<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) Of The Securities
Exchange Act Of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
BROWN GROUP, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<PAGE> 2
[BROWN GROUP LOGO]
8300 Maryland Avenue, Post Office Box 29, St. Louis, Missouri 63166-0029
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
MAY 28, 1998
The Annual Meeting of Shareholders of Brown Group, Inc. (the "Corporation")
will be held on the 28th day of May, 1998, at 11:00 a.m., in the Brown Group,
Inc. Conference Center, located at 8300 Maryland Avenue, in Clayton, in St.
Louis County, Missouri, for the following purposes:
A. To elect four Directors;
B. To ratify and approve the prior adoption by the Board of Directors of the
Brown Group, Inc. Stock Option and Restricted Stock Plan of 1998, as
described in the following Proxy Statement, and the allocation of 750,000
shares of the Corporation's Common Stock thereto; and
C. To transact such other business as may properly come before the meeting.
On March 5, 1998, the Board of Directors of the Corporation amended Article
II, Section 1 of the Bylaws of the Corporation to reduce the number of Directors
from twelve to ten, effective on May 28, 1998, and to classify the Directors in
respect of the time for which they shall severally hold office by dividing them
into two classes of three Directors each and one class of four Directors.
Article II, Section 1 of the Bylaws, as so amended, is set forth in Exhibit 1 to
the accompanying Proxy Statement.
Holders of Common Stock of the Corporation whose names appear of record on
the books of the Corporation at the close of business on April 8, 1998 are
entitled to receive notice of and to vote at said meeting.
ROBERT D. PICKLE
Vice President, General Counsel
and Corporate Secretary
8300 Maryland Avenue
Post Office Box 29
St. Louis, Missouri 63166-0029
April 24, 1998
Shareholders are urged to sign, date and return the enclosed Proxy as soon
as possible. A postage paid, return addressed envelope is enclosed for your
convenience.
1
<PAGE> 3
[BROWN GROUP, INC. LOGO]
8300 Maryland Avenue, Post Office Box 29, St. Louis, Missouri 63166-0029
PROXY STATEMENT
------------
ANNUAL MEETING OF SHAREHOLDERS, MAY 28, 1998
------------
This Proxy Statement is furnished to Shareholders of Brown Group, Inc. (the
"Corporation") in connection with the solicitation by the Board of Directors of
the Corporation of Proxies for use at the Annual Meeting of Shareholders to be
held on May 28, 1998, and at all adjournments thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting of Shareholders.
On the April 8, 1998 record date, the Corporation had outstanding
18,053,827 shares of Common Stock of the par value of $3.75 per share, each of
which is entitled to one vote. The Corporation's Annual Report for the Fiscal
Year ended January 31, 1998 accompanies this Proxy Statement. Such report shall
not, however, be considered as proxy soliciting material. This Proxy Statement,
the enclosed form of Proxy, and the Corporation's Annual Report to Shareholders
are being mailed to Shareholders of the Corporation on or about April 24, 1998.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to each
person known by the Corporation, as of April 8, 1998, to beneficially own more
than 5% of the Common Stock of the Corporation:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK
- ------------------------------------ ------------ ------------
<S> <C> <C>
Becker Capital Management, Inc. 1,312,500(1) 7.27%(1)
1211 Southwest Fifth Avenue, Suite 2185
Portland, Oregon 97204
John Hancock Mutual Life Insurance Company, 1,083,518(2) 6.00%(2)
through its indirect, wholly-owned Subsidiaries
John Hancock Place
Post Office Box 111
Boston, Massachusetts 02117
</TABLE>
- ------------------------
(1) Based on written representations made to the Corporation by such
Shareholder, the named Shareholder, acting in various fiduciary capacities,
possessed sole voting authority over 1,312,500 shares and sole investment
authority over 1,312,500 shares.
(2) Based on written representations made to the Corporation by such
Shareholder, the named Shareholder, acting in various fiduciary capacities,
possessed sole voting authority over 523,685 shares and sole investment
authority over 1,083,518 shares.
2
<PAGE> 4
SECURITY HOLDINGS OF MANAGEMENT
The following table sets forth, as of April 8, 1998, the amounts of Common
Stock of the Corporation beneficially owned by each Director of the Corporation,
each nominee for election as a Director of the Corporation, certain Executive
Officers of the Corporation who are listed in the Summary Compensation Table on
page 10 of this Proxy Statement, and all Directors and Executive Officers of the
Corporation as a Group, together with the number of incentive options and
non-qualified options to purchase shares of Common Stock which are exercisable
by such persons, either immediately or by June 7, 1998, at prices ranging from
$14.1875 to $37.8125 per share, and which option shares are considered to be
beneficially owned by such persons pursuant to Rule 13d-3(d) under the
Securities Exchange Act of 1934:
<TABLE>
<CAPTION>
AMOUNT OF COMMON STOCK
BENEFICIALLY OWNED
-----------------------------------
NUMBER OF OPTIONS
SHARES EXERCISABLE BY
NAME OWNED JUNE 7, 1998
---- --------- --------------
<S> <C> <C>
Joseph L. Bower............................................. 3,050 -0-
B. A. Bridgewater, Jr....................................... 161,642 21,732
Brian C. Cook............................................... 61,575 34,393
Julie C. Esrey.............................................. 1,750 -0-
Ronald A. Fromm............................................. 40,030 28,267
Richard A. Liddy............................................ 2,350 -0-
John Peters MacCarthy....................................... 4,500 -0-
John D. Macomber............................................ 3,750 -0-
William E. Maritz........................................... 2,850 -0-
General Edward C. Meyer, Retired............................ 2,750 -0-
Gary M. Rich................................................ 13,604 16,250
Harry E. Rich............................................... 37,687 32,449
Jerry E. Ritter............................................. 2,250 -0-
David H. Schwartz........................................... 2,085 13,500
Daniel R. Toll.............................................. 2,950 -0-
Directors and Executive Officers as a Group
(22 persons, including those named above)................. 434,894 241,040
</TABLE>
Mr. B. A. Bridgewater, Jr. is the beneficial owner of 1% of the
Corporation's Common Stock. Each other person identified in the preceding table
is the beneficial owner of less than 1% of the Corporation's Common Stock. The
22 persons comprising Directors and Executive Officers as a Group are, in the
aggregate, the beneficial owners of 3.7% of such outstanding Common Stock, when
the shares subject to the options described above are considered as beneficially
owned by such persons. Such option shares have been deemed to be outstanding as
of April 8, 1998, for purposes of calculating the aggregate percentage
beneficially owned by Directors and Executive Officers as a Group.
3
<PAGE> 5
(A)
THE ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with the terms of
office of each class ending in successive years. This classified Board structure
was adopted on November 2, 1954. Three Directors are to be elected for terms
expiring at the Annual Meeting in 2001; one Director is to be elected for a term
expiring at the Annual Meeting in 1999; three Directors will continue in office
for terms expiring at the Annual Meeting in 2000; and three Directors will
continue in office for terms expiring at the Annual Meeting in 1999 (or, in the
case of each Director, until such Director's successor has been elected and
qualified). It is intended that the votes will be cast pursuant to the
accompanying Proxy for the election of the nominees named below, unless
otherwise directed. In the event that any nominees for office should for any
reason become unavailable, although no reason is known why any will be unable to
serve, it is intended that votes will be cast pursuant to the accompanying Proxy
for substitute nominees designated by the Board of Directors, except for Proxies
marked to the contrary.
The nominees and the Directors who will continue in office, the terms for
which they are nominated or have been elected, their other positions or offices
with the Corporation, their ages, the respective years which marked the
commencement of their continuous service as Directors of the Corporation and
their principal current occupations are as set forth on the following pages. All
nominees and all Directors continuing in office previously have been elected by
the Shareholders.
Mr. Thomas A. Williams resigned as a Director of the Corporation on March
23, 1998. In addition, Mr. Daniel R. Toll will retire from the Board of
Directors, effective as of the Annual Meeting in 1998, thereby reducing the
number of active Directors to ten. Because Mr. B. A. Bridgewater, Jr. is the
Board's nominee for election as a Director for a term of one year, expiring at
the Annual Meeting in 1999, and in order that the remaining Directors may serve
in classes of approximately equal size, Mr. John Peters MacCarthy, who was
elected by the Shareholders in 1996 as a Director for a term of office expiring
at the Annual Meeting in 1999, is standing at this time for election for a term
of three years, expiring at the Annual Meeting in 2001.
4
<PAGE> 6
TO BE ELECTED FOR A TERM
OF THREE YEARS
<TABLE>
<CAPTION>
DIRECTOR
CONTINUOUSLY
NAME AND OTHER POSITIONS OR OFFICES WITH THE CORPORATION AGE SINCE
-------------------------------------------------------- --- ------------
<S> <C> <C> <C>
ESREY PHOT0 JULIE C. ESREY
Member of the Corporation's Audit Committee and Member
of the Corporation's Governance and Nominating
Committee............................................. 59 1995
LIDDY PHOTO RICHARD A. LIDDY
Chairman of the Corporation's Audit Committee; Member of
the Corporation's Executive Committee and Member of the
Corporation's Governance and Nominating Committee..... 62 1994
MacCARTHY PHOT0 JOHN PETERS MACCARTHY
Member of the Corporation's Audit Committee and Member
of the Corporation's Compensation Committee........... 65 1996
</TABLE>
TO BE ELECTED FOR A TERM
OF ONE YEAR
<TABLE>
<CAPTION>
DIRECTOR
CONTINUOUSLY
NAME AND OTHER POSITIONS OR OFFICES WITH THE CORPORATION AGE SINCE
-------------------------------------------------------- --- ------------
<S> <C> <C> <C>
BRIDGEWATER PHOTO B. A. BRIDGEWATER, JR.
Chairman of the Board of Directors, President and Chief
Executive Officer ; Chairman of the Corporation's
Executive Committee................................... 64 1978
</TABLE>
5
<PAGE> 7
TO CONTINUE IN OFFICE
FOR TWO YEARS
<TABLE>
<CAPTION>
DIRECTOR
CONTINUOUSLY
NAME AND OTHER POSITIONS OR OFFICES WITH THE CORPORATION AGE SINCE
-------------------------------------------------------- --- ------------
<S> <C> <C> <C>
BOWER PHOTO JOSEPH L . BOWER
Chairman of the Corporation's Compensation Committee and
Member of the Corporation's Executive Committee....... 59 1987
RICH PHOTO HARRY E. RICH
Executive Vice President and Chief Financial Officer;
Member of the Corporation's Executive Committee....... 58 1985
RITTER PHOTO JERRY E. RITTER
Chairman of the Corporation's Governance and Nominating
Committee; Member of the Corporation's Compensation
Committee and Member of the Corporation's Executive
Committee............................................. 63 1996
</TABLE>
6
<PAGE> 8
TO CONTINUE IN OFFICE
FOR ONE YEAR
<TABLE>
<CAPTION>
DIRECTOR
CONTINUOUSLY
NAME AND OTHER POSITIONS OR OFFICES WITH THE CORPORATION AGE SINCE
-------------------------------------------------------- --- ------------
<S> <C> <C> <C>
MACOMBER PHOTO JOHN D. MACOMBER
Member of the Corporation's Compensation Committee and
Member of the Corporation's Governance and Nominating
Committee............................................. 70 1993
MARITZ PHOTO WILLIAM E. MARITZ
Member of the Corporation's Audit Committee and Member
of the Corporation's Governance and Nominating
Committee............................................. 69 1983
MEYER PHOTO GENERAL EDWARD C. MEYER, RETIRED
Member of the Corporation's Compensation Committee and
Member of the Corporation's Governance and Nominating
Committee............................................. 69 1992
</TABLE>
7
<PAGE> 9
The following are brief summaries of the business experience, during the
period of the past five years, of each of the nominees for election as Directors
of the Corporation and of each of the present Directors of the Corporation who
are continuing in office, including, where applicable, information as to the
other company directorships currently held by each of them:
Mrs. Julie C. Esrey serves as a director of various organizations. From
1962 to 1976, she was employed as an International Economist for Exxon
Corporation, where she subsequently was engaged as a consultant. Mrs. Esrey is a
member of the Executive Committee of the Board of Trustees of Duke University, a
director of the Duke Management Company and a member of the Board of Visitors of
the Duke University Medical Center. She also has served as a director of Bank IV
Kansas, National Association, in Wichita, Kansas, and as a member of the Central
Governing Board for the Children's Mercy Hospital, in Kansas City, Missouri.
Mr. Richard A. Liddy is a director and Chairman of the Board of Directors,
President and Chief Executive Officer of the General American Life Insurance
Company. He served as President and Chief Executive Officer of that organization
from 1992 until January 26, 1995, when he was elected to the additional office
of Chairman of the Board of Directors, and from 1988 until 1992 was President
and Chief Operating Officer of the General American Life Insurance Company. Mr.
Liddy is a director and Chairman of the Board of the Reinsurance Group of
America, Inc., and of the registered investment companies of the General
American Capital Company and The Walnut Street Funds, Inc. Mr. Liddy serves on
the Boards of Directors of Ameren Corporation, Ralston Purina Company, the Boy
Scouts of America, the Missouri Historical Society, the Saint Louis Art Museum,
the United Way of Greater Saint Louis and Webster University in Saint Louis.
Additionally, he is a member of the Board of Directors of the American Council
of Life Insurance.
Mr. John Peters MacCarthy is the immediate past Chairman and Chief
Executive Officer of Boatmen's Trust Company, a position he held from 1988 until
his retirement in 1994. He served as President and Chief Executive Officer of
Centerre Bank, National Association from 1984 until 1988. He served as an
officer of Centerre Trust Company from 1969 until 1979, when he was named Chief
Executive Officer and a director of Centerre Trust Company. He was a Partner in
the law firm of Bryan, Cave, McPheeters and McRoberts in Saint Louis, Missouri
from 1959 to 1968. Mr. MacCarthy serves on the Board of directors of Ameren
Corporation. Mr. MacCarthy is a Trustee of Washington University and of the
Saint Louis Art Museum.
Mr. B. A. Bridgewater, Jr. has been Chairman of the Board of Directors,
President and Chief Executive Officer of the Corporation during the past five
years. He serves also as a director of EEX Corporation, FMC Corporation and
NationsBank Corporation and as a Trustee of Washington University.
Mr. Joseph L. Bower is, and for the period of the past five years has been,
the Donald Kirk David Professor of Business Administration at the Harvard
Business School. In addition, from September, 1985 until September, 1989, he was
Senior Associate Dean and Director of External Relations at that institution,
where from September, 1989 to September, 1995, he was Chairman of Doctoral
Programs and Director of Research. Mr. Bower serves as a director of Anika
Therapeutics, the M. L. Lee Acquisition Fund, the New America High Income Fund
and Sonesta International Hotels Corporation and as a Trustee of the New England
Conservatory of Music and of the Dana DeCordova Museum.
Mr. Harry E. Rich has been Executive Vice President and Chief Financial
Officer of the Corporation during the past five years. Previously, Mr. Rich
served as Senior Vice President of the Corporation. Mr. Rich serves as a
director of the registered investment companies of the General American Capital
Company and The Walnut Street Funds, Inc. and as an advisory director of
NationsBank, Saint Louis Region.
Mr. Jerry E. Ritter is Chairman of the Board of Directors of the Kiel
Center sports and entertainment complex in Saint Louis and of the Saint Louis
Blues Hockey Club of the National Hockey League. Mr. Ritter also is Chairman of
the Board of Directors and Chief Executive Officer of Clark Enterprises, Inc., a
holding company engaged in the management and operation of the Kiel Center. Mr.
Ritter is a Consultant to Anheuser-Busch Companies, Inc., a company engaged in
the brewing of beer and in providing family entertainment, where, until 1996, he
was Executive Vice President and Chief Financial and Administrative Officer. Mr.
Ritter is a director of The Earthgrains Company, The Kroll-O'Gara Company and
Omniquip
8
<PAGE> 10
International, Inc., and serves, also, as a member of the Board of Directors of
the Automobile Club of Missouri and as a member of the Board of Commissioners of
the Saint Louis Science Center.
Mr. John D. Macomber has been Principal of JDM Investment Group, a private
investment firm, since 1992. From July, 1989 until November, 1992, Mr. Macomber
was Chairman and President of the Export-Import Bank of the United States, in
Washington, D.C., and, prior to that, was, successively, Chairman, President and
Chief Executive Officer of Celanese Corporation, in New York City, and a Senior
Partner with McKinsey & Company, Inc. He currently serves as a director of
Bristol-Myers Squibb Company, Lehman Brothers Holdings Inc., Mettler-Toledo
International Inc., Pilkington, Ltd., Textron Inc. and Xerox Corporation; as a
director of the National Executive Services Corps; as a director of The
French-American Foundation; as Chairman of the Council for Excellence in
Government and Vice Chairman of The Atlantic Council of the United States, in
Washington, D.C.; and as a Trustee of Adelphi University, the Carnegie
Institution of Washington and The Folger Library.
Mr. William E. Maritz has been Chairman of the Board of Directors and Chief
Executive Officer of Maritz Inc., a motivation, travel, training, communications
and marketing research services company, during the past five years. Previously,
Mr. Maritz served also as President of Maritz Inc., a position which he
relinquished on July 9, 1991. Mr. Maritz serves as a director of Maritz Inc. and
the General American Life Insurance Company and as a Trustee of Washington
University.
General Edward C. Meyer, Retired, served as Chief of Staff of the United
States Army until 1983. He currently is Chairman of MITRETEK Systems and
Managing Partner of Cilluffo Associates, L.P., a private investment group. He
currently is a director of Aegon USA, FMC Corporation, GRC International, Inc.
and ITT Industries. General Meyer is a Trustee of the George Catlett Marshall
Foundation, and a member of the Board of Governors of the Smith Richardson
Foundation, the Board of Overseers of the Hoover Institution and the Board of
Advisors of the Center for Strategic and International Studies, in Washington,
D.C., and is President of the Army Emergency Relief Association.
There are no family relationships between any Directors or Executive
Officers of the Corporation.
9
<PAGE> 11
EXECUTIVE COMPENSATION AND OTHER BENEFITS
The following information is given for the Fiscal Years ended January 31,
1998, February 1, 1997 and February 3, 1996 concerning annual and long-term
compensation for services rendered to the Corporation and its subsidiaries of
those persons who at January 31, 1998 were the Corporation's Chief Executive
Officer and the other four most highly compensated Executive Officers of the
Corporation whose total salary and bonuses exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS(4)
---------------------------------- ------------------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND BONUS COMPENSATION STOCK AWARD(S) OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($)(2) ($)(3) (#)(5) ($)(6)
------------------ ---- --------- ------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
B. A. Bridgewater, Jr. ..... 1997 725,000 -0- -0- 163,750 -0-/-0- 11,343
Chairman of the Board, 1996 725,000 164,140 -0- 581,875 -0-/-0- 11,051
President and Chief 1995 725,000 -0- -0- -0- -0-/-0- 11,101
Executive Officer(7)
Brian C. Cook............... 1997 475,000 152,950 -0- 81,875 32,000/20,441 5,984
Vice President of the 1996 475,000 -0- -0- -0- 15,000/14,422 6,128
Corporation and 1995 475,000 -0- -0- -0- 32,500/7,152 6,032
President, Famous Footwear
Ronald A. Fromm............. 1997 365,000 142,530 -0- 40,938 25,000/14,778 6,171
Executive Vice President, 1996 350,000 -0- -0- -0- 10,000/7,401 6,108
Famous Footwear (now Vice 1995 350,000 -0- -0- -0- 22,500/6,316 6,338
President of the Corporation
and President, Brown Shoe
Company)
Gary M. Rich................ 1997 360,000 150,000 -0- -0- 12,000/4,930 5,622
President, Pagoda 1996 330,000 192,720 -0- -0- 8,000/2,580 5,504
U.S.A. 1995 330,000 -0- -0- -0- 14,000/-0- 5,077
David H. Schwartz........... 1997 350,000 159,600 -0- -0- 12,000/2,573 5,582
President, 1996 335,000 85,000 -0- -0- 8,000/-0- 5,250
Brown Shoe Sourcing 1995 335,000 -0- -0- -0- 11,000/-0- 5,290
</TABLE>
- ------------------------
(1) Amounts are earned and accrued during the Fiscal Years indicated, and are
paid subsequent to the end of each Fiscal Year, pursuant to the
Corporation's Annual Incentive Plan, described below.
(2) The named Executive Officers received certain perquisites, none of which
exceeded the lesser of $50,000 or 10% of any such Officer's salary and
bonus.
(3) Restricted Stock Awards are valued by multiplying the closing market price
of the Corporation's unrestricted stock on the date of grant by the number
of shares awarded. Dividends are paid on Restricted Stock Awards at the same
rate as paid to all Shareholders. On January 31, 1998, Mr. Bridgewater held
80,000 Restricted Shares having a market value of $1,170,000.00, Mr. Cook
held 30,250 Restricted Shares having a market value of $442,406.25, Mr.
Fromm held 16,750 Restricted Shares having a market value of $244,968.75,
Mr. Rich held 8,250 Restricted Shares having a market value of $120,656.25,
and Mr. Schwartz held 1,875 Restricted Shares having a market value of
$27,421.88.
(4) The Corporation has no long-term incentive plans other than those described
below.
(5) All SARs were issued in tandem with options presented in this table.
(6) Includes in 1997 for Mr. Bridgewater: $5,541.66 to the Corporation's 401(k)
Plan, $4,920.00 in Corporation-paid group life insurance premiums and
$880.88 in the Employee Stock Purchase Plan. Includes in 1997 for Mr. Cook:
$5,250.00 to the Corporation's 401(k) Plan and $734.24 in the Employee Stock
Purchase Plan. Includes in 1997 for Mr. Fromm: $5,290.40 to the
Corporation's 401(k) Plan and $880.88 in the Employee Stock Purchase Plan.
Includes in 1997 for Mr. Rich: $5,622.44 to the Corporation's 401(k) Plan.
Includes in 1997 for Mr. Schwartz: $5,582.04 to the Corporation's 401(k)
10
<PAGE> 12
Plan. The Corporation has no other Plans providing for other kinds of
compensation entitlements, including split-dollar life insurance
arrangements, which otherwise would be required to be disclosed in this
column.
(7) Mr. Bridgewater has been nominated to be elected for a one-year term as a
Director, and it is presently anticipated that he will retire as an employee
of the Corporation prior to March 31, 1999. The Compensation Committee has
authorized a four-year consulting agreement with Mr. Bridgewater to be
effective following his retirement as an employee, pursuant to which he will
receive $250,000 per year and limited administrative support, and which
includes a noncompetition agreement for the consulting period and three
years thereafter.
ANNUAL INCENTIVE PLAN
The Corporation's Executive Officers and certain other key management
employees, as determined by the Compensation Committee of the Board of
Directors, are eligible to receive Incentive Awards granted under the
Corporation's Annual Incentive Plan. Payments are based upon the achievement of
financial objectives with respect to earnings and return on invested capital
each year. Payments may vary in light of corporate or divisional performance (as
appropriate) with respect to such financial objectives. Awards paid to Executive
Officers pursuant to the Corporation's Annual Incentive Plan are included in the
amounts stated in the second compensation column of the Summary Compensation
Table on page 10 of this Proxy Statement.
RESTRICTED STOCK PLANS
The Corporation's Executive Officers and certain other key management
employees, as determined by the Compensation Committee of the Board of
Directors, are eligible to receive Restricted Stock granted under the Brown
Group, Inc. Stock Option and Restricted Stock Plan of 1994, as amended by the
Shareholders at the 1996 Annual Meeting (the "1994 Plan"). Awards of Restricted
Stock have also been made to the Corporation's Executive Officers and certain
key management employees under the Brown Group, Inc. Stock Option and Restricted
Stock Plan of 1987, as amended (the "1987 Plan"). With the 1994 Plan having been
approved by the Shareholders of the Corporation at the 1994 Annual Meeting of
Shareholders, the Corporation is not making any further Restricted Stock awards
under the 1987 Plan.
Under both Plans, shares of Restricted Stock are granted at no cost to the
Participant and are delivered at the time of the grant, but are subject to
forfeiture until certain specified conditions are met. Each certificate
representing shares of Restricted Stock bears a legend referring to the Plan
under which it was issued, the risk of forfeiture of the shares and the fact
that such shares are non-transferable until the restrictions have been satisfied
and the legend has been removed. The recipient of Restricted Stock is entitled
to full voting and dividend rights with respect to such shares from the date of
grant. Under both Plans, shares vest in the Participant and restrictions lapse
as follows: one-half of the shares after four years from the date of grant, an
additional one-fourth after six years and the remaining one-fourth after eight
years. A Participant in a Plan is entitled to receive shares of Restricted Stock
free of restrictions only if he or she is, at the time of the lapse of such
restrictions, in the employ of the Corporation and has been continuously so
employed since the date of grant, except in the case of retirement or death. If
employment is terminated because of disability, the Participant will be treated
as continuing in the employ of the Corporation for purposes of fulfilling the
applicable restriction period. In the event (1) any person other than the
Corporation acquires more than 25% of the Corporation's Common Stock, (2) the
Corporation is liquidated or dissolved following a sale of all or substantially
all of its assets, or (3) the Corporation is not the surviving parent
corporation resulting from any merger or consolidation to which it is a party
(each of which is deemed to be a "change of control"), then any unvested shares
of Restricted Stock granted under either Plan shall immediately mature and vest
in full.
The Summary Compensation Table on page 10 of this Proxy Statement sets out
in the fourth compensation column the value of the shares of Restricted Stock
granted under either the 1987 Plan or the 1994 Plan to persons named in that
table. Such shares have been included in the Stock Ownership Table on page 3 of
this Proxy Statement.
11
<PAGE> 13
RETIREMENT PLANS
Substantially all salaried, full-time retail and store employees of the
Corporation and designated subsidiaries, as well as the Corporation's Executive
Officers, are eligible to participate in the Shareholder-approved Brown Group,
Inc. Retirement Plan (the "Retirement Plan") after twelve months' employment and
the attainment of 21 years of age. Terms of the Retirement Plan, which is funded
by the Corporation, include, among others, provisions for normal, optional,
early or deferred retirement benefits and for survivor benefits.
Under the Retirement Plan, pensions are computed on a two-rate formula
basis of .825 percent and 1.425 percent for each year of service. The .825
percent service credit is applied to that portion of the average annual salary
for the five highest consecutive years during the last ten-year period that does
not exceed the Social Security Wage Base (the portion of salary subject to the
Federal Social Security Act), and the 1.425 percent service credit is applied to
that portion of the average that exceeds said level.
Certain key employees and Executive Officers are also eligible to
participate in the Supplemental Executive Retirement Plan (the "Supplemental
Plan"). The purpose of the Supplemental Plan is to supplement the benefits
payable to Participants under the Retirement Plan which are otherwise reduced on
account of the limitations of Sections 415 and 401(a)(17) of the Internal
Revenue Code of 1986, as amended. Terms of the Supplemental Plan, among other
things, provide for: an increase in the formula basis for salary in excess of
the Social Security Wage Base; an early retirement benefit; the amount of
benefits payable under the Plan to equal the excess (if any) of the amount which
would have been payable to the Participant as a normal retirement benefit under
the Retirement Plan without regard to the limitations of Sections 415 and
401(a)(17) of the Code less the Participant's normal retirement benefit under
the Retirement Plan, taking into account the limitations of Sections 415 and
401(a)(17) of the Code; and payment, in lump sum value, of all benefits in the
event of a "change of control" of the Corporation, defined in the same manner as
in the 1987 Plan and the 1994 Plan above. The Supplemental Plan is unfunded. All
payments to a Participant will be made from the general assets of the
Corporation.
In addition to the Retirement Plan and the Supplemental Plan, the
Corporation has, incident to hiring, entered into separate agreements with four
Executive Officers at various times, providing additional credited years of
service over those for which the Executive is actually employed. One such
Executive Officer currently is employed by the Corporation.
The table below shows the estimated annual retirement benefits payable to
Participants, including Executive Officers, in the Retirement Plan on a straight
life annuity basis, assuming normal retirement at age 65 during 1998. The
benefits shown in the table below are not subject to deduction for Social
Security or other offset amounts and also include benefits under the
Supplemental Plan. The table does not reflect the effect of profit sharing
balances on pension accounts. If the pension provided by the profit sharing
balance exceeds the formula benefit for the period of employment preceding
November 2, 1975, such excess is added to the total formula pension.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL -------------------------------------------------------------------------------------
AVERAGE SALARY 10 15 20 25 30 35 OR MORE
- -------------- -- -- -- -- -- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000................ $ 12,658 $ 18,987 $ 25,316 $ 31,645 $ 37,973 $ 44,302
200,000................ 27,308 40,962 54,616 68,270 81,923 95,577
300,000................ 41,958 62,937 83,916 104,895 125,873 146,852
400,000................ 56,608 84,912 113,216 141,520 169,823 198,127
500,000................ 71,258 106,887 142,516 178,145 213,773 249,402
600,000................ 85,908 128,862 171,816 214,770 257,723 300,677
700,000................ 100,558 150,837 201,116 251,395 301,673 351,952
800,000................ 115,208 172,812 230,416 288,020 345,623 403,227
</TABLE>
12
<PAGE> 14
The credited years of service (including service by agreement) for purposes
of determining benefits for each of the persons named in the Summary
Compensation Table on page 10 are as follows: Mr. B. A. Bridgewater, Jr. -- 34;
Mr. Brian C. Cook -- 17; Mr. Ronald A. Fromm -- 11; Mr. Gary M. Rich -- 7; and
Mr. David H. Schwartz -- 8. The dollar amounts shown in the first two columns of
the Summary Compensation Table on page 10 are substantially the same as the
compensation covered by the Retirement Plans.
In 1944, the Shareholders approved the adoption of a Retirement Trust to
which the Corporation, and those subsidiaries which had adopted the Trust,
annually contributed six percent of their consolidated profits before taxes. The
Corporation's final contribution was made for the Corporation's 1975 Fiscal
Year. All full-time salaried employees and certain retail employees compensated
by commissions with five years' service with the Corporation or subsidiaries
which had adopted the Trust were eligible to participate.
The Corporation's annual contributions to the Trust were allocated to the
employees' accounts in proportion to each employee's salary.
All Participants' accounts, including the Corporation's contributions
thereto, became fully vested in the Participants on September 4, 1975. Cash
contributions by employees have been returned to each contributing employee with
interest at six percent per year to the date returned. The Retirement Trust,
after the Corporation's final contribution for the 1975 Fiscal Year, was frozen
on November 1, 1975, with account balances thereafter subject to change solely
for future earnings and market adjustments.
At retirement, each Participant under the Retirement Trust may receive his
or her Retirement Trust benefit in the form of either a lump sum or a monthly
annuity.
EMPLOYEE SAVINGS PLAN
Under the Corporation's Employee Savings Plan, as amended, eligible
employees may elect to have from 2 percent to 17 percent of their annual
salaries, up to a present maximum amount of $10,000 per Plan Participant,
invested in the Plan. The Corporation matches 75 percent of the first 2 percent
investment and 50 percent of the additional investment up to the 6 percent
level. Plan members employed prior to January 1, 1994 are 100 percent vested in
their account balances at all times. Plan members employed on January 1, 1994
and thereafter are vested in the Corporation's matching contribution after five
years. The Summary Compensation Table on page 10 of this Proxy Statement sets
out in the last column the amounts of contributions by the Corporation which
were allocated to the persons named in that table, exclusive of changes
representing increases and declines during the periods in the market price of
the Corporation's Common Stock, offset and reduced by dividends thereon and
short-term interest derived from cash balances of contributions awaiting
investment in such Common Stock. The full value of each Plan Participant's
account is paid to each Plan member when he or she retires, leaves the employ of
the Corporation or becomes permanently and totally disabled.
DIRECTORS' COMPENSATION
The Corporation pays each non-employee Director of the Corporation an
annual cash retainer of $17,500 and also pays an additional annual cash retainer
of $2,000 to the Chairman of the Corporation's Audit Committee, the Chairman of
the Corporation's Compensation Committee and the Chairman of the Corporation's
Governance and Nominating Committee.
The Corporation also pays each non-employee Director (a) a $1,000 fee for
attendance at each meeting of the Board of Directors, (b) a $1,000 fee for
attendance at each meeting of a standing committee of the Board of Directors and
(c) a $1,000 fee to each non-employee Director who is a member of the
Corporation's Executive Committee for attendance at each meeting of the
Executive Committee. The Corporation also pays the premiums for Directors' and
Officers' Liability insurance and Travel Accident insurance coverage for each
Director. The Corporation has no Directors' retirement plan, and pays no
additional Directors' remuneration to any Director who is an Officer or employee
of the Corporation.
13
<PAGE> 15
Under the 1994 Plan, which was approved by the Corporation's Shareholders
at the 1994 Annual Meeting of Shareholders, each non-employee Director in office
on May 26, 1994 (the date the Plan became effective) received a grant of 1,000
shares of Brown Group Common Stock. Thereafter, each newly appointed
non-employee Director is granted 1,000 shares on the date at which the Director
is first elected to serve. In addition, each non-employee Director is granted
250 shares of Brown Group Common Stock annually, and each non-employee Director
who serves as Chairman of the Corporation's Audit, Compensation or Governance
and Nominating Committee is annually granted an additional 100 shares of Brown
Group Common Stock.
STOCK OPTION PLANS
The Corporation has options outstanding under the 1994 Plan and the 1987
Plan (both as described above). These Plans are administered by the
Corporation's Compensation Committee. The Compensation Committee, in its
discretion, based upon such factors as levels of responsibility and individual
performance, makes determinations as to those persons who are considered to be
key employees and who are therefore eligible for awards under these Plans. All
options are granted at 100% of market value on the date of the grant and expire
ten years from the date of grant. With the 1994 Plan having been approved by the
Shareholders at the 1994 Annual Meeting of Shareholders, the Corporation will
make no further awards under the 1987 Plan. In the event that (1) any person
other than the Corporation acquires more than 25% of the Corporation's Common
Stock, (2) the Corporation is liquidated or dissolved following a sale of all or
substantially all of its assets, or (3) the Corporation is not the surviving
parent corporation resulting from any merger or consolidation to which it is a
party, then any unexercisable options awarded under the 1987 Plan and the 1994
Plan shall be settled by the payment by the Corporation to the holder of such
options of an amount equal to the difference between the aggregate exercise
price of such options and the aggregate fair market value of the shares of the
Corporation's Common Stock subject thereto.
The following table shows information with respect to the options and Stock
Appreciation Rights ("SARs") granted to the Executive Officers named in the
Summary Compensation Table on page 10 during the past Fiscal Year:
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------ VALUE AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
OPTIONS/SARS APPRECIATION FOR
GRANTED TO AVERAGE OPTION TERM
OPTIONS/SARS EMPLOYEES IN EXERCISE OR EXPIRATION -----------------------
NAME GRANTED* FISCAL YEAR* BASE PRICE DATE 5%($) 10%($)
- ---- ------------ ------------ ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
B. A. Bridgewater,
Jr. .................. -0- n/a n/a n/a n/a n/a
Brian C. Cook........... 32,000/20,441 6.39%/20.14% $15.05 2007/2008 $302,970 $767,785
Ronald A. Fromm......... 25,000/14,778 4.99%/14.56% $15.11 2007/2008 $237,605 $602,136
Gary M. Rich............ 12,000/4,930 2.40%/4.86% $15.15 2007/2008 $114,341 $289,763
David H. Schwartz....... 12,000/2,573 2.40%/2.54% $15.15 2007/2008 $114,341 $289,763
</TABLE>
- ------------------------
*All SARs were issued in tandem with options presented in this table.
The table on the following page shows information with respect to the
unexercised options and SARs granted during the past Fiscal Year and in prior
years to the Executive Officers named in the Summary Compensation Table on page
10 and with respect to option/SAR exercises by those persons during the past
Fiscal Year:
14
<PAGE> 16
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
SHARES FY-END(#) AT FY-END($)(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
B. A. Bridgewater, Jr...... -0- -0- 21,732/-0- -0-/-0-
Brian C. Cook.............. -0- -0- 25,768/59,500 $2,344/$11,094
Ronald A. Fromm............ -0- -0- 20,142/45,000 $1,406/$ 7,969
Gary M. Rich............... -0- -0- 11,250/25,750 $ 938/$ 4,000
David H. Schwartz.......... -0- -0- 10,000/23,500 $ 938/$ 4,000
</TABLE>
- ------------------------
(1) Based on the difference between the mean market price on the date of
exercise and the option price.
(2) Based on the difference between the mean price at Fiscal Year-end and the
option price.
LONG-TERM INCENTIVE PLANS
The Corporation has no long-term incentive plans under which any of the
Executive Officers named in the Summary Compensation Table on page 10 of this
Proxy Statement received any award during the periods covered.
STOCK PURCHASE PLAN OF 1977
Substantially all salaried and commissioned employees, including Executive
Officers, may participate in the Stock Purchase Plan of 1977 after twelve
months' employment with the Corporation. Under this Plan, stock may be purchased
from the Corporation at 85 percent of its market value on the date of purchase,
or it may be purchased by the Trustee in the open market. In the latter case,
the Corporation and its participating subsidiaries contribute to the Plan an
amount equal to 17.647 percent of the Participants' contributions, which is
equivalent to 15 percent of the purchase price of the stock to the Participants.
The Summary Compensation Table on page 10 of this Proxy Statement sets out
in the last column the amounts of contributions by the Corporation to the Plan
for the persons named in that table.
BOARD OF DIRECTORS AND STANDING
COMMITTEES OF THE BOARD
BOARD OF DIRECTORS
During the Fiscal Year ended January 31, 1998, the Board of Directors of
the Corporation met at regular and special meetings on seven separate occasions.
Each of the Directors attended not less than seventy-five percent (75%) of the
meetings of the Board of Directors and of all committees of the Board of
Directors of which each such person was a member. The Board of Directors has
established standing Audit, Compensation, Executive and Governance and
Nominating Committees.
AUDIT COMMITTEE
The Audit Committee of the Board of Directors presently is composed of five
members of the Board of Directors who are not Officers or employees of the
Corporation or of any of its subsidiaries. Each member of the Audit Committee is
regarded as independent of the management of the Corporation and as free from
any relationship which, in the opinion of the Board of Directors, would
interfere with the exercise of independent judgment as an Audit Committee
member. The Chairman of the Audit Committee is appointed by the Board of
Directors on the recommendation of the Board's Governance and Nominating
Committee. The members of the Audit Committee serve for a term of one year or
until their successors are appointed.
15
<PAGE> 17
The responsibilities of the Audit Committee are: to select the independent
public accountants for the Corporation; to review with the independent public
accountants their annual audit plans, including the degree of coordination with
the Corporation's internal audit plans; to review proposed audit fees; to be
informed of the use of the independent public accountants for significant
management advisory services; to obtain explanations from management for all
significant variances in the financial statements between years; to request an
explanation of changes in accounting standards or rules that have an effect on
the financial statements; to inquire about the existence and substance of any
significant accounting accruals, reserves or estimates made by management that
had a material impact on the financial statements; to inquire if there were any
significant financial reporting issues discussed during the accounting period
and, if so, how they were resolved; during private meetings with the independent
public accountants, to request of them their opinions on various matters
including the quality of financial and accounting personnel and the internal
audit staff; to discuss with management and the independent public accountants
the substance of any significant issues concerning litigation, contingencies,
claims or assessments including tax matters, and to understand how such matters
are reflected in the Corporation's financial statements; to review with the
independent public accountants their recommendations on accounting procedures
and internal controls arising from the annual audit as well as management's
response to such recommendations; to review the internal audit plans and scopes;
to review, at least annually, the status of compliance with the Corporation's
Business Conduct Policies and to inquire as to whether there have been any
reported cases of noncompliance or violations; and to instruct the independent
public accountants and the internal audit staff that the Audit Committee expects
to be advised if there are any areas that require its special attention.
The members of the Audit Committee are Mr. Richard A. Liddy, Chairman; Mrs.
Julie C. Esrey; Mr. John Peters MacCarthy; Mr. William E. Maritz; and Mr. Daniel
R. Toll. During the Fiscal Year ended January 31, 1998, the Audit Committee met
on four separate occasions.
COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors presently is composed
of six members of the Board of Directors who are not Officers or employees of
the Corporation or of any of its subsidiaries. The Chairman of the Compensation
Committee is appointed by the Board of Directors on the recommendation of the
Board's Governance and Nominating Committee. The members of the Compensation
Committee of the Board of Directors serve for a period of one year or until
their successors are appointed.
The responsibilities of the Compensation Committee are: to determine the
salaries and Annual Incentive Awards of the Officers and other executives and
key management employees of the Corporation and its subsidiaries; to review and
approve proposed changes in the salaries of other management employees; to
approve the participation of executives and other key management employees in
the Corporation's various compensation plans; to approve and recommend to the
Board of Directors (where appropriate) any changes which are indicated in the
Corporation's compensation programs; to monitor the Corporation's policies and
practices regarding promotion and management development; to counsel senior
management regarding assignment of responsibilities to managers; to ensure
continuity of experienced, qualified management at senior levels within the
Corporation; and to monitor the performance of the Chief Executive Officer and
assure continuity in this position, making appropriate recommendations to the
Board of Directors.
The members of the Compensation Committee are Mr. Joseph L. Bower,
Chairman; Mr. John Peters MacCarthy; Mr. John D. Macomber; General Edward C.
Meyer, Retired; Mr. Jerry E. Ritter; and Mr. Daniel R. Toll. During the Fiscal
Year ended January 31, 1998, the Compensation Committee met on three separate
occasions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Of the members of the Compensation Committee identified in the preceding
paragraph, none ever has been an employee of the Corporation or of any of its
subsidiaries.
16
<PAGE> 18
EXECUTIVE COMMITTEE
The Bylaws of the Corporation provide that the Executive Committee of the
Board of Directors, presently composed of Mr. B. A. Bridgewater, Jr., Chairman;
Mr. Joseph L. Bower; Mr. Richard A. Liddy; Mr. Harry E. Rich; and Mr. Jerry E.
Ritter; shall have and may exercise, so far as is permitted by law, all of the
powers and duties of the Board in the direction of the management of the
business and affairs of the Corporation during the intervals between meetings of
the Board of Directors which may lawfully be delegated to it by the Board of
Directors, except with respect to certain categories of matters which expressly
have been reserved to the full Board of Directors. The Executive Committee of
the Board of Directors also performs Finance Committee functions. The Executive
Committee did not meet during the Fiscal Year ended January 31, 1998.
GOVERNANCE AND NOMINATING COMMITTEE
The Governance and Nominating Committee of the Board of Directors presently
is composed of six members of the Board of Directors who are not Officers or
employees of the Corporation or of any of its subsidiaries. The Chairman of the
Governance and Nominating Committee is appointed by the Board of Directors on
the recommendation of this Committee. Members of the Governance and Nominating
Committee serve for a period of one year or until their successors are
appointed.
The responsibilities of the Governance and Nominating Committee are: to
develop appropriate criteria for serving as a member of the Board of Directors
and to screen, interview and recommend to the Board of Directors suitable
candidates for positions on the Board of Directors; to evaluate the structure
and composition of the Board of Directors, including the number and
responsibilities of the Standing Committees of the Board and to recommend
changes as indicated by this evaluation; to recommend chairmen and committee
members of each of the Standing Committees of the Board of Directors; to review
the elements and levels of Director compensation and the service of Directors
and to recommend any changes as indicated by this review; and to recommend to
the Board of Directors, prior to each Annual Shareholders' Meeting, suitable
persons to be designated by the Board of Directors as nominees for election by
the Shareholders to the office of Director of the Corporation, together with
their placement within the Corporation's classified Board structure as it was
adopted on November 2, 1954.
The Governance and Nominating Committee will consider suggestions from all
sources, including Shareholders, regarding possible Directorial candidates. Such
suggestions should be submitted to the Vice President, General Counsel and
Corporate Secretary of the Corporation, in the manner and within the time
required by the Bylaws of the Corporation.
The members of the Governance and Nominating Committee are Mr. Jerry E.
Ritter, Chairman; Mrs. Julie C. Esrey; Mr. Richard A. Liddy; Mr. John D.
Macomber; Mr. William E. Maritz; and General Edward C. Meyer, Retired. During
the Fiscal Year ended January 31, 1998, the Governance and Nominating Committee
met on one occasion.
COMPENSATION COMMITTEE REPORT
The policy of the Compensation Committee of Brown Group is to use
compensation to help attract, motivate, and retain a management team capable and
eager to develop and implement strategy that will meet objectives for creating
long term Shareholder value. To that end, the Corporation has adopted a set of
salary, bonus, and stock option programs that the Board believes are consistent
with those objectives.
SALARY
Brown Group salaries are set to match median competitive levels for
companies in the footwear and retail industry and other companies of large size
with whom it competes for management. While salaries are expected to be
adequate, they are not intended to be generous or to be the primary incentive
for exceptional performance. Those incentives are provided by the Annual
Incentive Plan, Long Term Stock Incentives and Stock Option Awards.
17
<PAGE> 19
Salaries are reviewed annually. A survey of competitors' compensation
indicates that these practices have placed Brown Group's total cash pay levels
near the median of its peer group, and generally in the mid-range of other large
retail-oriented companies with whom Brown Group competes for management.
ANNUAL INCENTIVES
The bonus program is designed to provide managers and employees with an
incentive to achieve levels of performance above those planned. The Annual
Incentive Plan provided for total incentive payments of $3.3 million if
financial objectives including earnings per share of $1.50, or divisional goals
and other financial plans consistent with that level of earnings, were achieved.
Divisional performance compared to Plan varied widely; Pagoda International
incurred a loss of $45.6 million, which caused the Corporation to report a $20.9
million loss for the year. However, very encouraging progress was made in the
95% of the Corporation comprising the core businesses (Famous Footwear, Brown
Shoe Company and Canadian operations). Collectively, the performance of these
divisions was better than planned levels. Considering these factors, the
Committee approved total incentive compensation payments of $2.2 million, or
approximately 65% of the planned incentive payments for 1997. It should be noted
that no incentive payments were approved for the Executives directly responsible
for the Pagoda International losses or for the Chief Executive Officer and the
Chief Financial Officer.
LONG-TERM STOCK INCENTIVES
The Committee also administers a long-term stock option and restricted
stock program. The objective of the stock option and restricted stock program is
to provide a longer term incentive for key managers, and to align their
interests directly with those of the Shareholders. The Corporation's stock and
option grants are also part of the above mentioned periodic survey. In 1997 we
learned that our practices in granting stock awards have been well below those
of the peer group companies. Accordingly, in 1997 additional grants were made to
key executives. For the future, it is our intent to emphasize stock options as
opposed to restricted stock, reflecting corporate plans for growth.
CEO COMPENSATION
The Committee maintained the salary of the Chief Executive Officer for 1997
at the $725,000 level. Although the Committee recognizes encouraging progress in
the core businesses (Famous Footwear, Brown Shoe Company and Canadian
operations) in 1997, the substantial losses in Pagoda International led to
results that were well below the Corporation's financial objectives for the
year. No incentive payments were made to the CEO or to other senior executives
responsible for the management of the Pagoda International business. Other
incentive payments made to senior executives elsewhere in the Corporation
reflect the good progress and performance relative to financial objectives at
Famous Footwear, Brown Shoe Company and Canadian operations.
RESTRICTED STOCK AND STOCK OPTION AWARDS
While no stock options were granted to the Chief Executive Officer in 1997,
a restricted stock award of 10,000 shares was made to him on March 6, 1997.
Restricted stock grants were made to nine other Executive Officers in the
aggregate amount of 25,500 shares. Option grants for an aggregate of 217,000
shares were made to 14 Executive Officers of the Corporation at that time.
The Omnibus Budget Reconciliation Act of 1993 limits deductibility of
certain compensation for the Chief Executive Officer and the additional four
Executive Officers who are highest paid and employed at year end to $1 million
per year, effective for tax years beginning on or after January 1, 1994. In
1997, no Brown Group executive received compensation of $1 million or more. The
policy of the Committee related to this statutory provision is to establish and
maintain a compensation program that maximizes the creation of long-term
Shareholder value. Action is expected to be taken to qualify the Corporation's
compensation approaches for deductibility to the extent consistent with the
objectives of the Corporation's executive compensation program and with
maintaining competitive compensation.
18
<PAGE> 20
THE COMMITTEE BELIEVES THE RESTRICTED STOCK AND STOCK OPTION PLAN HAS BEEN
AN IMPORTANT INFLUENCE IN ENABLING THE CORPORATION TO RETAIN AND MOTIVATE STRONG
MANAGEMENT. OVER THE NEXT YEAR IT IS EXPECTED THAT THE GRANTING OF STOCK OPTIONS
AND RESTRICTED STOCK WILL PLAY A VITAL ROLE IN ENABLING THE CORPORATION TO
ATTRACT HIGH QUALITY EXECUTIVES IN ANTICIPATION OF THE MANAGEMENT TRANSITION
WHICH IS PLANNED. IN ADDITION, THE CONTINUED GRANTING OF STOCK OPTIONS TO HIGH
PERFORMING EXECUTIVES CREATES BROAD INCENTIVES FOR BOTH NEAR AND LONG-TERM
ACHIEVEMENT, PARTICULARLY IN VIEW OF THE CURRENTLY DEPRESSED PRICE OF THE
CORPORATION'S STOCK AND THE IMPROVED EARNINGS POTENTIAL OF THE BUSINESS.
HOWEVER, BECAUSE THE CURRENT STOCK OPTION AND RESTRICTED STOCK PLAN OF 1994 WAS
AMENDED IN 1996 TO INCREASE THE AGGREGATE NUMBER OF SHARES AVAILABLE BY 825,000,
IT IS CONTEMPLATED THAT NO ADDITIONAL STOCK OPTION OR RESTRICTED STOCK AWARDS
WILL BE GRANTED UNDER THE PROPOSED NEW PLAN, DURING THE FIRST FULL PLAN YEAR,
EXCEPT TO ATTRACT OR PROMOTE EXECUTIVES AS PART OF THE MANAGEMENT TRANSITION
PROCESS. WE INVITE THE SHAREHOLDERS' ATTENTION TO THE EIGHT-YEAR HOLDING PERIOD
REQUIRED FOR A FULL LAPSE OF RESTRICTIONS ON OWNERSHIP, WHICH IS INTENDED TO
STRENGTHEN THE MANAGEMENT RETENTION VALUE OF RESTRICTED STOCK. ALSO NOTE THE
LIMITATION OF 150,000 SHARES (20% OF THE AUTHORIZATION REQUEST) PLACED ON
PROSPECTIVE GRANTING OF RESTRICTED STOCK, REFLECTING THE PLAN TO USE STOCK
OPTIONS MORE AGGRESSIVELY. WE RECOMMEND THAT THE SHAREHOLDERS APPROVE THE STOCK
OPTION AND RESTRICTED STOCK PLAN OF 1998 DESCRIBED ON PAGES 21 TO 26 OF THE
PROXY STATEMENT.
Respectfully submitted,
COMPENSATION COMMITTEE OF THE BROWN
GROUP, INC. BOARD OF DIRECTORS
MR. JOSEPH L. BOWER, CHAIRMAN
MR. JOHN PETERS MACCARTHY, MEMBER
MR. JOHN D. MACOMBER, MEMBER
GENERAL EDWARD C. MEYER, RETIRED,
MEMBER
MR. JERRY E. RITTER, MEMBER
MR. DANIEL R. TOLL, MEMBER
19
<PAGE> 21
PERFORMANCE OF THE CORPORATION
Set forth below is a line graph comparing the annual percentage change in
the cumulative total Shareholder return on the Corporation's Common Stock
against the cumulative total return of the assumed Peer Group Index and the
Standard & Poor's Composite-500 Index, with investment weighted based on market
capitalization. The Corporation's Fiscal Year ends on the Saturday nearest to
each January 31; accordingly, share prices are as of the last business day in
each Fiscal Year.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD BROWN S&P 500
(FISCAL YEAR COVERED) GROUP, INC. PEER GROUP INDEX
<S> <C> <C> <C>
JANUARY 29, 1993 100.00 100.00 100.00
JANUARY 28, 1994 124.21 86.27 112.04
JANUARY 27, 1995 118.74 74.73 113.12
FEBRUARY 2, 1996 52.91 78.96 156.95
JANUARY 31, 1997 69.81 124.02 198.29
JANUARY 30, 1998 64.48 102.94 251.65
</TABLE>
The following table is derived from the data shown in the foregoing line
graph and is intended to assist Shareholders in evaluating their total returns
on an annual basis for various holding periods.
COMPOUND ANNUAL RATES OF TOTAL RETURN TO SHAREHOLDERS*
<TABLE>
<CAPTION>
5 YEAR 4 YEAR 3 YEAR 2 YEAR 1 YEAR
<S> <C> <C> <C> <C> <C>
Brown Group, Inc........ (8.40)% (15.12)% (18.42)% 10.39% (7.63)%
Peer Group... 0.58% 4.52% 11.27% 14.18% (17.00)%
S&P 500 Index........... 20.27% 22.42% 30.54% 26.62% 26.91%
</TABLE>
- -------------------------
* For indicated holding periods, in Fiscal Years of the Corporation
corresponding to the previous graph, ended January 30, 1998.
20
<PAGE> 22
The Peer Group Index depicted in the foregoing line graph and table
consists of six companies believed to be engaged in similar businesses: Edison
Brothers Stores, Inc., GENESCO Inc., Nine West Group, Inc., The Stride Rite
Corporation, The United States Shoe Corporation and Wolverine World Wide, Inc.
As a result of the changing nature and character of the footwear industry, the
Corporation intends to consider the establishment of a suitably modified Peer
Group to reflect such changed conditions as may have appeared or may appear in
the present and succeeding Fiscal Years of the Corporation. Shareholders are
cautioned against drawing any conclusions from the data contained therein, as
past results are not necessarily indicative of future performance. These indices
are included for comparative purposes only and do not indicate an opinion of
management that such indices are necessarily an appropriate measure of the
relative performance of the Corporation's Common Stock.
(B)
STOCK OPTION AND RESTRICTED STOCK PLAN OF 1998
The Stock Option and Restricted Stock Plan of 1998 (the "Plan") was
approved by the Board of Directors on April 9, 1998, subject to approval by the
Shareholders. The Plan is set out in full as Exhibit 2 to this Proxy Statement.
The following summary of the terms of the Plan is derived from Exhibit 2 and is
qualified by reference to the specific terms of the Plan.
The purposes of the Plan are to provide shares necessary to enable the
Corporation to attract high quality executives in anticipation of the management
transition which is expected in the next year, as well as to motivate certain
key employees to improve the performance of the Corporation and the value of its
stock, particularly in view of the currently depressed price of the
Corporation's stock and the improved earnings potential of the business. A
further purpose of the Plan is to provide for the granting of Common Stock to
non-employee directors in order to promote their equity interest in the
Corporation.
The Plan is to be administered by the Compensation Committee, which is
composed of two or more Directors appointed by the Board of Directors from those
members who are not eligible to receive, and who have not at any time within one
year prior to their appointment as Compensation Committee members received,
discretionary grants of the Corporation's equity securities pursuant to the
terms of the Plan or any other plan of the Corporation or its parent or
subsidiaries. In addition, with respect to the grant of stock options, stock
appreciation rights and Restricted Stock, no member of the Compensation
Committee making such grants shall: (1) be a current employee of the
Corporation, or a parent or subsidiary; (2) be a former employee of the
Corporation, or a parent or subsidiary, who receives compensation for prior
services (other than benefits under a tax-qualified retirement plan) during the
taxable year; (3) have been an Officer of the Corporation, or a parent or
subsidiary; or (4) receive remuneration from the Corporation, or a parent or
subsidiary, either directly or indirectly in any capacity other than as a
Director. These members of the Compensation Committee are referred to as
"Outside Directors".
The Outside Directors may be a sub-committee of the Compensation Committee
or comprise the whole Committee. If a sub-committee, their deliberations shall
be separate and shall be reported directly to the full Board of Directors for
any further action required. Key employees of the Corporation and its
subsidiaries are eligible for awards under the Plan. The Compensation Committee
has full authority to determine which employees are "key employees" for purposes
of the Plan and to determine, subject to the terms of the Plan, the amount and
form of all awards.
The Plan covers an aggregate of 750,000 shares of the Corporation's Common
Stock for the purpose of making awards under the Plan. The maximum number of
shares for which options and Stock Appreciation Units can be granted to any one
participant during the 10-year period beginning April 9, 1998 is 200,000. The
Plan would allow no more than 150,000 shares of the 750,000 shares of Common
Stock to be used to satisfy restricted stock grants under the Plan. The shares
available for use under the Plan consist of authorized but unissued shares of
the Corporation's Common Stock, reacquired shares, or both. The number of shares
available to the Compensation Committee and the number of Stock Appreciation
Units available to the Compensation Committee under the Plan would be adjusted
to reflect any stock dividends, stock splits,
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recapitalizations, mergers, consolidations, reorganizations, combinations or
exchanges of shares affecting the Corporation.
It is a further purpose of the Plan to provide for the granting of Common
Stock to Non-Employee Directors ("Director Stock") in order to promote their
equity interest in the Corporation. On the last business day before each Annual
Meeting of Shareholders of the Corporation, each Non-Employee Director then in
office, who is not the Chairman of a Committee of the Board of Directors, will
automatically be granted 250 shares of Director Stock. In addition, each new
Non-Employee Director will automatically be granted 1,000 shares of Director
Stock on the date such new Non-Employee Director assumes office. Each
Non-Employee Director then in office who is the Chairman of a Committee of the
Board of Directors will automatically be granted 350 shares of Director Stock.
If an option and/or stock appreciation award expires or is terminated or
surrendered without having been fully exercised or shares of Restricted Stock
are forfeited, the unpurchased shares or forfeited shares of Common Stock
subject to the option, stock appreciation award or grant of Restricted Stock
shall again be available for the purpose of the Plan (except that in the case of
Restricted Stock, only those shares with respect to which dividends have not
been declared shall again be available for the purpose of this Plan).
Stock Option Awards under the terms of the Plan are intended to qualify for
special tax treatment under Section 422 of the Internal Revenue Code of 1986, as
amended, to the extent such treatment is available. The aggregate Fair Market
Value of Common Stock, valued at the time of grant, with respect to which
Incentive Stock Options granted to an individual (under the Plan or any of the
Corporation's other option plans) may become exercisable for the first time in
any calendar year shall not exceed $100,000. Options granted in excess of this
limitation will not qualify as Incentive Stock Options. All options are awarded
at an option price which is equal to the Fair Market Value, as defined in the
Plan, on the date on which the option is granted. The Fair Market Value of the
Common Stock on April 15, 1998 was $14.9375 per share. The options are
exercisable as follows: after one year from the date of grant, the optionee may
purchase up to one-fourth of the total number of shares; after two years from
the date of grant, the optionee may purchase, on a cumulative basis, up to one-
half of the total number of shares; after three years from the date of grant,
the optionee may purchase, on a cumulative basis, up to three-fourths of the
total number of shares; and after four years, but prior to the end of the tenth
year from the date of grant, the optionee may purchase, on a cumulative basis,
up to 100 percent of the total number of shares.
The purchase price of an option may be paid in cash, or, in the discretion
of the Compensation Committee, by tender of shares of the Corporation's Common
Stock having a Fair Market Value equal to the option price or by any combination
of cash and stock; however, no shares of Common Stock may be tendered in
exercise of an Incentive Stock Option if such shares were acquired by the
optionee through the exercise of an Incentive Stock Option unless such shares
have been held by the optionee for at least one year and at least two years have
elapsed since such Incentive Stock Option was granted.
A stock appreciation award consists of a number of Stock Appreciation Units
determined by the Compensation Committee. An award may be granted in tandem with
a Stock Option and is for the same term as such underlying option. Each stock
appreciation award entitles the recipient thereof to be paid in cash or Common
Stock of the Corporation (or any combination thereof as determined by the
Compensation Committee) the amount by which a share of the Corporation's Common
Stock has appreciated in Fair Market Value from the date of the award until the
date on which the participant elects payment.
The exercise of an option causes a corresponding reduction in Stock
Appreciation Units previously credited to the participant. In addition, payment
of a stock appreciation award causes a corresponding cancellation of the same
number of options.
Options and Stock Appreciation Units are not transferable other than by
will or the laws of descent and distribution and may be exercised during the
lifetime of the optionee only by him or her. An option must be exercised prior
to termination of employment or, if exercisable at termination, within 60 days
of such termination. In the event of the merger of the Corporation into another
company, the dissolution or liquidation of the Corporation, or a change of
control of the Corporation, any outstanding options and stock appreciation
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awards shall immediately mature and vest in full and be payable in an amount
equal to the difference between the exercise price and the Fair Market Value of
the shares on the date of the event triggering accelerated maturity.
Shares of Restricted Stock will be granted at no cost to the participant
and delivered at the time of the grant but will be subject to forfeiture until
certain specified conditions are met. Each certificate representing shares of
Restricted Stock will bear a legend referring to the Plan, the risk of
forfeiture of the shares and the fact that such shares are non-transferable
until the restrictions have been satisfied and the legend has been removed. The
participant will be entitled to full voting and dividend rights with respect to
such shares from the date of grant. Shares will vest in the participant and the
restrictions will lapse as follows: one-half of the shares after four years from
the date of grant, an additional one-fourth after six years, and the remaining
one-fourth after eight years.
A participant will be entitled to receive shares of Restricted Stock free
of restrictions only if he or she is at the time of the lapse of such
restrictions in the employ of the Corporation (or a parent or subsidiary) and
has been continuously so employed since the date of grant except in the case of
retirement or death. If employment is terminated by retirement on or after age
65, or prior to age 65 with the consent of the Compensation Committee, all
previously granted shares of Restricted Stock still subject to the restrictions
set forth above will become immediately free of such restrictions. If employment
is terminated because of disability, the participant will be treated as
continuing in the employ of the Corporation for purposes of fulfilling the
restriction period. In the event of death, all shares of Restricted Stock not
yet free of the restrictions will become immediately free of such restrictions.
The Plan provides that the Corporation may withhold from any payment,
whether in cash or shares of stock, any amount necessary to satisfy federal and
state income tax withholding requirements. Such withholding may be in cash or
shares of stock.
The Plan will terminate on April 9, 2008, which is ten years after the date
on which the Plan was originally approved by the Board of Directors, and no
additional options, stock appreciation awards or shares of Restricted Stock will
be granted after that date. The termination of the Plan will not affect any
unexercised options, stock appreciation awards or shares of Restricted Stock
which have not vested and which are outstanding at the time of termination of
the Plan. The Board of Directors may, at any time prior to April 9, 2008,
terminate the Plan or make such modifications to the Plan as it considers
appropriate, but may not materially increase the maximum number of shares for
which options, stock appreciation awards and shares of Restricted Stock and
Director Stock may be granted (except in the event of stock splits, etc., as
described above), change the class of employees to whom options, stock
appreciation awards or shares of Restricted Stock may be granted, withdraw the
authority to administer the Plan from a Committee whose members meet the
requirements stated in the Plan or materially increase the benefits accruing to
participants under the Plan.
In the event that (1) any person other than the Corporation acquires more
than 25 percent of the Corporation's Common Stock, (2) the Corporation is
liquidated or dissolved following a sale of all or substantially all of its
assets, or (3) the Corporation is not the surviving parent corporation resulting
from any merger or consolidation to which it is a party, then any outstanding
option, stock appreciation award or unvested shares of Restricted Stock held by
an employee of the Corporation or any parent or subsidiary of the Corporation
shall immediately mature and vest in full. In such event (1) in the case of
options or Stock Appreciation Units, payment will be made of an amount equal to
the difference between the aggregate exercise price of such option or Unit and
the aggregate Fair Market Value of the shares subject thereto, or (2) in the
case of Restricted Stock, all restrictions with respect to such stock will be
removed. The Board of Directors may, however, by unanimous resolution provide
that such maturity shall not result from any event specified in clause (3)
above.
Although it is not possible or appropriate at this time to determine the
identities or positions of those certain key management employees to whom shares
of Restricted Stock under the Plan may be granted, it is intended that such
grants will be made primarily to attract high quality executives in anticipation
of the management transition which is expected.
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INCENTIVE STOCK OPTIONS
An employee does not recognize income on the grant of an Incentive Stock
Option. If an employee exercises an Incentive Stock Option in accordance with
the terms of the option and does not dispose of the shares thus acquired within
two years from the date of the grant of the option nor within one year from the
date of exercise, the employee will not recognize any income by reason of the
exercise and the employer will be allowed no deduction by reason of the grant or
exercise. The employee's basis in the shares acquired upon exercise will be the
amount of cash paid upon exercise. See the discussion below for the tax
consequences of the exercise of an option with stock already owned by the
optionee. Provided the employee holds the shares as a capital asset at the time
of sale or other disposition of the shares, his or her gain or loss, if any,
recognized on the sale or other disposition will be a capital gain or loss. The
amount of his or her gain or loss will be the difference between the amount
realized on the disposition of the shares and his or her basis in the shares.
If an employee disposes of the shares within two years from the date of the
grant of the option or within one year from the date of exercise (an "early
disposition"), the employee will recognize ordinary income at the time of
disposition which will equal the excess, if any, of the lesser of (a) the amount
realized on the disposition, or (b) the Fair Market Value of the shares on the
date of exercise, over the employee's basis in the shares. The employer will be
entitled to a deduction in an amount equal to such income. The excess, if any,
of the amount realized on the early disposition of such shares over the Fair
Market Value of the shares on the date of exercise will be a long-term or
short-term capital gain, depending upon the holding period of the shares,
provided the employee holds the shares as a capital asset at the time of
disposition. If an employee disposes of such shares for less than his or her
basis in the shares, the difference between the amount realized and his or her
basis will be a long-term or short-term capital loss, depending upon the holding
period of the shares, provided the employee holds the shares as a capital asset
at the time of disposition.
The excess of the Fair Market Value of the shares at the time the Incentive
Stock Option is exercised over the exercise price for the shares is a tax
preference item (the "Incentive Stock Option Preference") unless the optionee
makes an early disposition of such stock. See "Taxation of Preference Items"
below.
NON-INCENTIVE STOCK OPTIONS
Non-Incentive Stock Options do not qualify for the special tax treatment
accorded to Incentive Stock Options under the Internal Revenue Code. Although
the optionee does not recognize income at the time of the grant of the option,
he or she recognizes ordinary income upon the exercise of a Non-Incentive Stock
Option in an amount equal to the difference between the Fair Market Value of the
stock on the date of exercise of the option and the amount of cash paid for the
stock.
As a result of the optionee's exercise of a Non-Incentive Stock Option, the
Corporation will be entitled to deduct as compensation an amount equal to the
amount included in the optionee's gross income. The Corporation's deduction will
be taken in the Corporation's taxable year in which the option is exercised.
The excess of the Fair Market Value of the stock on the date of exercise of
a Non-Incentive Stock Option over the exercise price is not an item of tax
preference. See "Taxation of Preference Items" below.
PAYMENT IN SHARES
If the employee exercises an option and surrenders stock already owned by
him or her ("Old Shares"), the following rules apply:
1. To the extent the number of shares acquired ("New Shares") exceeds the
number of Old Shares exchanged, the optionee will recognize ordinary income on
the receipt of such additional shares (provided the option is not an Incentive
Stock Option) in an amount equal to the Fair Market Value of such additional
shares less any cash paid for them, and the employer will be entitled to a
deduction in an amount equal to such income. The basis of such additional shares
will be equal to the Fair Market Value of such shares (or, in the case of an
Incentive Stock Option, the cash, if any, paid for additional shares) on the
date of exercise and the holding period for such additional shares will commence
on the date the option is exercised.
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2. To the extent the number of New Shares acquired does not exceed the
number of Old Shares exchanged, no gain or loss will be recognized on such
exchange, the basis of the New Shares received will be equal to the basis of the
Old Shares surrendered, and the holding period of the New Shares received will
include the holding period of the Old Shares surrendered. However, under
proposed regulations promulgated by the Internal Revenue Service, if the
optionee exercises an Incentive Stock Option by surrendering Old Shares, the
holding period for the New Shares will begin on the date the New Shares are
transferred to the optionee for purposes of determining whether there is an
early disposition of the New Shares, and if the optionee makes an early
disposition of the New Shares, he or she will be deemed to have disposed of the
New Shares with the lowest basis first. If the optionee exercises an Incentive
Stock Option by surrendering Old Shares which were acquired through the exercise
of an Incentive Stock Option, and if the surrender occurs prior to the
expiration of two years from the date the option was granted or one year from
the date the Old Shares were transferred to the Optionee, the surrender will be
deemed to be an early disposition of the Old Shares. The federal income tax
consequences of an early disposition are discussed above.
STOCK APPRECIATION AWARDS
A recipient of a stock appreciation award will recognize ordinary income in
the year in which the award is actually paid to him or her, whether the award is
paid in stock or cash. The employer will have a corresponding deduction in an
amount reportable by the recipient as income and in the same year. However, the
employer is entitled to deduct as compensation the amount included in the
recipient's gross income as a result of the payment of the award in stock only
in its tax year in which or with which ends the tax year of the employee in
which he or she recognizes gross income. If the award is paid in stock, the
recipient's basis will be equal to the Fair Market Value of the stock when
received and his or her holding period will begin on that date. If the stock so
acquired is later sold or exchanged, the difference between the sale price of
the stock and the employee's basis in the stock is taxable as long-term or
short-term capital gain or loss depending upon the holding period for the stock.
The maximum tax rate on net capital gains--that is, the net long-term capital
gain over the net short-term capital loss for the year -- is 20 percent for
capital assets held for more than 18 months and is 28 percent for capital assets
held for more than 12 months but not more than 18 months, even though the
maximum tax rate for individuals is 39.6 percent.
TAXATION OF PREFERENCE ITEMS
Section 55 of the Internal Revenue Code imposes an Alternative Minimum Tax
equal to the excess, if any of (1) 26 percent of the optionee's "alternative
minimum taxable income" ("AMTI") of $175,000 ($87,500 for married taxpayers
filing separately) (28 percent on AMTI above $175,000) ($87,500 for married
taxpayers filing separately) over (2) the optionee's "regular" federal income
tax. AMTI is determined by adding the optionee's tax preferences, including his
or her Incentive Stock Option Preference, to his or her adjusted gross income
and then subtracting certain allowable deductions and an exemption amount. The
exemption amount is generally $33,750 for single taxpayers, $45,000 for married
taxpayers filing jointly and $22,500 for married taxpayers filing separately,
but is subject to a reduction if alternative minimum taxable income exceeds
certain levels.
RESTRICTED STOCK AND DIRECTOR STOCK
An employee does not recognize income upon the receipt of Restricted Stock.
At the time the restriction lapses, the employee will recognize income in an
amount equal to the Fair Market Value of the shares on the date the restriction
lapses and the Corporation will be entitled to an income tax deduction of the
same amount. However, the employee may elect to recognize income on the date of
the receipt of the Restricted Stock by making an election under Section 83(b) of
the Code (a "Section 83(b) Election"). If the employee makes a Section 83(b)
Election, he or she will recognize income in an amount equal to the Fair Market
Value of the shares on the date he or she receives the shares, and the
Corporation will be entitled to an income tax deduction of the same amount.
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Each Non-Employee Director will recognize income on receipt of Director
Stock in an amount equal to the Fair Market Value of the shares on the date of
receipt, and the Corporation will be entitled to an income tax deduction of the
same amount.
In all cases, the Corporation's tax deduction will be taken in its taxable
year in which or with which ends the taxable year of the employee or
Non-Employee Director in which he or she recognizes income.
Notwithstanding the foregoing, the Corporation's deductions for certain
executive compensation (excluding stock options and stock appreciation awards)
may be subject to a $1,000,000 limit in any fiscal year for compensation to the
Chief Executive Officer and the next four highest paid officers of the
Corporation.
The foregoing description is only a summary of the federal income tax
consequences of the Plan and is based on the Corporation's understanding of
present federal tax laws and regulations.
VOTE REQUIRED
The affirmative vote of a majority of the Corporation's Common Stock
outstanding will constitute approval of the Plan. The Board of Directors of the
Corporation recommends a VOTE FOR such approval of the Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's Executive Officers and Directors, and persons who own more than
ten percent of a registered class of the Corporation's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "SEC") and with the New York and Chicago Stock
Exchanges. Executive Officers, Directors and greater-than-ten-percent
Shareholders are required by SEC regulations to furnish the Corporation with
copies of all Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the
Corporation, or written representations that no such reports were required, the
Corporation believes that such persons complied with all Section 16(a) filing
requirements applicable to them with respect to transactions during the Fiscal
Year ended January 31, 1998.
VOTING
Under the New York Business Corporation Law (the "BCL") and the
Corporation's Certificate of Incorporation, the presence, in person or
represented by Proxy, of the holders of a majority of the outstanding shares of
Common Stock is necessary to constitute a quorum of Shareholders to take action
at the Annual Meeting. For these purposes, shares which are present, or
represented by Proxy, at the Annual Meeting will be counted as present,
regardless of whether the holder of the shares or Proxy fails to vote on a
particular matter or whether a broker with discretionary voting authority fails
to exercise such authority with respect to any particular matter. Once a quorum
of Shareholders is established, the affirmative vote of a plurality of the
shares which are present in person or represented by Proxy at the Annual Meeting
is required to elect each Director. The affirmative vote of a majority of the
shares which are present in person or represented by Proxy and entitled to vote
at the Annual Meeting is required to act on any other matter properly brought
before the Annual Meeting.
Shares represented by Proxies which are marked "vote withheld" with respect
to the election of any person to serve on the Board of Directors will not be
considered in determining whether such a person has received the affirmative
vote of a plurality of the shares. Shares represented by Proxies which are
marked "abstain" with respect to any other proposal will not be considered in
determining whether such proposal has received the affirmative vote of a
majority of the shares and such Proxies will not have the effect of a "no" vote.
Shares represented by Proxies which deny the Proxy-holder discretionary
authority to vote on a proposal
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will not be considered in determining whether such proposal has received the
affirmative vote of a majority of the shares and such Proxies will not have the
effect of a "no" vote.
The Corporation knows of no other matters to come before the Annual
Meeting. If any other matters properly come before the Annual Meeting, the
Proxies solicited hereby will be voted on such matters in accordance with the
judgment of the persons voting such Proxies.
SHAREHOLDER PROPOSALS
FOR 1999 ANNUAL MEETING
Proposals of eligible Shareholders intended to be presented at the 1999
Annual Meeting, currently scheduled to be held on May 27, 1999, must be received
by the Corporation by December 25, 1998 for inclusion in the Corporation's Proxy
Statement and Proxy relating to that meeting. Upon receipt of any such proposal,
the Corporation will determine whether or not to include such proposal in the
Proxy Statement and Proxy in accordance with regulations governing the
solicitation of proxies.
In order for a Shareholder to nominate a candidate for Director, under the
Corporation's Bylaws timely notice of the nomination must be received by the
Corporation in advance of the meeting. Ordinarily, such notice must be received
by the Corporation not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
Shareholders, notice by such Shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the Annual Meeting was mailed or such public disclosure
was made. The Shareholder filing the notice of nomination must describe various
matters regarding the nominee, including such information as (a) the name, age,
business and residence addresses, occupation and shares held of such person; (b)
any other information relating to such nominee required to be disclosed in the
Proxy Statement; and (c) the name, address and shares held by the Shareholder.
In order for a Shareholder to bring other business before a Shareholder
meeting, under the Corporation's Bylaws timely notice must be received by the
Corporation within the time limits described above. A Shareholder's notice shall
set forth as to each matter the Shareholder proposes to bring before the Annual
Meeting various information regarding the proposal, including (a) a brief
description of the business desired to be brought before the Annual Meeting and
the reasons therefor, (b) the name and address of such Shareholder proposing
such business, (c) the number of shares of Common Stock of the Corporation which
are beneficially owned by such Shareholder and (d) any material interest of such
Shareholder in such business. These requirements are separate from and in
addition to the requirements a Shareholder must meet to have a proposal included
in the Corporation's Proxy Statement.
In each case, notice must be given to the Vice President, General Counsel
and Corporate Secretary of the Corporation, whose address is 8300 Maryland
Avenue, Post Office Box 29, St. Louis, Missouri 63166-0029. Any Shareholder
desiring a copy of the Corporation's Bylaws will be forwarded one without charge
upon written request from such individual.
INDEPENDENT AUDITORS
Ernst & Young LLP were the auditors for the Corporation for the year ended
January 31, 1998, and the Board of Directors, on the recommendation of its Audit
Committee, has engaged that firm as auditors for the year ending January 30,
1999. Representatives of that firm will be present at the Annual Meeting to
respond to appropriate questions that may be raised, and they will have an
opportunity to make a statement, if they so desire.
MISCELLANEOUS
The Corporation will bear the cost of solicitation of Proxies. Proxies will
be solicited by mail. They also may be solicited by Executive Officers and
regular employees of the Corporation personally or by telephone or
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telegram, but such persons will not be specifically compensated for such
services. It is contemplated that brokerage houses, custodians, nominees and
fiduciaries will be requested to forward the soliciting material to the
beneficial owners of stock held of record by such persons and will be reimbursed
for their reasonable expenses incurred therein.
Even though you plan to attend the meeting in person, please sign, date and
return the enclosed Proxy promptly. The person giving a Proxy has the power to
revoke it, at any time before it is exercised, by giving written notice of
revocation to the Vice President, General Counsel and Corporate Secretary of the
Corporation or by duly executing and delivering a Proxy bearing a later date, or
by attending the Annual Meeting and casting a contrary vote. All shares
represented by Proxies received in time to be counted at the Annual Meeting will
be voted. A postage paid, return addressed envelope is enclosed for your
convenience. Your cooperation in giving this your immediate attention will be
appreciated.
ROBERT D. PICKLE
Vice President, General Counsel
and Corporate Secretary
8300 Maryland Avenue
Post Office Box 29
St. Louis, Missouri 63166-0029
April 24, 1998
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EXHIBIT 1
ARTICLE II.
"Section 1. Number. The number of directors within the maximum and minimum
limits provided for in the Certificate of Incorporation may be changed from time
to time by the Shareholders or by the Board of Directors by an amendment to
these Bylaws. Subject to amendment of these Bylaws, as aforesaid, the number of
directors of the Corporation shall be ten. Such directors shall be classified in
respect of the time for which they shall severally hold office by dividing them
into two classes consisting of three directors each and one class consisting of
four directors. At each annual election, the successors of the directors of the
class whose term shall expire in that year shall be elected to hold office for
the term of three years so that the term of office of one class of directors
shall expire in each year. The Board of Directors shall not choose as a director
to fill a temporary vacancy any person over the age of seventy years, and shall
not recommend to the Shareholders any person for election as a director for a
term extending beyond the Annual Meeting of Shareholders following the end of
the calendar year during which he attains his seventieth birthday, provided,
however, that this shall not apply to directors elected or holding office, at
the time of the Annual Meeting of Shareholders in 1967; and provided further,
that this shall not prevent the designation by the Board of such person as an
Honorary Director, to serve without vote."
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EXHIBIT 2
BROWN GROUP, INC. STOCK OPTION AND RESTRICTED
STOCK PLAN OF 1998
SECTION I. PURPOSE
The purpose of this Plan is to provide an incentive to and encourage
ownership of the Company's stock by the grant of stock options, restricted stock
and stock appreciation awards to certain "Key Employees" and by the grant of
Director Stock to "Non-Employee Directors" of the Company or its subsidiaries.
It is intended that all options granted pursuant to the Plan will qualify as
Incentive Stock Options, as defined in Section 422(b) of the Internal Revenue
Code of 1986, as amended, except for those options granted pursuant to the Plan
which are in excess of the limitations set forth in Section 422(d).
SECTION II. DEFINITIONS
A. "Board of Directors" means the board of directors of the Company.
B. "Common Stock" means shares of the common stock, par value $3.75 per
share, of the Company.
C. "Company" means Brown Group, Inc., a New York corporation, or any
successor thereto.
D. "Compensation Committee" means the committee established by the Board of
Directors pursuant to Section IX.
E. "Director Stock" means shares of Common Stock granted to a Non-Employee
Director pursuant to Section VIII.
F. "Effective Date" means April 9, 1998.
G. "Fair Market Value" as of a given date, means the mean between the high
and low selling prices on the New York Stock Exchange of Common Stock on such
given date. In the absence of actual sales on a given date, "Fair Market Value"
means the mean between the high and low selling prices on the New York Stock
Exchange of Common Stock on the last day preceding such given date on which a
sale of the Common Stock occurred.
H. "Incentive Stock Option" means a stock option described in Section
422(b) of the Internal Revenue Code of 1986, as amended.
I. "Key Employee" means a person who is employed in a position of
administrative or managerial responsibility by the Company or a Subsidiary.
J. "Non-Employee Director" means a director of the Company who is not an
employee of the Company or a Subsidiary.
K. "Parent" means any corporation (other than the Company or a Subsidiary)
in an unbroken chain of corporations ending with the Company if at the time of
the grant of a Stock Option each of the corporations other than the Company or a
Subsidiary, owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
L. "Participant" means a Key Employee who is awarded a Stock Appreciation
Unit and/or a Stock Option and/or shares of Restricted Stock hereunder.
M. "Plan" means this Brown Group, Inc. Stock Option and Restricted Stock
Plan of 1998.
N. "Restricted Stock" means shares of Common Stock granted to a Key
Employee pursuant to Section VII.
O. "Stock Appreciation Unit" means, to the extent provided in the Plan and
only to that extent, a share of Common Stock.
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<PAGE> 32
P. "Stock Appreciation Award" means an award granted pursuant to Section
VI.
Q. "Stock Option" means an option to purchase Common Stock granted pursuant
to Section V.
R. "Subsidiary" means any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company if, at the time of
grant of a Stock Option hereunder, each of the corporations, other than the last
corporation in the unbroken chain, owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
SECTION III. STOCK
The stock which may be issued and either granted or sold under the Plan or
pursuant to which Stock Appreciation Awards may be satisfied shall not exceed,
in the aggregate, 750,000 shares of Common Stock. Notwithstanding the preceding
sentence, no more than 150,000 of the 750,000 shares of Common Stock authorized
to be issued, granted or sold under the Plan may be granted as Restricted Stock.
If a Stock Option and/or Stock Appreciation Award expires or is terminated or
surrendered without having been fully exercised or shares of Restricted Stock
are forfeited, the unpurchased shares or forfeited shares of Common Stock
subject to the Stock Option, Stock Appreciation Award or grant of Restricted
Stock shall again be available for purposes of the Plan provided, however, that
such shares shall be available for grants of Restricted Stock only to the extent
previously available to be issued as Restricted Stock. The number of shares for
which Stock Options and Stock Appreciation Awards can be granted to any one
Participant during the ten-year period beginning April 9, 1998 shall be 200,000
shares.
SECTION IV. ELIGIBILITY
A. A share of Restricted Stock, a Stock Option, or a Stock Option in tandem
with a Stock Appreciation Award may be granted under the Plan only to a Key
Employee.
B. A share of Director Stock may be granted under the Plan only to a
Non-Employee Director.
SECTION V. STOCK OPTIONS
A. Option Price. The purchase price for shares of Common Stock under any
Stock Option granted under the Plan shall be the Fair Market Value for such
shares on the date on which such Stock Option was granted. Such Fair Market
Value shall be set forth in the option agreement.
B. Term and Exercise of Options. A Stock Option may be exercised during an
option period commencing in the second year and ending ten years from the date
on which the Stock Option is granted, as follows:
(1) After one year from the date of grant, the optionee may purchase
up to one-fourth of the total number of shares to which his Stock Option
relates;
(2) After two years from the date of grant, the optionee may purchase,
on a cumulative basis, up to one-half of the total number of shares to
which his Stock Option relates;
(3) After three years from the date of grant, the optionee may
purchase, on a cumulative basis, up to three-fourths of the total number of
shares to which his Stock Option relates;
(4) After four years but prior to the end of the tenth year from the
date on which the Stock Option is granted, the optionee may purchase, on a
cumulative basis, up to 100% of the total number of shares to which his
Stock Option relates;
provided, however, that except as set forth in Subsections E and F and Section
XIII, no Stock Option may be exercised unless the optionee is then in the employ
of the Company, a Parent or a Subsidiary and shall have been continuously so
employed since the date of the grant of his Stock Option.
C. Non-Transferability of Options. Each Stock Option granted under the Plan
shall by its terms be nontransferable other than by will or the laws of descent
and distribution, and may be exercised, during the lifetime of the optionee,
only by him.
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<PAGE> 33
D. Termination of Employment. If the employment of an optionee is
terminated other than by reason of his death, he may exercise his Stock Option,
to the extent he was entitled to exercise it at the date of such termination of
employment, at any time within 60 days after such termination; provided,
however, that no exercise of any Stock Option may take place any later than ten
years from the date of the grant of such Stock Option. No change in the duties
of an optionee, while in the employ of the Company, a Parent or a Subsidiary, or
transfer, if still employed after the transfer by the Company, a Parent or a
Subsidiary, shall constitute termination of employment.
E. Death of Optionee. In the event of the death of an optionee, while he is
entitled to exercise a Stock Option, his Stock Option may be exercised, to the
extent that he was entitled to exercise it as of the date of his death, by his
estate, or by any person who acquired the right to exercise it by bequest or
inheritance or by reason of the death of the optionee, at any time within a
period of one year after his death, but in no event after ten years from the
date of the grant of the Stock Option.
F. Leaves of Absence. The Stock Option agreements issued pursuant to the
Plan may contain such provisions as the Compensation Committee shall determine
with respect to approved leaves of absence.
G. Payment of Option Price. The purchase price is to be paid in full upon
exercise of a Stock Option, either (i) in cash; or (ii) in the discretion of the
Compensation Committee, by the tender to the Company of shares of Common Stock
owned by the optionee and registered in his name (other than Restricted Stock
which has not yet vested) having a Fair Market Value equal to the cash exercise
price of the Stock Option being exercised; or (iii) in the discretion of the
Compensation Committee, by any combination of the payment methods specified in
clauses (i) and (ii) hereof; provided, however, that no shares of Common Stock
may be tendered in exercise of an Incentive Stock Option if such shares were
acquired by the optionee through the exercise of an Incentive Stock Option
unless (i) such shares have been held by the optionee for at least one year; and
(ii) at least two years have elapsed since such Incentive Stock Option was
granted. The proceeds of sale of stock subject to a Stock Option are to be added
to the general funds of the Company or to the shares of Common Stock held in
treasury, and used for the corporate purposes of the Company as the Board of
Directors shall determine.
H. Limitation on Exercise of Options. The maximum aggregate Fair Market
Value (determined as of the time an option is granted) of Common Stock with
respect to which Incentive Stock Options are first exercisable by an optionee in
any calendar year (under all option plans of the Company, its Parent and its
Subsidiaries) shall not exceed an aggregate Fair Market Value of $100,000.
SECTION VI. STOCK APPRECIATION AWARDS
A. Description. A Stock Appreciation Award shall be that number of Stock
Appreciation Units as the Compensation Committee shall from time to time grant.
The right to elect to receive such Stock Appreciation Award may be based on
criteria determined by the Committee. After the criteria have been met which
allow a Participant to elect to receive payment, such election may be made at
any time during the remainder of the term of the Stock Appreciation Award. Upon
electing to receive payment of a Stock Appreciation Award, a Participant shall
receive for such Stock Appreciation Unit as to which payment is elected an
amount in cash, in Common Stock or in any combination thereof, as the
Compensation Committee shall determine, equal to the amount, if any, by which
the Fair Market Value of one share of Common Stock on the date on which such
election is made exceeds the Fair Market Value of one share of Common Stock on
the date on which the Stock Appreciation Award was granted.
B. Grant of Award. The Compensation Committee may, in its sole discretion,
grant a Key Employee a Stock Appreciation Award in tandem with a Stock Option;
provided, however, that the agreements evidencing the grant of the Stock
Appreciation Award and the tandem Stock Option shall provide that the exercise
of a Stock Option granted in tandem with a Stock Appreciation Award shall cause
a correlative reduction in Stock Appreciation Units theretofore standing to a
Participant's credit, and the payment of a Stock Appreciation Award shall cause
a correlative cancellation of such Stock Option.
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<PAGE> 34
C. Term and Exercise of Award. When a Stock Appreciation Award is granted
in tandem with a Stock Option, it shall have a term equal to the term of such
Stock Option and shall be payable, upon a Participant's election, at the same
times, and to the same extent, as such Stock Option; provided that,
notwithstanding the preceding, except as set forth in Subsection G and Section
XIII, no election to receive payment of a Stock Appreciation Award may be made
unless the Participant is then in the employ of the Company, a Parent or a
Subsidiary and shall have been continuously so employed since the date of the
grant of his Stock Appreciation Award.
D. Establishment of Accounts. The Company shall establish a special ledger
and shall record the name of each Participant and the number and type of Stock
Appreciation Units awarded to such Participant in any year.
E. Payment of Award. A Stock Appreciation Award shall be paid, to the
extent payment is elected by the Participant (and is otherwise due and payable),
as soon as practicable after the date on which such election is made.
F. Non-Transferability of Award. Except as provided in Subsection G, no
Stock Appreciation Award or the rights thereto shall be transferable.
G. Death. In the event a Participant who has been granted a Stock
Appreciation Award in tandem with a Stock Option dies while still employed by
the Company, a Parent or a Subsidiary, payment of his Stock Appreciation Award
may be elected, to the extent that he was entitled to elect payment as of the
date of his death, by his estate, or by any person who acquired the right to
make such election by bequest or inheritance or by reason of the death of the
Participant, at any time within a period of one year after his death, but in no
event after ten years from the date of grant of the Stock Appreciation Award.
H. Leaves of Absence. The Stock Appreciation Award agreement issued
pursuant to the Plan may contain such provisions as the Compensation Committee
shall determine with respect to approved leaves of absence.
SECTION VII. RESTRICTED STOCK
A. Description. The Compensation Committee may grant to Key Employees
shares of Common Stock reserved pursuant to Section III of the Plan as
Restricted Stock. Shares of Restricted Stock shall be issued and delivered at
the time of the grant but shall be subject to forfeiture until vested in
accordance with Subsection C. Each certificate representing shares of Restricted
Stock shall bear a legend referring to the Plan, the risk of forfeiture of the
shares and the fact that such shares are non-transferable until vesting
restrictions have been satisfied and the legend has been removed. The grantee
shall be entitled to full voting and dividend rights with respect to all shares
of Restricted Stock, beginning with the date of grant.
B. Cost of Restricted Stock. Grants of shares of Restricted Stock are
considered additional compensation to a Participant, and shares shall be at no
cost to the Participant.
C. Removal of Legend (Vesting). Shares of Restricted Stock granted
hereunder shall vest and the restrictions shall lapse as follows:
(a) after four years from the date of grant, restrictions shall lapse
for one-half of the total number of shares subject to the grant;
(b) after six years from the date of grant, restrictions shall lapse
for an additional one-fourth of the total number of shares subject to the
grant;
(c) after eight years from the date of grant, restrictions shall lapse
for the remaining one-fourth of the total number of shares subject to the
grant;
provided, however, that except as set forth in Subsections E and F and Section
XIII, or as otherwise set forth below, a grantee shall be entitled to receive
shares of Restricted Stock free of restrictions only if, at the time of the
lapse of such restrictions, such grantee is then in the employ of the Company, a
Parent or a Subsidiary and
33
<PAGE> 35
shall have been continuously so employed since the date of grant of the shares
of Restricted Stock. If he is not so employed, such shares shall be forfeited.
D. Non-Transferability. Except as provided in Subsection F, shares of
Restricted Stock shall not be transferable by a grantee until after the removal
of the legend with respect to such shares.
E. Retirement. If the employment of a grantee is terminated due to
retirement on or after age 65 or due to retirement prior to age 65 with the
consent of the Compensation Committee, all previously-granted shares of
Restricted Stock still subject to the restrictions of Subsection C, above, shall
become immediately free of such restrictions. If the employment of a grantee is
terminated due to retirement for disability, such grantee shall be treated as
continuing in the employ of the Company solely for purposes of fulfilling the
restrictions in Subsection C above.
F. Death. In the event of the death of a grantee, all previously-granted
shares of Restricted Stock, not yet free of the vesting restrictions of
Subsection C, above, shall become immediately free of such restrictions.
G. Leaves of Absence. The Restricted Stock agreements issued pursuant to
the Plan may contain such provisions as the Compensation Committee shall
determine with respect to approved leaves of absence.
SECTION VIII. DIRECTOR STOCK
A. Grant and Award. On the last business day before each Annual Meeting of
Shareholders of the Company, each Non-Employee Director then in office, who is
not the Chairman of a Committee of the Board of Directors, will automatically be
granted 250 shares of Director Stock. In addition, each new Non-Employee
Director will automatically be granted 1,000 shares of Director Stock on the
date such new Non-Employee Director assumes office. Each Non-Employee Director
then in office who is the Chairman of a Committee of the Board of Directors will
automatically be granted 350 shares of Director Stock. Notwithstanding the
foregoing, the grants of Director Stock hereunder shall not be in duplication of
the Director Stock granted under the terms of the Brown Group, Inc. Stock Option
and Restricted Stock Plan of 1994, as amended.
B. Amendment. The provisions of Section XII notwithstanding, in no event
may the provisions of this Section VIII be amended more than once every six
months other than to comply with changes in the Internal Revenue Code of 1986,
as amended, and the Employee Retirement Income Security Act of 1974, as amended,
or the rules thereunder.
SECTION IX. ADMINISTRATION
The Plan shall be administered by the Compensation Committee, except as set
forth in Section X. Subject to the express provisions of the Plan, the
Compensation Committee shall have complete authority to:
(A) determine the individuals to whom and the time or times when Stock
Options and Stock Appreciation Awards and shares of Restricted Stock shall
be granted;
(B) determine the number of shares to be subject to each Stock Option,
Stock Appreciation Award and grant of Restricted Stock and the terms and
provisions of each Stock Option, Stock Appreciation Award and Restricted
Stock agreement;
(C) interpret the Plan;
(D) prescribe, amend and rescind rules and regulations relating to the
Plan; and
(E) make all determinations not specifically set forth in (A) through
(D) above which it considers necessary or advisable for the administration
of the Plan.
All determinations by the Compensation Committee with respect to (A)
through (E) above shall be final.
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<PAGE> 36
SECTION X. COMPENSATION COMMITTEE
A. Composition. The Compensation Committee shall consist of two or more
members of the Board of Directors who are not eligible to receive and who have
not at any time within one year prior to their appointment as Compensation
Committee members received discretionary grants of the Company's equity
securities pursuant to the terms of this Plan or any other plan of the Company
or its Parent or Subsidiaries. In addition, with respect to the grant of Stock
Options, Stock Appreciation Awards and Restricted Stock, such member ("Outside
Director") shall not:
(1) be a current employee of the Company, or a Parent or a Subsidiary;
(2) be a former employee of the Company, or a Parent or a Subsidiary,
who receives compensation for prior services (other than benefits under a
tax-qualified retirement plan) during the taxable year;
(3) have been an officer of the Company, or a Parent or a Subsidiary;
(4) receive Remuneration from the Company, or a Parent or a
Subsidiary, either directly or indirectly in any capacity other than as a
director.
The Outside Directors may be a sub-committee of the Compensation Committee
or comprise the whole committee. If a sub-committee, their deliberations shall
be separate and reported directly to the full Board of Directors for any further
action required. "Remuneration" and "Officer" as used herein shall be determined
in accordance with Treasury Regulation Section 1.162-27(e)(3) or any successor
thereto.
B. Appointment. The members of the Compensation Committee shall be
appointed by and shall serve at the pleasure of the Board of Directors, which
may from time to time appoint members in substitution for members previously
appointed and fill vacancies, however caused, in the Compensation Committee.
C. Chairman, Place of Meetings. The Compensation Committee and its Outside
Directors or sub-committee (if any) may select one of its members as its
Chairman and shall hold its meetings at such times and places as it may
determine.
D. Quorum. A majority of its members shall constitute a quorum.
E. Determinations. All determinations of the Compensation Committee or its
sub-committee shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by a majority of the members shall
be fully as effective as if it had been made by a majority vote at a meeting
duly called and held.
SECTION XI. EFFECT OF CHANGE IN STOCK
Notwithstanding any other provision in the Plan, if there is any change in
the Common Stock by reason of stock dividends, spinoffs, split-ups,
recapitalizations, mergers, consolidations, reorganizations, combinations or
exchanges of shares, the number of Stock Appreciation Units and number and class
of shares available for Stock Options and grants of Restricted Stock and
Director Stock and the number of shares subject to any outstanding options,
Stock Appreciation Units and prior grants of Restricted Stock not yet vested,
and the price thereof, as applicable, shall be appropriately adjusted by the
Compensation Committee.
SECTION XII. AMENDMENT OR TERMINATION
Unless the Plan shall theretofore have been terminated as hereinafter
provided, the Plan shall terminate, and no Stock Appreciation Awards, Stock
Options or shares of Restricted Stock or Director Stock shall be granted
hereunder, after ten years from the date of its adoption by the Board of
Directors. Any Stock Appreciation Awards, Stock Options, or grants of shares of
Restricted Stock outstanding at the termination of the Plan shall continue in
full force and effect and shall not be affected by such termination of the Plan.
The Board of Directors may, at any time prior to that date, terminate the Plan
or make such modifications of the Plan as it may deem advisable; provided,
however, that the Board of Directors may not, without further approval of the
holders of the Common Stock of the Company: (a) materially increase the maximum
number of shares for which Stock Options and shares of Restricted Stock and
Director Stock may be granted or
35
<PAGE> 37
pursuant to which Stock Appreciation Awards may be satisfied (except under the
anti-dilution provisions of Section XI), (b) change the class of employees to
whom Stock Options may be granted, (c) withdraw the authority to administer the
Plan from a committee whose members meet the requirements of Section X whether
as Outside Directors or otherwise, (d) materially increase the benefits accruing
to Participants or (e) increase the aggregate number of shares for which Stock
Options can be granted to any Key Employee.
SECTION XIII. CHANGE OF CONTROL
In the event that:
(A) any person other than the Company shall acquire more than 25% of
the Company's Common Stock through a tender offer, exchange offer, or
otherwise, or
(B) the Company shall be liquidated or dissolved following a sale of
all or substantially all of its assets, or
(C) the Company shall not be the surviving parent corporation
resulting from any merger or consolidation to which it is a party,
any then outstanding Stock Option, Stock Appreciation Award, or unvested shares
of Restricted Stock held by an employee of the Company or any Parent or
Subsidiary of the Company shall immediately mature and vest in full and shall be
and remain exercisable by each employee Participant in accordance with the
provisions of the Plan, including Section V.B., Term and Exercise of Options,
and further, shall be settled by the payment to each employee Participant of,
(1) in the case of Stock Options or Stock Appreciation Units, an
amount equal to the difference between the aggregate exercise price of such
Stock Option or Stock Appreciation Unit and the aggregate Fair Market Value
of the shares subject thereto on the Special Maturity Date, as hereinafter
defined; or
(2) in the case of Restricted Stock, removal of all restrictions with
respect to such stock;
provided, however, that the Board of Directors may, by unanimous resolution,
provide that such maturity shall not result from an event described in clause
(C) above. For purposes of an event specified in clause (A) above, the Special
Maturity Date for purposes hereof shall be the date securities are first
purchased by a tender or exchange offer, or the date upon which the Company
first receives written notice of acquisition of 25% of its Common Stock,
whichever shall first occur. For purposes of an event specified in clause (B) or
(C), the Special Maturity Date shall be the effective date of the liquidation,
dissolution, merger or consolidation. Settlement shall be made in cash within
not less than five days following the Special Maturity Date; provided, however,
that in the case of a merger or consolidation in which the holders of Common
Stock are to receive securities of the surviving corporation, a Participant may,
by written notice to the Company not less than ten days prior to the Special
Maturity Date, elect to receive settlement either in cash or in shares of the
Common Stock having a Fair Market Value, immediately prior to the time such
merger or consolidation becomes effective, equal to the amount due; provided,
however, that any such election for a cash settlement shall be subject to the
approval of the Compensation Committee. Settlement of any such election shall be
made immediately prior to the time such merger or consolidation is to become
effective.
SECTION XIV. WITHHOLDING
The Company, at the time any distribution is made under the Plan, whether
in cash or in shares of Common Stock, may withhold from such payment any amounts
necessary to satisfy federal and state income tax withholding requirements with
respect to such distribution. Such withholding may be in cash or in shares of
Common Stock.
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<PAGE> 38
SECTION XV. TERMINATION OF EMPLOYMENT
Nothing in the Plan or in any Stock Option, Stock Appreciation Award or the
grant of Restricted Stock shall be deemed to create any limitation or
restriction on such rights as the Company, Parent or Subsidiary, otherwise would
have to terminate the employment of any person at any time for any reason.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed and
become effective as of the 9th day of April, 1998, the Effective Date, subject
to the approval of the Shareholders of the Company given within twelve months of
the Effective Date. Grants of Stock Options, Stock Appreciation Awards and
Restricted Stock may be made prior to such approval, but, if such approval is
not obtained, such grants shall be void and of no force or effect.
BROWN GROUP, INC.
By /s/ B. A. BRIDGEWATER, JR.
------------------------------------
B. A. BRIDGEWATER, JR.
Chairman of the Board of Directors,
President
and Chief Executive Officer
[SEAL]
ATTEST:
/s/ ROBERT D. PICKLE
- --------------------------------------
ROBERT D. PICKLE
Vice President, General Counsel
and Corporate Secretary
37
<PAGE> 39
<TABLE>
<S><C>
[X] Please mark your
votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING:
FOR WITHHELD FOR AGAINST ABSTAIN
1. ELECTION OF [ ] [ ] Nominees: Julie C. Esrey, 2. RATIFICATION AND APPROVAL OF [ ] [ ] [ ]
DIRECTORS Richard A. Liddy, THE BROWN GROUP, INC. STOCK
John Peters MacCarthy OPTION AND RESTRICTED STOCK
and B.A. Bridgewater, Jr. PLAN OF 1998 AND THE
ALLOCATION OF 750,000 SHARES
OF THE CORPORATION'S COMMON
STOCK TO THE PLAN.
For, except vote withheld from the following nominee(s):
This proxy, when properly executed, will
- ----------------------------- be voted in the manner directed by the
undersigned Shareholder. If no direction
is made, this proxy will be voted for
Proposals 1 and 2, as recommended by the
Board of Directors.
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY FORM PROMPTLY, USING THE ENCLOSED
ENVELOPE.
THIS PROXY MUST BE SIGNED EXACTLY
AS NAME APPEARS HEREON.
Executors, administrators, trustees, etc.
should give full titles as such. If the
signer is a corporation, please sign full
corporate name by duly authorized
officer.
----------------------------------------
----------------------------------------
SIGNATURE(S) DATE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- PLEASE DETACH PROXY HERE, SIGN AND MAIL -
BROWN GROUP, INC.
8300 Maryland Avenue, St. Louis, Missouri 63105
ANNUAL MEETING OF SHAREHOLDERS
MAY 28, 1998
11:00 A.M.
BROWN GROUP, INC. CONFERENCE CENTER
8300 MARYLAND AVENUE
CLAYTON, ST. LOUIS COUNTY, MISSOURI 63105
<PAGE> 40
BROWN GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION FOR
ANNUAL MEETING MAY 28, 1998
The undersigned hereby constitutes and appoints B.A. Bridgewater, Jr., Harry E.
Rich and Robert D. Pickle, and each of them, his or her true and lawful agents
and proxies, with full power of substitution in each, to represent the
undersigned at the Annual Meeting of Shareholders of BROWN GROUP, INC., to be
held in the Brown Group, Inc. Conference Center, located at 8300 Maryland
Avenue, in Clayton, in St. Louis County, Missouri, on Thursday, May 28, 1998,
at 11 o'clock a.m., and at any adjournments thereof, and to vote all the shares
of Common Stock of the Corporation standing on the books of the Corporation in
the name of the undersigned as specified on the reverse side hereto and in
their discretion on such other business as may properly come before the
meeting.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[BROWN GROUP, INC. LOGO]
8300 MARYLAND AVENUE, ST. LOUIS, MISSOURI 63105
April 24, 1998
Dear Shareholder:
The Annual Meeting of Shareholders of Brown Group, Inc. will be held on
the 28th day of May, 1998, at 11:00 a.m., in the Brown Group, Inc. Conference
Center, located at 8300 Maryland Avenue, in Clayton, in St. Louis County,
Missouri.
It is important that your shares be represented at this meeting. Whether
or not you plan to attend the meeting, please review the enclosed materials,
complete the attached proxy form above, and return it promptly in the envelope
provided.
(over)
