prices of the Common Shares on the date of
grant. Options have a 10.5-year term with vesting occurring in equal increments
over the first four years of that term. Options are forfeited three months after
the recipient leaves the employ of the Company and expire one year after
retirement, death or disability of the recipient.
It has been the Committee's practice to award stock options to executive
officers early each fiscal year to provide competitive compensation
opportunities. In fiscal 1994, the Committee granted options to each of the
Named Officers based on the level of responsibility of each and the Committee's
expectation of that officer's future contribution to the Company.
The Committee also recommends awards of restricted Common Shares under the
1988 Plan. Such awards are made to executives who demonstrate superior
performance or potential. The restrictions on such shares lapse on the basis of
continued employment of the executive by the Company. No restricted Common
Shares were awarded to any Named Officer in fiscal 1994.
A-21
<PAGE> 25
LONG-TERM INCENTIVE PLAN
On July 29, 1994, the Board adopted the Total Return to Shareholders Plan
(the "TRS Plan") to replace the Company's Key Executive Long-Term Incentive Plan
(the "LTI Plan"). Beginning in 1994, a thirty-nine month performance period will
be established each year under the TRS Plan, and for each performance period a
target award will be determined for each participant in the TRS Plan. Generally,
such target awards are based upon median long-term incentive opportunities at
companies within the Comparison Framework. At the end of each performance period
the total return during that period (share price appreciation plus reinvested
dividends) on a hypothetical investment in Common Shares will be compared with a
similar investment in the shares of companies in the "peer group," as set forth
in "Shareholder Return Performance Information." Awards will be made to
participants based on the Company's ranking in the "peer group", ranging from
50% of a participant's target award if the Company is at the 40th percentile to
200% of a participant's target award if the Company is at or above the 90th
percentile. No awards will be made if the Company's ranking is below the 40th
percentile. All awards under the TRS Plan, as determined by the Committee, will
be in cash or in Common Shares, which will be restricted and subject to
forfeiture if the participant terminates employment during the three-year period
following the award. The TRS Plan also provides for the payout of awards in the
event of a change in control.
A transition plan is in effect whereby executives may earn prorated awards
based on total share price appreciation for the performance periods covering
January 1, 1992 through March 31, 1995, and January 1, 1993 through March 31,
1996. The LTI Plan will be phased out during this transition period.
In fiscal 1994, target awards were determined for each of the Named
Officers for the performance periods covering January 1, 1992 through March 31,
1995, January 1, 1993 through March 31, 1996, and January 1, 1994 through March
31, 1997. No awards were made under the Company's LTI Plan in fiscal 1994.
COMMITTEE'S POLICY ON SECTION 162(m)
It is the policy of the Company to structure its executive compensation
plans in a manner intended to enhance shareholder value. Whenever possible,
implementation of this strategy will include taking advantage of applicable
provisions of the Internal Revenue Code, including Section 162(m), regarding
deductible compensation expenses. However, the Compensation Committee recognizes
the need to retain discretion to compensate executives in a manner that is in
the best interests of the Company and its shareholders, even if that practice
results in a nondeductible expense. In fiscal 1994 tax deductions lost by the
Company by reason of Section 162(m) were not material.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Hudson's compensation is recommended by the Committee to the Board. In
fiscal 1993, the Committee did not increase Mr. Hudson's base salary and, in
early fiscal 1994, delayed consideration of a salary increase to Mr. Hudson
until the results of the Company's organization restructuring were better known.
In November 1994, the Committee awarded a salary increase to Mr. Hudson, from
$580,000 to $650,000, based on the Company's improved performance and Mr.
Hudson's individual performance, as determined by the Committee, in comparison
with the Committee's expectations. Mr. Hudson received a bonus for fiscal 1994,
above his target award amount, based on the Company's improved operating income
and stock price performance and the Board's assessment of Mr. Hudson's
individual performance. The Committee awarded stock options to Mr. Hudson based
on the Committee's expectation of Mr. Hudson's continued and future contribution
to the Company. Additionally, in fiscal 1994, Mr. Hudson's target awards were
determined pursuant to the terms of the TRS Plan.
The Compensation Committee:
Joseph H. Anderer, Chairman
Philip E. Beekman
Thomas Laco
Phyllis S. Sewell
A-22
<PAGE> 26
Shareholder Return Performance Information
The following table compares the cumulative total shareholder return on the
Common Shares over a five-year period with the cumulative total return of the
Standard & Poor's 500 Stock Index (the "S&P 500") and a "peer" index composed of
twenty-one companies* for the same period. The table assumes an investment of
$100 in the Common Shares and each index on February 3, 1990, and reinvestment
of all dividends.
<TABLE>
<CAPTION>
Measurement Period Dollar Amount
(Fiscal Year Covered) S&P 500 Peer Group U.S. Shoe
<S> <C> <C> <C>
1990 100 100 100
1991 108 115 57
1992 133 154 72
1993 147 161 68
1994 166 146 74
1995 167 124 121
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY JANUARY JANUARY JANUARY JANUARY JANUARY
FISCAL YEAR 1990 1991 1992 1993 1994 1995
- ------------------------------------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
S&P 500.............................. $100 $ 108 $ 133 $ 147 $ 166 $ 167
Peer Group........................... $100 $ 115 $ 154 $ 161 $ 146 $ 124
U.S. Shoe............................ $100 $ 57 $ 72 $ 68 $ 74 $ 121
</TABLE>
- ---------------
* The companies composing this group are Ann Taylor Stores Corp.; Baker (J.),
Inc.; Brown Group, Inc.; Burlington Coat Factory Warehouse Corp.; Charming
Shoppes, Inc.; Clothestime, Inc.; Dayton Hudson Corp.; Dress Barn, Inc.;
Edison Brothers Stores, Inc.; Gantos, Inc.; Gap, Inc.; Genesco, Inc.; The
Limited, Inc.; May Department Stores Co.; Melville Corp.; Merry-Go-Round
Enterprises, Inc.; Nordstrom, Inc.; Petrie Stores Corporation; Stride Rite
Corp.; TJX Companies, Inc.; and Woolworth Corporation. None of these companies
offers a range of products and services identical to the Company, although
each is, like the Company, a major footwear manufacturer and/or clothing
retailer. The returns of each company have been weighted according to their
respective stock market capitalization for purposes of arriving at a group
average.
A-23
<PAGE> 27
SCHEDULE I
THE AVANT-GARDE DESIGNEES
The following table sets forth the name, age, citizenship and principal
occupation or employment at the present time and during the past five years of
each person Avant-Garde Optics, Inc. intends to designate to be elected or
appointed as directors of the Company pursuant to the Merger Agreement. Unless
otherwise noted, each such person is a citizen of the Republic of Italy.
Luxottica S.p.A. is a wholly owned subsidiary of Luxottica Group S.p.A.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT, MATERIAL OCCUPATIONS,
OFFICES OR EMPLOYMENTS HELD
NAME DURING PAST FIVE YEARS AND AGE
- ------------------------------------- ------------------------------------------------------
<S> <C>
Leonardo Del Vecchio................. Mr. Del Vecchio founded Luxottica Group S.p.A.'s
operations in 1961, has been Chairman of the Board
since 1981 and Chief Executive Officer of Luxottica
Group S.p.A. and its predecessors since 1961. Mr. Del
Vecchio is 60 years old.
Luigi Francavilla.................... Mr. Francavilla has been a Managing Director and Chief
Operating Officer of Luxottica Group S.p.A. since 1981
and a Managing Director of Luxottica S.p.A. since
1977. He also serves as a Director of several
subsidiaries of Luxottica Group S.p.A. Mr. Francavilla
is 58 years old.
Claudio Del Vecchio.................. Mr. Del Vecchio has been a Director of Luxottica Group
S.p.A. since 1981 and in 1994 was appointed as a
Managing Director. Since 1982, he has been the
Executive Vice President of Avant-Garde Optics, Inc.,
Luxottica Group S.p.A.'s United States distributor.
During 1990, he was the Executive Vice President of
Luxottica Group S.p.A. He also serves as a Director of
other subsidiaries of Luxottica Group S.p.A. Claudio
Del Vecchio is the son of Leonardo Del Vecchio. Mr.
Del Vecchio is 38 years old.
Roberto Chemello..................... Mr. Chemello has been a Managing Director of Luxottica
Group S.p.A. since 1985 and serves as Chairman or as a
Director of several of its subsidiaries. He is also
the Chief Financial Officer of Luxottica Group S.p.A.
Mr. Chemello is 41 years old.
Susi Belli........................... Ms. Belli has been Marketing Manager of Luxottica
Group S.p.A. since March 1993. Since 1990 she has been
Manager of Investor Relations and Public Relations of
Luxottica Group S.p.A. Ms. Belli is 33 years old.
Michael A. Boxer..................... Mr. Boxer has been General Counsel and Director of
Business Affairs of Avant-Garde Optics, Inc. since
August 1993. Before joining Avant-Garde Optics, Inc.
Mr. Boxer was an attorney with the law firm of Winston
& Strawn since 1986. Mr. Boxer is a citizen of the
United States of America. Mr. Boxer is 33 years old.
Giuseppe Vignato..................... Mr. Vignato has been Administrative General Manager of
Luxottica Group S.p.A. since 1987. Mr. Vignato is 43
years old.
Vito Giannola........................ Mr. Giannola has been Controller of Avant-Garde
Optics, Inc. since January 1990 and was Assistant
Controller of Avant-Garde Optics, Inc. since 1986. Mr.
Giannola is a citizen of the United States of America.
Mr. Giannola is 31 years old.
</TABLE>
