<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] 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)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY PROXY STATEMENT
BROWN GROUP, INC. LOGO
8300 Maryland Avenue, Post Office Box 29, St. Louis, Missouri 63166-0029
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
MAY 27, 1999
The Annual Meeting of Shareholders of Brown Group, Inc. (the "Corporation")
will be held on the 27th day of May, 1999, 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 two Directors;
B. To consider and vote upon a proposal, recommended by the Board of Directors
of the Corporation, to amend the Certificate of Incorporation of the
Corporation to change its name to "Brown Shoe Company, Inc.";
C. To ratify and approve the prior adoption by the Board of Directors of the
Brown Group, Inc. Incentive and Stock Compensation Plan of 1999, as
described in the following Proxy Statement, and the allocation of 900,000
shares of the Corporation's Common Stock thereto; and
D. To transact such other business as may properly come before the meeting.
On January 31, 1999, the Board of Directors of the Corporation amended
Article II, Section 1 of the Bylaws of the Corporation to increase the number of
Directors from ten to eleven, effective on January 31, 1999, and to classify the
Directors in respect of the time for which they shall severally hold office by
dividing them into two classes of four Directors each and one class of three
Directors, and elected Mr. Ronald A. Fromm to fill the Directorial vacancy
created by that amendment to the Bylaws, to serve until the 1999 Annual Meeting
of the Shareholders of the Corporation. On March 4, 1999, 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 eleven to seven, effective on
May 27, 1999, and to classify the Directors in respect of the time for which
they shall severally hold office by dividing them into two classes of two
Directors each and one class of three Directors. Article II, Section 1 of the
Bylaws, as further so amended, is set forth in Exhibit 1 to the accompanying
Proxy Statement. As a result, the number of Directors from and after May 27,
1999 will be seven.
On March 4, 1999, the Board of Directors approved the adoption of a
resolution establishing a policy of confidential voting for Shareholders of the
Corporation, effective immediately. That policy is set forth in Exhibit 3 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 7, 1999 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 23, 1999
It is important that your shares be represented and voted at the Annual
Meeting. Shareholders are urged to vote in one of these ways:
- USE THE TOLL-FREE TELEPHONE NUMBER shown on the proxy card;
- VISIT THE WEB SITE shown on the proxy card to vote via the Internet; or
- SIGN, DATE AND PROMPTLY RETURN the proxy card in the enclosed postage
paid, return addressed envelope.
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 27, 1999
------------
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 27, 1999, and at all adjournments thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting of Shareholders.
On the April 7, 1999 record date, the Corporation had outstanding
18,204,290 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 30, 1999 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 23, 1999.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to each
person known by the Corporation, as of April 7, 1999, 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. 1,052,050(1) 5.78%(1)
1211 Southwest Fifth Avenue, Suite 2185
Portland, Oregon 97204
Dimensional Fund Advisors Inc. 910,600(2) 5.04%(2)
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Mellon Bank Corporation, 1,405,478(3) 7.72%(3)
through its indirect, wholly-owned Subsidiaries
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
</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 999,448 shares and sole investment
authority over 1,052,050 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 910,600 shares and sole investment
authority over 910,600 shares.
2
<PAGE> 4
(3) Based on written representations made to the Corporation by such
Shareholder, the named Shareholder, acting in various fiduciary capacities,
possessed sole voting authority over 1,249,778 shares, sole investment
authority over 1,261,078 shares and shared investment authority over 144,400
shares.
3
<PAGE> 5
SECURITY HOLDINGS OF MANAGEMENT
The following table sets forth, as of April 7, 1999, 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 12 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 6, 1999, 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 6, 1999
- ---- --------- --------------
<S> <C> <C>
Joseph L. Bower............................................. 3,400 -0-
B. A. Bridgewater, Jr....................................... 93,753 -0-
Brian C. Cook............................................... 86,891 53,500
Julie C. Esrey.............................................. 2,000 -0-
Ronald A. Fromm............................................. 90,409 45,000
Richard A. Liddy............................................ 2,700 -0-
John Peters MacCarthy....................................... 4,750 -0-
John D. Macomber............................................ 4,000 -0-
William E. Maritz........................................... 3,100 -0-
General Edward C. Meyer, Retired............................ 3,000 -0-
Harry E. Rich............................................... 56,687 46,000
Jerry E. Ritter............................................. 2,600 -0-
David H. Schwartz........................................... 6,845 21,250
Directors and Executive Officers as a Group
(24 persons, including those named above)................. 466,466 323,750
</TABLE>
Each person identified in the preceding table is the beneficial owner of
less than 1% of the Corporation's Common Stock. The 24 persons comprising
Directors and Executive Officers as a Group are, in the aggregate, the
beneficial owners of 4.26% 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
7, 1999, for purposes of calculating the aggregate percentage beneficially owned
by Directors and Executive Officers as a Group.
4
<PAGE> 6
(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. Two Directors are to be elected for terms
expiring at the Annual Meeting in 2002; two Directors will continue in office
for terms expiring at the Annual Meeting in 2001; and three Directors will
continue in office for terms expiring at the Annual Meeting in 2000 (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 below. The nominee other
than Mr. Ronald A. Fromm and all Directors continuing in office previously have
been elected by the Shareholders.
5
<PAGE> 7
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>
FROMM PHOT0 RONALD A. FROMM
Chairman of the Board of Directors, President, Chief
Executive Officer and President of Brown Shoe Company... 48 1999
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..... 63 1994
</TABLE>
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>
ESREY PHOT0 JULIE C. ESREY
Member of the Corporation's Audit Committee and Member
of the Corporation's Governance and Nominating
Committee............................................. 60 1995
MacCARTHY PHOT0 JOHN PETERS MACCARTHY
Member of the Corporation's Audit Committee and Member
of the Corporation's Compensation Committee........... 66 1996
</TABLE>
- ------------------------
<TABLE>
<S> <C> <C> <C>
(*) Mr. Liddy was elected as a Director at the 1998 Annual Meeting of Shareholders to a
term of office expiring with the 2001 Annual Meeting of Shareholders. As a result
of the reduction of the number of active Directors from eleven to seven, Mr. Liddy
is standing for reelection for a new term of three years, in order to keep all
classes of Directors as nearly equal in number as possible, as required by the New
York Business Corporation Law.
</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>
BOWER PHOTO JOSEPH L. BOWER
Chairman of the Corporation's Compensation Committee and
Member of the Corporation's Executive Committee....... 60 1987
RICH PHOTO HARRY E. RICH
Executive Vice President and Chief Financial Officer;
Member of the Corporation's Executive Committee....... 59 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............................................. 64 1996
</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:
Mr. Ronald A. Fromm has been Chairman of the Board of Directors, President
and Chief Executive Officer and a Director of Brown Group, Inc. and President of
Brown Shoe Company since January 31, 1999. Previously, Mr. Fromm served as Vice
President, Brown Group, Inc. and President of Brown Shoe Company from April 9,
1998 and March 9, 1998, respectively, until January 31, 1999. From 1992 until
March 9, 1998, Mr. Fromm served as Executive Vice President of the Famous
Footwear Division of the Corporation, where, previously, he served from 1991 to
1992 as Vice President and Chief Financial Officer. He currently serves as a
director of the Footwear Distributors and Retailers of America, of the Fashion
Footwear Association of New York and of the Two/Ten International Footwear
Foundation.
Mr. Richard A. Liddy is a director and Chairman of the Board of Directors,
President and Chief Executive Officer of GenAmerica Corporation, formerly known
as 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, now GenAmerica Corporation. 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.
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
and a director of the Duke Management Company. She also has served as a director
of Bank IV Kansas, National Association, in Wichita, Kansas, and as a member of
the Board of Visitors of the Duke University Medical Center and the Central
Governing Board for the Children's Mercy Hospital, in Kansas City, Missouri.
Mr. John Peters MacCarthy is the 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. 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 and of the Saint Louis Blues Hockey Club
of the National (Professional) Hockey League. Mr. Ritter
8
<PAGE> 10
also is Chairman of the Board of Directors and Chief Executive Officer of Clark
Enterprises, Inc., a (parent) 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 International, Inc.,
and serves, also, as a member of the Board of Directors of the Automobile Club
of Missouri and as Chairman of the Board of Commissioners of the Saint Louis
Science Center.
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 30,
1999, January 31, 1998 and February 1, 1997 concerning annual and long-term
compensation for services rendered to the Corporation and its subsidiaries of
those persons who at January 30, 1999 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. ..... 1998 725,000 412,000 -0- -0- -0-/-0- 8,531
Chairman of the Board, 1997 725,000 -0- -0- 163,750 -0-/-0- 11,343
President and Chief 1996 725,000 164,140 -0- 581,875 -0-/-0- 11,051
Executive Officer (until
January 30, 1999)(7)
Brian C. Cook............... 1998 475,000 380,000 -0- 421,875 70,000/18,278 5,984
Vice President of the 1997 475,000 152,950 -0- 81,875 32,000/20,441 5,984
Corporation and 1996 475,000 -0- -0- -0- 15,000/14,422 6,128
President, Famous Footwear
(now Executive Vice
President of the Corporation
and President, Famous
Footwear)
Ronald A. Fromm............. 1998 442,471 255,000 -0- 988,125 140,000/16,899 6,710
Vice President of the 1997 365,000 142,530 -0- 40,938 25,000/14,778 6,171
Corporation and President, 1996 350,000 -0- -0- -0- 10,000/7,401 6,108
Brown Shoe Company (now
Chairman of the Board,
President, Chief Executive
Officer and President, Brown
Shoe Company)
Harry E. Rich............... 1998 425,000 242,000 -0- 337,500 50,000/18,278 5,600
Executive Vice President 1997 425,000 -0- -0- 81,875 32,000/20,441 5,609
and Chief Financial Officer 1996 400,000 90,560 -0- -0- 15,000/12,688 5,250
David H. Schwartz........... 1998 370,000 237,000 -0- -0- 10,000/5,000 5,654
President, 1997 350,000 159,600 -0- -0- 12,000/2,573 5,582
Brown Shoe Sourcing 1996 335,000 85,000 -0- -0- 8,000/-0- 5,250
</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 30, 1999, Mr. Bridgewater held
65,000 Restricted Shares having a market value of $1,037,968.75, Mr. Cook
held 45,750 Restricted Shares having a market value of $730,570.31, Mr.
Fromm held 71,000 Restricted Shares having a market value of $1,133,781.25,
Mr. Rich held 33,000 Restricted Shares having a market value of $526,968.75,
and Mr. Schwartz held 750 Restricted Shares having a market value of
$11,976.56.
(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.
10
<PAGE> 12
(6) Includes in 1998 for Mr. Bridgewater: $5,600.00 to the Corporation's 401(k)
Plan, $2,050.00 in Corporation-paid group life insurance premiums and
$880.88 in the Employee Stock Purchase Plan. Includes in 1998 for Mr. Cook:
$5,250.00 to the Corporation's 401(k) Plan and $734.24 in the Employee Stock
Purchase Plan. Includes in 1998 for Mr. Fromm: $5,828.84 to the
Corporation's 401(k) Plan and $880.88 in the Employee Stock Purchase Plan.
Includes in 1998 for Mr. Rich: $5,600.00 to the Corporation's 401(k) Plan.
Includes in 1998 for Mr. Schwartz: $5,653.84 to the Corporation's 401(k)
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 will retire as an employee of the Corporation on May 27,
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.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Corporation entered into an Employment Agreement with Mr. Ronald A.
Fromm dated as of May 14, 1998 (amended by a First Amendment on July 27, 1998
incorporating a Severance Agreement as described below) initially for his
services as a Vice President of the Corporation and as President of the Brown
Shoe Company Division. The Employment Agreement provides that for the period of
May 1, 1998 through April 30, 2001, he will be paid annual base compensation of
not less than $450,000; he will be eligible to receive an annual incentive
payment in accordance with the Corporation's annual incentive plan; he will
receive an option to acquire a substantial number of shares of Common Stock
under the Corporation's Stock Option and Restricted Stock Plan of 1994, as
amended; and the Corporation will pay his relocation expense and purchase his
former residence for $465,000 (representing his cost). Pursuant to the
Employment Agreement, the Corporation has granted Mr. Fromm an option to
purchase 140,000 shares of Common Stock, has awarded him 50,000 shares of
Restricted Stock and has purchased his former residence. If his employment is
terminated by the Corporation other than for cause prior to April 30, 2001, he
may elect to receive either (a) a sum equal to $37,500 multiplied by the number
of full months remaining until May 1, 2001, less the amount, if any, of any base
compensation paid to him for the month of termination prior to the date of such
termination, plus, had he been terminated prior to January 30, 1999, an
incentive payment of $180,000 or (b) if the Severance Agreement described below
has not previously been terminated, the severance benefits payable in accordance
with the Severance Agreement.
The Corporation entered into Severance Agreements dated July 27, 1998 with
twelve Executive Officers of the Corporation, including Messrs. Brian C. Cook,
Ronald A. Fromm, Harry E. Rich and David H. Schwartz, each of whom is named in
the Summary Compensation Table above. Each Severance Agreement is for a term of
three years and is automatically extended for successive one-year periods unless
terminated by the Corporation or the employee on six months' notice. An
employee's employment may be terminated by the Corporation for cause (as
defined) or without cause at any time. If an employee's employment is terminated
for cause, the employee will be entitled to receive accrued and unpaid base
salary, credit for unused vacation time, and all other amounts earned and
unpaid. If an employee's employment is terminated without cause prior to change
in control (as defined) or more than 24 months after a change in control, or if
he voluntarily terminates his employment for good reason (reduction in salary or
position) the employee will also be entitled to receive his base salary
(including targeted bonus) for 18 months; coverage under the Corporation's
medical/dental plans for 18 months; a cash payment equal to the fair market
value of his shares of restricted stock which would have vested during the
following 18 months plus, for each non-vested stock option which would have
vested during the following 18 months, the excess of the fair market value of
the Common Stock over the exercise price; the reasonable cost of outplacement
services; and 1.5 years will be added to his credited service under the
Corporation's Supplemental Executive Retirement Plan. If an employee's
employment is terminated without cause within 24 months after a change in
control which occurs during the term of the Severance Agreement or if he
voluntarily terminates his employment for good reason, the
11
<PAGE> 13
employee will be entitled to receive a lump sum cash payment of 250% of his base
salary and targeted bonus; dental/medical coverage for 30 months; outplacement
services; and 2.5 years will be added to his credited service. If any payment to
the employee would subject him to excise tax under Section 4999 of the Internal
Revenue Code, the employee would be entitled to receive an additional payment in
an amount sufficient to compensate him therefor.
On December 31, 1998, the Corporation entered into separate Severance
Agreements with fifteen other key management employees of the Corporation,
providing for other severance benefits which are consistent with their status as
such senior, key management employees.
LOAN AGREEMENT
In connection with the engagement of Mr. Ronald A. Fromm, initially for his
services as a Vice President of the Corporation and as President of the Brown
Shoe Company Division, the Corporation entered into a Loan Agreement on May 1,
1998 with Mr. Fromm pursuant to which the Corporation made an interest-free
$400,000 loan to Mr. Fromm. The loan is payable in annual installments of
$80,000 on May 1 in each of the years 1999 through 2003. The principal amount
will become payable in full upon the sale of Mr. Fromm's current residence or
termination of his employment other than by reason of disability or death.
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 1998 (the "1998 Plan"),
and 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 also have 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 each of the three 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 each of the three 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
12
<PAGE> 14
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 any of the
three Plans 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, the 1994 Plan or the 1998 Plan to persons
named in that table. Such shares have been included in the Stock Ownership Table
on page 4 of this Proxy Statement.
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, the 1994 Plan and the 1998 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 entered into separate agreements with six Executive Officers at
various times, incident to hiring in the cases of four such persons, providing
additional credited years of service over those for which the Executive is
actually employed. Three such Executive Officers currently are employed by the
Corporation.
13
<PAGE> 15
The following table 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 1999.
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.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
YEARS OF SERVICE
FINAL AVERAGE -------------------------------------------------------------------------------------
SALARY 10 15 20 25 30 35 OR MORE
------------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
$100,000............. $ 12,534 $ 18,801 $ 25,068 $ 31,335 $ 37,602 $ 43,870
$200,000............. 27,184 40,776 54,368 67,960 81,552 95,145
$300,000............. 41,834 62,751 83,668 104,585 125,502 146,420
$400,000............. 56,484 84,726 112,968 141,210 169,452 197,695
$500,000............. 71,134 106,701 142,268 177,835 213,402 248,970
$600,000............. 85,784 128,676 171,568 214,460 257,352 300,245
$700,000............. 100,434 150,651 200,868 251,085 301,302 351,520
$800,000............. 115,084 172,626 230,168 287,710 345,252 402,795
$900,000............. 129,734 194,601 259,468 324,335 389,202 454,070
</TABLE>
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.--35;
Mr. Brian C. Cook--28; Mr. Ronald A. Fromm--12; Mr. Harry E. Rich--25; and Mr.
David H. Schwartz--9. 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 20 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
14
<PAGE> 16
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.
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. Corresponding provisions for grants of Director Stock are
contained in the 1998 Plan, which was approved by the Corporation's Shareholders
at the 1998 Annual Meeting of Shareholders.
Mr. Joseph L. Bower has been paid a fee of $100,000 for his services in
leading the search committee for the determination of a successor to Mr. B. A.
Bridgewater, Jr. as Chief Executive Officer of the Corporation.
STOCK OPTION PLANS
The Corporation has options outstanding under the 1998 Plan, the 1994 Plan
and the 1987 Plan (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, the 1994 Plan
and the 1998 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.
15
<PAGE> 17
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
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS/SARS PRICE APPRECIATION
GRANTED TO FOR 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.......... 20,000/18,278 5.39%/22.10% $16.88 2008 $ 212,252 $ 537,888
50,000/-0- 13.48%/-0- $16.84 2009 $ 529,649 $1,342,234
Ronald A. Fromm........ 20,000/16,899 5.39%/20.43% $16.88 2008 $ 212,252 $ 537,888
120,000/-0- 32.35%/-0- $16.84 2009 $1,271,157 $3,221,361
Harry E. Rich.......... 20,000/18,278 5.39%/22.10% $16.88 2008 $ 212,252 $ 537,888
30,000/-0- 8.09%/-0- $16.84 2009 $ 317,789 $ 805,340
David H. Schwartz...... 10,000/5,000 2.70%/6.04% $16.88 2008 $ 106,126 $ 268,944
</TABLE>
- ------------------------
* All SARs were issued in tandem with options presented in this table.
The following table 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:
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 OPTIONS/SARS
SHARES AT FY-END(#) AT FY-END($)(2)
ACQUIRED ON VALUE ------------------------- -------------------------
EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
B. A. Bridgewater, Jr...... -0- -0- -0-/-0- -0-/-0-
Brian C. Cook.............. -0- -0- 39,875/109,625 $37,617/$36,289
Ronald A. Fromm............ -0- -0- 33,125/169,375 $23,906/$25,781
Harry E. Rich.............. -0- -0- 34,250/87,750 $37,617/$36,289
David H. Schwartz.......... -0- -0- 15,250/25,750 $14,602/$13,180
</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
16
<PAGE> 18
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 30, 1999, the Board of Directors of
the Corporation met at regular and special meetings on eleven 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 four
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.
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; and Mr. William E. Maritz. During the
Fiscal Year ended January 30, 1999, the Audit Committee met on three separate
occasions. Effective on May 27, 1999, the members of the Audit Committee will be
Mrs. Julie C. Esrey, Chairperson; Mr. Richard A. Liddy; and Mr. John Peters
MacCarthy.
17
<PAGE> 19
COMPENSATION COMMITTEE
The Compensation 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. 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; and Mr. Jerry E. Ritter. During the Fiscal Year ended January
30, 1999, the Compensation Committee met on four separate occasions. Effective
on May 27, 1999, the members of the Compensation Committee will be Mr. Joseph L.
Bower, Chairman; Mr. John Peters MacCarthy; and Mr. Jerry E. Ritter.
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.
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. Ronald A. Fromm; 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 30, 1999. Effective on May 27, 1999, the members of
the Executive Committee will be Mr. Richard A. Liddy, Chairman; Mr. Ronald A.
Fromm; Mr. Harry E. Rich; and Mr. Jerry E. Ritter.
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 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
18
<PAGE> 20
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 30, 1999, the Governance and Nominating Committee
met on one occasion. Effective on May 27, 1999, the members of the Governance
and Nominating Committee will be Mr. Jerry E. Ritter, Chairman; Mr. Joseph L.
Bower; Mrs. Julie C. Esrey; and Mr. Richard A. Liddy.
COMPENSATION COMMITTEE REPORT
The policy of the Compensation Committee of Brown Group is to design
compensation programs that will attract, motivate, and retain a management team
capable of developing and implementing strategy that creates long term
shareholder value. Competitive salary and incentive opportunities are extended
to management that provide rewards based on the Corporation's financial
performance, growth and shareholder returns. If the Corporation's performance
does not meet planned levels, management's compensation will lag when compared
to the median of peer group companies. Conversely, if the Corporation's
performance exceeds plan, total compensation will exceed the peer group median.
Total compensation consists of the following elements: annual salary and bonus
opportunity; annual stock option grants; and periodic grants of restricted stock
or proposed grants of performance based stock.
SALARY
Brown Group salaries are targeted to be competitive with comparable
companies in the footwear and retail industry with whom it competes for
management. While salaries are expected to be adequate, they are not intended to
be the primary incentive for exceptional performance. A balance of incentives is
provided by the Annual Incentive Plan, Long Term Stock Incentives and Stock
Option Awards to enhance the financial performance of the Corporation, and thus
shareholder value, by aligning the financial interests of management with the
interests of Shareholders.
Salaries are reviewed annually. A survey of competitors' compensation
indicates that these practices have placed Brown Group's total cash pay levels
slightly above the median of its peer group, and consistent with the above
stated pay philosophy.
ANNUAL INCENTIVES
The bonus program is designed to link the interests of management with
those of its Shareholders through cash incentive awards based on budgeted levels
of earnings and return on invested capital. The 1998 Annual Incentive Plan
provided for cash incentive payments if financial objectives from the core
businesses were achieved. Very encouraging progress was made in the
Corporation's core businesses (Famous Footwear, Brown Shoe Company and Canadian
operations), and both individual divisional performance and the collective core
performance of these divisions was better than planned levels. Considering these
factors, the Committee approved incentive compensation payments in 1998
consistent with the achievement of the above performance criteria.
19
<PAGE> 21
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 periodic survey mentioned above. Over the
last several years, we learned that our practices in granting stock awards have
been well below those of the peer group companies. Accordingly, in 1997 and
1998, additional grants were made to key executives. For the future, it is our
intent to shift emphasis from salary and bonus toward stock options and
performance based stock awards reflecting corporate plans for growth.
CEO COMPENSATION
The Committee maintained the salary of the Chief Executive Officer for 1998
at the $725,000 level. As a result of the encouraging progress in the core
businesses (Famous Footwear, Brown Shoe Company and Canadian operations) in
1998, a bonus of $412,000 was paid as core earnings per share of $1.74 exceeded
budgeted earnings per share of $1.55. Total net earnings per share of $1.32
exceeded planned net earnings as well. Other incentive payments made to senior
executives elsewhere in the Corporation reflect the 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 1998,
stock options for 335,000 shares and restricted stock awards of 112,500 shares
were made to eleven (11) other Executive Officers in recognition of high
performance and to reflect additional responsibilities assumed due to the
management transition resulting from the planned retirement of the Chief
Executive Officer.
The Internal Revenue Code 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 1998, 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. Accordingly, we
recommend Shareholders approve the Brown Group, Inc. Incentive and Stock
Compensation Plan of 1999. The Compensation Committee believes that executive
compensation programs should serve to achieve its above intended objectives
while also minimizing any effect on the Company of Section 162(m) of the
Internal Revenue Code, which section provides for the annual $1 million
limitation and the deduction that an employee may claim for compensation of
Executive Officers. The Incentive and Stock Compensation Plan of 1999 is
described on pages 23 to 29 of the Proxy Statement. Subject to the approval of
Shareholders, the Plan would comply with the provisions of Section 162(m),
thereby providing for tax deductibility for both annual incentive payments and
performance based stock awarded under the Plan. All cash bonus awards and
non-restricted stock awards made to Executive Officers would be based solely
upon the attainment of specific financial results such as earnings per share,
return on investment, return on equity and growth in revenue.
20
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THE COMMITTEE BELIEVES A TAX EFFICIENT, PERFORMANCE BASED ANNUAL INCENTIVE
OPPORTUNITY IS AN EFFECTIVE AND A NECESSARY MEANS TO RETAIN AND MOTIVATE STRONG
MANAGEMENT. FURTHERMORE, THE COMMITTEE BELIEVES THE USE OF STOCK OPTIONS AND
PERFORMANCE BASED STOCK AWARDS WILL PLAY A VITAL ROLE IN STRONGLY LINKING
MANAGEMENT INTERESTS DIRECTLY TO IMPROVING THE LONG TERM SUCCESS OF THE
CORPORATION AND DIRECTLY TO INCREASING SHAREHOLDER VALUE. IT IS THE INTENTION OF
THE COMMITTEE TO EMPLOY STOCK OPTIONS AND LONG TERM PERFORMANCE BASED STOCK
AWARDS, RATHER THAN RESTRICTED STOCK AS THE PRIMARY INCENTIVE TO ENHANCE
SHAREHOLDER VALUE. WE RECOMMEND THAT SHAREHOLDERS APPROVE THE BROWN GROUP, INC.
INCENTIVE AND STOCK COMPENSATION PLAN OF 1999, LISTED IN EXHIBIT 2 TO 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
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<PAGE> 23
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 one 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.
PERFORMANCE GRAPH COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
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...... -10.04% -11.40% 11.42% 2.39% 13.50%
Peer Group............ -8.08% -6.70% -10.49% -32.43% -44.99%
S&P 500 Index......... 24.37% 31.03% 28.55% 29.67% 32.49%
</TABLE>
- -------------------------
* For indicated holding periods, in Fiscal Years of the Corporation
corresponding to the previous graph, ended January 29, 1999.
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.
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<PAGE> 24
(B)
CHANGE OF NAME
The Board of Directors has proposed that the name of the Corporation be
changed to "Brown Shoe Company, Inc." As is indicated in the accompanying Annual
Report to Shareholders, the proposed change is intended to reflect a full-circle
return to the Corporation's roots in the shoe industry, following the completion
of a period of diversification. The proposed name change not only would reflect
that the Corporation is again a "pure" footwear company, but also an intention
to form a single integrated, increasingly efficient brand-driven footwear
company. In order to reflect properly these changes, the Board of Directors has
proposed that Article I of the Corporation's Certificate of Incorporation be
amended to read as follows:
First. The name of the company shall be "Brown Shoe Company, Inc."
(hereinafter termed "Company").
If approved by the Shareholders, it is anticipated that the amendment will
become effective on or about May 28, 1999. It will not be necessary for
Shareholders to exchange their present certificates representing shares of
Common Stock of the Corporation because of this name change.
VOTE REQUIRED
The affirmative vote of a majority of the Corporation's Common Stock
outstanding is required for adoption of the proposed name change. The Board of
Directors of the Corporation recommends a VOTE FOR such approval of the adoption
of the proposed name change.
(C)
INCENTIVE AND STOCK COMPENSATION PLAN OF 1999
GENERAL
The Brown Group, Inc. Incentive and Stock Compensation Plan of 1999 (the
"Plan") was approved by the Board of Directors on April 20, 1999 and will become
effective as of May 27, 1999, subject to approval by the Shareholders. The Plan
will remain in effect until May 27, 2009 or until all shares subject to it shall
have been purchased or acquired according to the Plan's provisions, but no
Awards may be made under the Plan after May 27, 2009. 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 objectives of the Plan are to optimize the profitability and growth of
the Corporation through annual and long-term incentives which are consistent
with the Corporation's goals and which link the personal interests of
Participants to those of the Corporation's Shareholders; to provide Participants
with an incentive for excellence in individual performance; and to increase
shareholder value, long-term. The Plan is further intended to provide
flexibility to the Corporation in its ability to motivate, attract, and retain
the services of Participants who make significant contributions to the
Corporation's success and to allow Participants to share in the success of the
Corporation.
All employees and Directors of the Corporation are eligible to participate
in the Plan. No determination has been made with respect to those persons to
whom Awards will be made under the Plan, or the amounts of any Awards, but it is
anticipated that Awards will be made to the Executive Officers included in the
Summary Compensation Table above. The Plan provides for the grant of Stock
Options, Restricted Stock, Performance Shares, Performance Units and Cash-Based
Awards (collectively called "Awards").
The Plan is to be administered by the Board of Directors of the
Corporation, but the Board may delegate administration of the Plan to the
Compensation Committee when required to meet the requirements of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code").
The Board of Directors will have full power to: (1) select the employees
and Directors who are to participate in the Plan, (2) determine the sizes and
types of Awards, (3) determine the terms and conditions of Awards in a manner
consistent with the Plan, (4) interpret the Plan and any agreement or instrument
23
<PAGE> 25
entered into under the Plan, (5) establish, amend or waive rules and regulations
for the Plan's administration, (6) amend the terms and conditions of any
outstanding Award as provided in the Plan, and (7) make all other determinations
that may be necessary or advisable for the administration of the Plan.
The Plan covers an aggregate of 900,000 shares of the Corporation's Common
Stock for purposes of making Awards under the Plan. Additionally, shares
approved pursuant to the Brown Group, Inc. Stock Option and Restricted Stock
Plan of 1998 (the "1998 Plan") which have not yet been awarded and shares
subject to any Award that is canceled, terminates, expires, or lapses for any
reason become available for grant under the Plan. No more than 300,000 shares of
Common Stock reserved for issuance under the Plan may be granted in the form of
Performance Shares and no more than 204,000 shares, including shares of Common
Stock from the 1998 Plan, may be granted in the form of Restricted Shares. The
Board determines the appropriate method for calculating the number of shares
issued pursuant to the Plan.
The following rules will apply to grants of Awards under the Plan: (1) the
maximum aggregate number of shares of Common Stock that may be granted in the
form of Stock Options, pursuant to any Award granted in any one fiscal year to
any one single Participant is 150,000 shares; (2) the maximum aggregate payout
at the end of an applicable Performance Period with respect to Awards of
Performance Shares or Performance Units granted in any one fiscal year to any
one Participant, is 100,000 shares; (3) the maximum payout with respect to
Cash-Based Awards in any one fiscal year to any one Participant is $1,500,000;
and (4) the maximum aggregate grant with respect to Awards of Restricted Stock
granted in any one fiscal year to any one Participant is 50,000.
In the event of any change in corporate capitalization, such as a stock
split, or a corporate transaction such as any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of the
Corporation, any reorganization or any partial or complete liquidation of the
Corporation, an adjustment will be made: (1) in the number and class of shares
of Common Stock which may be delivered under the Plan, (2) in the number and
class of and/or price of shares subject to outstanding Awards granted under the
Plan, and (3) in the Award limits set forth in the Plan. Such adjustments will
be appropriate and equitable as determined by the Board, in its sole discretion,
to prevent dilution or enlargement of Participants' rights.
STOCK OPTIONS
Under the Plan, a Stock Option is granted under an Award Agreement
specifying the price, the duration of the Stock Option, the number of shares of
Common Stock to which the Stock Option pertains and whether the Stock Option is
an Incentive Stock Option or a Nonqualified Stock Option. Incentive Stock Option
Awards under the terms of the Plan are those that qualify for special tax
treatment under Section 422 of the Code to the extent such treatment is
available, while the Nonqualified Stock Options do not qualify. Directors may
not be granted Incentive Stock Options but employees may be granted either under
the Plan.
Specifically, the price of a Stock Option granted to a Participant under
the Plan will be at least 100% of the Fair Market Value of a share of Common
Stock on the date the Stock Option is granted. The duration of a Stock Option is
determined by the Board at the time that it is granted. However, no Incentive
Stock Option will be allowed to be exercised later than the tenth anniversary
date of its grant. Stock Options can be exercised subject to the restrictions
and conditions placed upon them by the Board, and they need not be the same for
each grant or for each Participant.
The Stock Option price upon the exercise of any Stock Option is paid: (1)
in cash or its equivalent, (2) by tendering (either actual or by attestation)
previously acquired shares having an aggregate Fair Market Value at the time of
exercise equal to the total Stock Option price (provided that the shares which
are tendered must have been held by the Participant for at least six months
prior to their tender to satisfy the Stock Option price), (3) by a combination
of (1) and (2), (4) in cashless exercise as permitted under the Federal Reserve
Board's Regulation T, subject to applicable securities law restrictions, or (5)
by any other means which the Board determines to be consistent with the Plan's
purpose and applicable law.
Either the Board or Committee may impose restrictions on any shares
acquired pursuant to the exercise of a Stock Option as deemed necessary
including, without limitation, restrictions under applicable federal
24
<PAGE> 26
securities laws, under the requirements of any stock exchange or market upon
which such shares are then listed and/or traded and under any blue sky or state
securities laws applicable to such shares.
Each Participant's Stock Option Award Agreement will set forth the extent
to which the Participant can exercise the Stock Option following the termination
of the Participant's employment or Directorship with the Corporation. Such
provisions will be determined in the sole discretion of the Board or Committee,
included in the Award Agreement entered into with each Participant, and need not
be uniform among all Stock Options issued.
No Stock Options (except as otherwise provided in a Participant's Award
Agreement) under the Plan, may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. Stock Options granted to a Participant will be
exercisable during the Participant's lifetime only by such Participant.
PERFORMANCE UNITS, PERFORMANCE SHARES, AND CASH-BASED AWARDS
Each Performance Unit has an initial value that is established by the Board
at the time of grant. Each Performance Share has an initial value equal to the
Fair Market Value of a share of Common Stock on the date of grant. Each
Cash-Based Award has a value as may be determined by the Board. The Board will
set performance goals which determine the number and/or value of Performance
Units/Shares and Cash-Based Awards that will be paid out to a Participant. The
determination of the Board with respect to the form of payout of such Awards
will be set forth in the Award Agreement pertaining to the grant of the Award.
The time period during which the performance goals must be met is called the
"Performance Period."
The Board will set performance goals which, depending on the extent to
which they are met, will determine the number and/or value of Performance
Units/Shares and Cash-Based Awards that will be paid. The performance measure(s)
to be used will be chosen from among: (1) earnings per share, (2) net income
(before and after taxes), (3) operating income (before or after taxes), (4)
return on invested capital, return on assets, or return on equity, (5) cash flow
return on investments which equals net cash flows divided by owners' equity, (6)
earnings before interest or taxes, (7) gross revenues or revenue growth, (8)
market share, and (9) growth in share price or total shareholder return.
The Board will have the discretion to adjust the determinations of the
degree of attainment of the initially established performance goals on a
Corporation-wide or divisional basis; however, Awards which are designed to
qualify for the performance-based exception of Section 162(m) of the Code may
not be adjusted upward.
If applicable tax and/or securities laws change to permit Board discretion
to alter the governing performance measures without obtaining Shareholder
approval of such changes, then the Board, in its sole discretion, may make such
changes without obtaining Shareholder approval. In addition, if the Board
determines that it is advisable to grant Awards which will not qualify for the
performance-based exception, then the Board may make such grants without
satisfying the requirements of Section 162(m).
The Board may pay Performance Units/Shares and Cash-Based Awards in the
form of cash or shares of Common Stock (or any combination) which have an
aggregate Fair Market Value equal to the value of the Awards earned at the close
of the Performance Period.
At the discretion of the Board, Participants may be entitled to receive any
dividends declared with respect to shares of Common Stock which have been earned
in connection with grants of Performance Units and/or Performance Shares which
have been earned, but not yet distributed to Participants (such dividends shall
be subject to the same accrual, forfeiture, and payout restrictions that apply
to dividends earned with respect to shares of Restricted Stock). In addition,
Participants may, at the discretion of the Board, be entitled to exercise their
voting rights with respect to such shares.
Unless determined otherwise by the Board and set forth in the Participant's
Award Agreement, in the event the employment or Directorship of a Participant is
terminated by reason of death, disability, early retirement or retirement during
a Performance Period, the Participant will receive a payout of the Performance
Units/Shares or Cash-Based Awards which is prorated.
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<PAGE> 27
Payment of earned Performance Units/Shares or Cash-Based Awards will be
made at a time specified by the Board in its sole discretion and set forth in
the Participant's Award Agreement. Notwithstanding the foregoing, with respect
to employees, who are "covered employees" as defined in the regulations
promulgated under Section 162(m) of the Code, and who retire during a
Performance Period, payments are made at the same time they are made to
Participants who did not terminate employment during the applicable Performance
Period.
In the event that a Participant's employment or Directorship terminates for
any reason other than those reasons set forth above during a Performance Period,
all Performance Units/Shares and Cash-Based Awards are forfeited by the
Participant to the Corporation unless determined otherwise by the Board, as set
forth in the Participant's Award Agreement.
Except as otherwise provided in a Participant's Award Agreement,
Performance Units/Shares and Cash-Based Awards may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. Further, except as otherwise provided
in a Participant's Award Agreement, a Participant's rights under the Plan shall
be asserted during the Participant's lifetime only by the Participant or the
Participant's legal representative.
RESTRICTED STOCK
Each Restricted Stock grant will be stated in a Restricted Stock Award
Agreement that will specify the period(s) of restriction, the number of shares
of Restricted Stock granted, and such other provisions as deemed necessary by
the Board.
The shares of Restricted Stock granted may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated until the end of the
applicable period of restriction established by the Board and specified in the
Restricted Stock Award Agreement. All rights with respect to the Restricted
Stock granted to a Participant under the Plan are available only to the
Participant during his or her lifetime.
The Corporation may retain the certificates representing shares of
Restricted Stock in the Corporation's possession until the time all conditions
and/or restrictions applicable to the shares have been satisfied. Shares of
Restricted Stock covered by each Restricted Stock grant made under the Plan
become freely transferable by the Participant after the last day of the
applicable period of Restriction. Participants holding shares of Restricted
Stock granted by the Board may be granted the right to exercise full voting
rights with respect to those shares during the period of Restriction.
During the period of Restriction, Participants holding shares of Restricted
Stock may be credited with regular cash dividends paid with respect to the
underlying shares while they are so held. The Board may apply any restrictions
to the dividends that the Board deems appropriate.
Each Restricted Stock Award will set forth the extent to which the
Participant will have the right to receive unvested Restricted Shares following
termination of the Participant's employment or Directorship with the
Corporation. Such provisions will be determined in the sole discretion of the
Board and included in the Award Agreement entered into with each Participant.
Additionally, these provisions need not be uniform among all shares of
Restricted Stock issued pursuant to the Plan.
CHANGE IN CONTROL
A "Change in Control" of the Corporation occurs when:
(1) Any natural person, corporation, government, or political subdivision,
agency, or instrumentality of a government, or partnership, limited partnership,
syndicate , or other group of two or more natural persons ("Person"), (other
than those Persons in control of the Corporation as of May 27, 1999, or other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Corporation, or a corporation owned directly or indirectly by the
Shareholders of the Corporation in substantially the same proportions as their
ownership of stock of the Corporation) becomes the beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), either directly or
indirectly of securities of the
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<PAGE> 28
Corporation representing 30% or more of the combined voting power of the
Corporation's then outstanding securities; or
(2) During any period of two consecutive years (not including any period
prior to May 27, 1999), individuals who at the beginning of such period
constitute the Board (and any new Director, whose election by the Corporation's
Shareholders was approved by a vote of at least two-thirds of the Directors then
still in office who either were Directors at the beginning of the period or
whose election or nomination for election was so approved), then cease to
constitute a majority of the Board; or
(3) The Shareholders of the Corporation approve: (i) a plan of complete
liquidation of the Corporation; or (ii) an agreement for the sale or disposition
of all or substantially all of the Corporation's assets; or (iii) a merger,
consolidation, or reorganization of the Corporation with or involving any other
corporation, other than a merger, consolidation, or reorganization that would
result in the voting securities of the Corporation outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 65% of the
combined voting power of the voting securities of the Corporation (or such
surviving entity) outstanding immediately after such merger, consolidation, or
reorganization;
(4) However, in no event shall a "Change in Control" be deemed to have
occurred, with respect to a Participant, if the Participant is part of a
purchasing group which consummates the Change-in-Control transaction. A
Participant shall be deemed "part of a purchasing group" for purposes of the
preceding sentence if the Participant is an equity Participant in the purchasing
Corporation or group (except for: (i) passive ownership of less than three
percent of the stock of the purchasing Corporation; or (ii) ownership of equity
in the purchasing Corporation or group which is otherwise not significant, as
determined prior to the Change in Control by a majority of the nonemployee
continuing Directors).
Upon the occurrence of a Change in Control, unless otherwise specifically
prohibited under applicable laws, or by the rules and regulations of any
governing governmental agencies or national securities exchanges: (1) any and
all Stock Options granted pursuant to the Plan shall become immediately
exercisable; (2) any Restriction Periods and restrictions imposed on Restricted
Shares which are not performance-based, as set forth in the Restricted Stock
Award Agreement, shall lapse; (3) the target payout opportunities attainable
under all outstanding Awards of Restricted Stock, Performance Units, Performance
Shares, and Cash-Based Awards shall be deemed to have been fully earned for the
entire Performance Period(s) as of the effective date of the Change in Control.
The vesting of all Awards denominated in shares shall be accelerated as of the
effective date of the Change in Control, and there shall be paid out to
Participants within 30 days following the effective date of the Change in
Control a pro rata number of shares based upon an assumed achievement of all
relevant targeted performance goals and upon the length of time within the
Performance Period which has elapsed prior to the Change in Control. Awards
denominated in cash shall be paid pro rata to Participants in cash within 30
days following the effective date of the Change in Control, with the proration
determined as a function of the length of time within the Performance Period
which has elapsed prior to the Change in Control, and based on an assumed
achievement of all relevant targeted performance goals.
The above provisions cannot be terminated, amended, or modified on or after
the date of a Change in Control to affect adversely any Award previously granted
under the Plan without the prior written consent of the Participant with respect
to the Participant's outstanding Awards. However, the Board may terminate, amend
or modify the above provisions at any time prior to the date of a Change in
Control. Finally, if the consummation of a Change in Control is contingent on
using the pooling of interests method, the Board may take any action necessary
to preserve the use of pooling of interests accounting.
AMENDMENT, MODIFICATION, AND TERMINATION
Subject to the terms of the Plan, the Board may at any time, alter, amend,
suspend or terminate the Plan in whole or in part. In addition, the Board may
make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events affecting the
Corporation or the financial statements of the Corporation or of changes in
applicable laws, regulations, or accounting principles, whenever the Board
determines that such adjustments are appropriate in order to prevent dilution or
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<PAGE> 29
enlargement of the benefits or potential benefits intended to be made available
under the Plan; provided that, unless the Board determines otherwise at the time
such adjustment is considered, no such adjustment will be authorized to the
extent that such authority would be inconsistent with the Plan's meeting the
requirements of Section 162(m) of the Code, as from time to time amended or the
requirements of any state law.
Without the written consent of the Participant holding an Award, no
termination, amendment, or modification of the Plan shall adversely affect in
any material way any Award previously granted under the Plan. At all times when
Code Section 162(m) is applicable, all Awards granted under this Plan shall
comply with the requirements of Code Section 162(m) unless the Board determines
that such compliance is not desired. In addition, in the event that changes are
made to Code Section 162(m) to permit greater flexibility with respect to any
Award or Awards available under the Plan, the Board may make any adjustments it
deems appropriate.
WITHHOLDING
The Corporation shall have the power and the right to deduct or withhold,
or require a Participant to remit to the Corporation, an amount sufficient to
satisfy federal, state, and local taxes, domestic or foreign, required by law or
regulation to be withheld with respect to any taxable event arising as a result
of this Plan. With respect to withholding required upon the exercise of Stock
Options, upon the lapse of restrictions on Restricted Stock, or upon any other
taxable event arising as a result of Awards granted pursuant to the Plan,
Participants may elect, subject to the approval of the Board, to satisfy the
withholding requirement, in whole or in part, by having the Corporation withhold
shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Board, in its sole discretion, deems appropriate.
FEDERAL INCOME TAX CONSEQUENCES
Under the Code, as presently in effect, a Participant will not be deemed to
recognize any income for federal income tax purposes at the time a Stock Option
is granted or a Restricted Stock Award is made, nor will the Corporation be
entitled to a tax deduction at that time. However, when any part of a Stock
Option is exercised, when restrictions on Restricted Stock lapse, or when
payments are made under a Performance Share, Performance Unit, or Cash-Based
Award, the federal income tax consequences may be summarized as follows:
1. In the case of an exercise of a Stock Option other than an Incentive Stock
Option ("ISO"), the Stock Optionee will generally recognize ordinary income
in an amount equal to the excess of the Fair Market Value of the Shares on
the exercise date over the Stock Option price.
2. In the case of an exercise of payment under a Performance Share,
Performance Unit, or Cash-Based Award, the Participant will generally
recognize ordinary income on the exercise date in an amount equal to any
cash and the Fair Market Value of any unrestricted shares received.
3. In the case of an Award of Restricted Stock, the immediate federal income
tax effect for the recipient will depend on the nature of the restrictions.
Generally, the Fair Market Value of the stock will not be taxable to the
recipient as ordinary income until the year in which his or her interest in
the stock is freely transferable or is no longer subject to a substantial
risk of forfeiture. However, the recipient may elect to recognize income
when the stock is received rather than when his or her interest is freely
transferable or is no longer subject to a substantial risk of forfeiture.
If the recipient makes this election, the amount taxed to the recipient as
ordinary income is determined as of the date of receipt of the Restricted
Stock.
4. In the case of ISO's, there is generally no tax liability at the time of
exercise. However, the excess of the Fair Market Value of the stock on the
exercise date over the Stock Option price is included in the Stock
Optionee's income for purposes of the alternative minimum tax. If no
disposition of the ISO stock is made before the later of one year from the
date of exercise and two years from the date of grant, the Stock Optionee
will realize a capital gain or loss upon a sale of the stock, equal to the
difference between
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<PAGE> 30
the Stock Option price and the sale price. If the stock is not held for the
required period, ordinary income tax treatment will generally be equal to
the excess of the Fair Market Value of the stock on the date of exercise
(or, if less, the amount of gain realized on the disposition of the stock)
over the Stock Option price, and the balance of any gain or loss will be
treated as capital gain or loss. In order for ISO's to be treated as
described above, the Participant must remain employed by the Corporation
(or a subsidiary in which the Corporation holds at least 50 percent of the
voting power) from the ISO's grant date until three months before the ISO
is exercised. The three-month period is extended to one year if the
Participant's employment terminates on account of disability. If the
Participant does not meet the employment requirement, the Stock Option will
be treated for federal income tax purposes as a Stock Option described in
paragraph 1, above. A Participant who exercises an ISO might also be
subject to an alternative minimum tax.
5. Upon the exercise of a Stock Option other than an ISO, the recognition of
income on Restricted Stock, or the payment under a Performance Share,
Performance Unit, or stock-based Award, the Corporation will generally be
allowed an income tax deduction equal to the ordinary income recognized by
the Participant, but in the case of the recognition of income on Restricted
Stock, the deduction will be allowed in the Corporation's taxable year in
which ends the taxable year of the Participant in which he or she
recognizes the income. The Corporation will not receive an income tax
deduction as a result of the exercise of an ISO, provided that the ISO
stock is held for the required period as described above. When a cash
payment is made pursuant to an Award, the recipient will recognize ordinary
income equal to the amount of cash received and the Corporation will
generally be entitled to a deduction of the same amount.
6. Pursuant to Section 162(m) of the Code, the Corporation may not deduct
compensation of more than $1,000,000 that is paid in a taxable year to an
individual who, on the last day of the taxable year is the Corporation's
Chief Executive Officer or among one of its four other highest compensated
Officers for that year. The deduction limit, however, does not apply to
certain types of compensation, including qualified performance-based
compensation. The Corporation believes that compensation attributable to
Stock Options granted under the Plan will be treated as qualified
performance-based compensation and therefore will not be subject to the
deduction limit. The Plan also authorizes the grant of Performance Shares,
Performance Units, and Cash-Based Awards utilizing the performance criteria
set forth in the Plan so that payments under such Awards may likewise be
treated as qualified performance-based compensation.
The foregoing is only a summary of the federal income tax consequences of
participation in the Plan. Each Participant is advised to consult his or her own
tax adviser for the federal income tax effects attributable to his or her own
participation in the Plan.
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 a 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
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all Section 16(a) filing requirements applicable to them with respect to
transactions during the Fiscal Year ended January 30, 1999.
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 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 2000 ANNUAL MEETING
Proposals of eligible Shareholders intended to be presented at the 2000
Annual Meeting, currently scheduled to be held on May 25, 2000, must be received
by the Corporation by December 25, 1999 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 (by March 26, 2000) nor more than 90
days (by February 25, 2000) 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
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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 30, 1999, and the Board of Directors, on the recommendation of its Audit
Committee, has engaged that firm as auditors for the year ending January 29,
2000. 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. The Corporation has retained Georgeson & Company Inc., a
proxy solicitation firm, to assist in the solicitation of proxies for the 1998
and 1999 Annual Meetings of Shareholders from banks, brokers, nominees and
intermediaries at a base annual fee of $6,500, plus reasonable out-of-pocket
expenses. All expenses of solicitation will be paid by the Corporation. They
also may be solicited by Executive Officers and regular employees of the
Corporation personally or by telephone or 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, or vote electronically in accordance with
the instructions shown on the enclosed Proxy. 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 23, 1999
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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 stockholders 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 seven. 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 two directors each and one class consisting
of three 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 stockholders any person for election as a director for a
term extending beyond the Annual Meeting of Stockholders following the end of
the calendar year during which he attains his seventieth birthday, provided,
however, 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. INCENTIVE AND STOCK COMPENSATION PLAN OF 1999,
AS PROPOSED
<TABLE>
<CAPTION>
CONTENTS PAGE
- -------- ----
<S> <C> <C>
Article 1. Establishment, Objectives, and Duration..................... 33
Article 2. Definitions................................................. 34
Article 3. Administration.............................................. 36
Article 4. Shares Subject to the Plan and Maximum Awards............... 36
Article 5. Eligibility and Participation............................... 37
Article 6. Stock Options............................................... 37
Article 7. Performance Units, Performance Shares, and Cash-Based 38
Awards......................................................
Article 8. Restricted Stock............................................ 39
Article 9. Performance Measures........................................ 40
Article 10. Beneficiary Designation..................................... 41
Article 11. Deferrals................................................... 41
Article 12. Rights of Employees/Directors............................... 41
Article 13. Change in Control........................................... 41
Article 14. Amendment, Modification, and Termination.................... 42
Article 15. Withholding................................................. 43
Article 16. Indemnification............................................. 43
Article 17. Successors.................................................. 43
Article 18. Legal Construction.......................................... 43
</TABLE>
BROWN GROUP, INC. INCENTIVE AND STOCK COMPENSATION PLAN OF 1999
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Brown Group, Inc., a New York corporation
(hereinafter referred to as the "Company"), hereby establishes an incentive
compensation plan to be known as the "Brown Group, Inc. Incentive and Stock
Compensation Plan of 1999" (hereinafter referred to as the "Plan"), as set forth
in this document. The Plan permits the grant of Nonqualified Stock Options,
Incentive Stock Options, Restricted Stock, Performance Shares, Performance
Units, and Cash-Based Awards.
Subject to approval by the Company's stockholders, the Plan shall become
effective as of May 27, 1999 (the "Effective Date") and shall remain in effect
as provided in Section 1.3 hereof.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize
the profitability and growth of the Company through annual and long-term
incentives which are consistent with the Company's goals and which link the
personal interests of Participants to those of the Company's stockholders; to
provide Participants with an incentive for excellence in individual performance;
and to increase shareholder value, long-term.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date,
as described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan
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at any time pursuant to Article 14 hereof, until all Shares subject to it shall
have been purchased or acquired according to the Plan's provisions. However, in
no event may an Award be granted under the Plan on or after May 27, 2009.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1 "AFFILIATE" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations of the Exchange Act.
2.2 "AWARD" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Restricted
Stock, Performance Shares, Performance Units, or Cash-Based Awards.
2.3 "AWARD AGREEMENT" means an agreement entered into between the Company
and each Participant setting forth the terms and provisions
applicable to Awards granted under this Plan.
2.4 "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
2.5 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.6 "CASH-BASED AWARD" means an Award granted to a Participant, as
described in Article 7 herein.
2.7 "CHANGE IN CONTROL" of the Company shall be deemed to have occurred
as of the first day that any one or more of the following conditions
shall have been satisfied:
(a) Any Person (other than those Persons in control of the Company as
of the Effective Date, or other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their
ownership of stock of the Company) becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing
thirty percent (30%) or more of the combined voting power of the
Company's then outstanding securities; or
(b) During any period of two (2) consecutive years (not including any
period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board (and any new
Director, whose election by the Company's stockholders was approved
by a vote of at least two-thirds ( 2/3) of the Directors then still
in office who either were Directors at the beginning of the period
or whose election or nomination for election was so approved),
cease for any reason to constitute a majority thereof; or
(c) The stockholders of the Company approve: (i) a plan of complete
liquidation of the Company; or (ii) an agreement for the sale or
disposition of all or substantially all of the Company's assets; or
(iii) a merger, consolidation, or reorganization of the Company
with or involving any other corporation, other than a merger,
consolidation, or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at
least sixty-five percent (65%) of the combined voting power of the
voting securities of the Company (or such surviving entity)
outstanding immediately after such merger, consolidation, or
reorganization.
(d) However, in no event shall a "Change in Control" be deemed to have
occurred, with respect to a Participant, if the Participant is part
of a purchasing group which consummates the Change-in-Control
transaction. A Participant shall be deemed "part of a purchasing
group" for purposes of the preceding sentence if the Participant is
an equity participant in the purchasing company or group (except:
(i) passive ownership of less than three percent (3%)
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of the stock of the purchasing company; or (ii) ownership of an equity
participant in the purchasing company or group which is otherwise not
significant, as determined prior to the Change in Control by a majority of the
nonemployee continuing Directors).
2.8 "CODE" means the Internal Revenue Code of 1986, as amended.
2.9 "COMMITTEE" means any committee appointed by the Board to administer
Awards to Employees, as specified in Article 3 herein. Any such
committee shall be comprised entirely of Directors.
2.10 "COMPANY" means Brown Group, Inc., a New York corporation, including
any and all Subsidiaries and Affiliates, and any successor thereto as
provided in Article 17 herein.
2.11 "COVERED EMPLOYEE" means a Participant who, as of the date of vesting
and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under
Code Section 162(m), or any successor statute.
2.12 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company or any Subsidiary or Affiliate; provided,
however, that any Director who is employed by the Company or any
Subsidiary or Affiliate shall be considered an Employee under the
Plan.
2.13 "DISABILITY" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan, or if no such plan
exists, at the discretion of the Board.
2.14 "EARLY RETIREMENT" shall have the meaning ascribed to such term in the
BGI Retirement Plan.
2.15 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.16 "EMPLOYEE" means any employee of the Company or its Subsidiaries or
Affiliates. Directors who are employed by the Company shall be
considered Employees under this Plan.
2.17 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.18 "FAIR MARKET VALUE" shall mean the average of the highest and lowest
quoted selling prices for Shares on the New York Stock Exchange or
equivalent securities exchange on the relevant date, or if there is no
sale on such date, then on the last previous day on which a sale was
reported.
2.19 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive
Stock Option and which is intended to meet the requirements of Code
Section 422.
2.20 "INSIDER" shall mean an individual who is, on the relevant date, an
officer or director of the Company, or a more than ten percent (10%)
beneficial owner of any class of the Company's equity securities that
is registered pursuant to Section 12 of the Exchange Act.
2.21 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to
meet the requirements of Code Section 422.
2.22 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.23 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.24 "PARTICIPANT" means an Employee or Director who has been selected to
receive an Award or who has outstanding an Award granted under the
Plan.
2.25 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.26 "PERFORMANCE PERIOD" See Section 7.2.
2.27 "PERFORMANCE SHARE" means an Award granted to a Participant, as
described in Article 7 herein.
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<PAGE> 37
2.28 "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 7 herein.
2.29 "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the
passage of time, the achievement of performance goals, or upon the
occurrence of other events as determined by the Board, in its
discretion), and the Shares are subject to a substantial risk of
forfeiture, as provided in Article 8 herein.
2.30 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
2.31 "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Article 8 herein.
2.32 "RETIREMENT" shall have the meaning ascribed to such term in the Brown
Group, Inc. Retirement Plan.
2.33 "SHARES" means the shares of common stock of the Company.
2.34 "SUBSIDIARY" means any corporation, partnership, joint venture, or
other entity in which the Company has a majority voting interest.
ARTICLE 3. ADMINISTRATION
3.1 GENERAL. The Plan shall be administered by the Board, or (subject to
the following) by any Committee appointed by the Board. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board. The Board may delegate to the Committee any or all of
the administration of the Plan; provided, however, that the administration of
the Plan with respect to Awards granted to Directors may not be so delegated. To
the extent that the Board has delegated to the Committee any authority and
responsibility under the Plan, all applicable references to the Board in the
Plan shall be to the Committee. The Committee shall have the authority to
delegate administrative duties to officers or Directors of the Company.
3.2 AUTHORITY OF THE BOARD. Except as limited by law or by the Certificate
of Incorporation or Bylaws of the Company, and subject to the provisions herein,
the Board shall have full power to select Employees and Directors who shall
participate in the Plan; determine the sizes and types of Awards; determine the
terms and conditions of Awards in a manner consistent with the Plan; construe
and interpret the Plan and any agreement or instrument entered into under the
Plan; establish, amend, or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 14 herein) amend the
terms and conditions of any outstanding Award as provided in the Plan. Further,
the Board shall make all other determinations that may be necessary or advisable
for the administration of the Plan. As permitted by law (and subject to Section
3.1 herein), the Board may delegate its authority as identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the Board
pursuant to the provisions of the Plan and all related orders and resolutions of
the Board shall be final, conclusive and binding on all persons, including the
Company, its stockholders, Directors, Employees, Participants, and their estates
and beneficiaries.
3.4 OUTSIDE DIRECTORS. If the Award under the Plan is designed to meet the
Performance-Based Exception, the Committee will consist of not less than two
outside directors who shall meet the requirements of Reg. 1.162-27(e)(3).
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be nine hundred thousand
(900,000). Additionally, Shares approved pursuant to the Brown Group, Inc. Stock
Option and Restricted Stock Plan of 1998 (the "1998 Plan") which have not as yet
been awarded and Shares subject to any award that is canceled, terminates,
expires, or lapses for any reason shall become available for grant under
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the Plan. No more than three hundred thousand (300,000) Shares reserved for
issuance under this Plan may be granted in the form of Performance Shares and no
more than two hundred four thousand (204,000) Shares, including carryover Shares
from the 1998 Plan, may be granted in the form of Restricted Shares. The Board
shall determine the appropriate method for calculating the number of shares
issued pursuant to the Plan. The following rules shall apply to grants of Awards
under the Plan:
(a) STOCK OPTIONS: The maximum aggregate number of Shares that may be
granted in the form of Stock Options, pursuant to any Award granted in
any one fiscal year to any one single Participant, shall be one hundred
fifty thousand (150,000).
(b) PERFORMANCE SHARES/PERFORMANCE UNITS: The maximum aggregate payout
(determined as of the end of the applicable performance period) with
respect to Awards of Performance Shares or Performance Units granted in
any one fiscal year to any one Participant, shall be equal to the value
of one hundred thousand (100,000) Shares.
(c) CASH-BASED AWARDS: The maximum payout with respect to Cash-Based Awards
in any one fiscal year to any one single Participant, shall be one
million five hundred thousand dollars ($1,500,000).
(d) RESTRICTED STOCK: The maximum aggregate grant with respect to Awards of
Restricted Stock granted in any one fiscal year to any one Participant,
shall be fifty thousand (50,000).
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, and in the Award limits set forth in
subsections 4.1(a) and 4.1(b), as may be determined to be appropriate and
equitable by the Board, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan include all
Employees and Directors.
5.21 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Board may, from time to time, select from all eligible Employees and Directors,
those to whom Awards shall be granted and shall determine the nature and amount
of each Award. Provided, however, if the Award is subject to the
Performance-Based Exception, the Committee will determine eligibility.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Board. Only
Employees may be granted ISOs.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Board shall determine. The Award Agreement also shall specify whether the Option
is intended to be an ISO or an NQSO.
6.3 OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted.
6.4 DURATION OF OPTIONS. Each Option granted to a Participant shall
expire at such time as the Board shall determine at the time of grant; provided,
however, that no ISO shall be exercisable later than the tenth (10th)
anniversary date of its grant.
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6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for each
grant or for each Participant.
6.6 PAYMENT. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, (b) by tendering (either
actual or by attestation) previously acquired Shares having an aggregate Fair
Market Value at the time of exercise equal to the total Option Price (provided
that the Shares which are tendered must have been held by the Participant for at
least six (6) months prior to their tender to satisfy the Option Price), (c) by
a combination of (a) and (b), or (d) cashless exercise as permitted under the
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Board determines to be consistent
with the Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable after
receipt of a written notification of exercise and full payment, the Company
shall deliver to the Participant, in the Participant's name, Share certificates
in an appropriate amount based upon the number of Shares purchased under the
Option(s).
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Board or Committee may
impose such restrictions on any Shares acquired pursuant to the exercise of an
Option granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.8 TERMINATION OF EMPLOYMENT/DIRECTORSHIP. Each Participant's Option
Award Agreement shall set forth the extent to which the Participant shall have
the right to exercise the Option following termination of the Participant's
employment or directorship with the Company. Such provisions shall be determined
in the sole discretion of the Board or Committee, shall be included in the Award
Agreement entered into with each Participant, need not be uniform among all
Options issued pursuant to this Article 6, and may reflect distinctions based on
the reasons for termination.
6.9 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further,
all ISOs granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in a Participant's
Award Agreement, all NQSOs granted to a Participant under this Article
6 shall be exercisable during his or her lifetime only by such
Participant.
ARTICLE 7. PERFORMANCE UNITS, PERFORMANCE SHARES, AND CASH-BASED AWARDS
7.1 GRANT OF PERFORMANCE UNITS/SHARES AND CASH-BASED AWARDS. Subject to
the terms of the Plan, Performance Units, Performance Shares, and/or Cash-Based
Awards may be granted to Participants in such amounts and upon such terms, and
at any time and from time to time, as shall be determined by the Board.
7.2 VALUE OF PERFORMANCE UNITS/SHARES AND CASH-BASED AWARDS. Each
Performance Unit shall have an initial value that is established by the Board at
the time of grant. Each Performance Share shall have an initial value equal to
the Fair Market Value of a Share on the date of grant. Each Cash-Based Award
shall have a value as may be determined by the Board. The Board shall set
performance goals, as described in Article 9, in its discretion which, depending
on the extent to which they are met, will determine the number
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and/or value of Performance Units/Shares and Cash-Based Awards that will be paid
out to the Participant. For purposes of this Article 7, the time period during
which the performance goals must be met shall be called a "Performance Period."
7.3 EARNING OF PERFORMANCE UNITS/SHARES AND CASH-BASED AWARDS. Subject to
the terms of this Plan, after the applicable Performance Period has ended, the
holder of Performance Units/Shares and Cash-Based Awards shall be entitled to
receive payout, based on the discretion of the Board, on the number and value of
Performance Units/Shares and Cash-Based Awards earned by the Participant over
the Performance Period, to be determined as a function of the extent to which
the corresponding performance goals have been achieved.
7.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES AND CASH-BASED
AWARDS. Payment of earned Performance Units/Shares and Cash-Based Awards shall
be made in the manner set forth in the Award Agreement. Subject to the terms of
this Plan, the Board, in its sole discretion, may pay earned Performance
Units/Shares and Cash-Based Awards in the form of cash or in Shares (or in a
combination thereof) which have an aggregate Fair Market Value equal to the
value of the earned Performance Units/ Shares and Cash-Based Awards at the close
of the applicable Performance Period. Such payment may be made subject to any
restrictions deemed appropriate by the Board. The determination of the Board
with respect to the form of payout of such Awards shall be set forth in the
Award Agreement pertaining to the grant of the Award.
At the discretion of the Board, Participants may be entitled to receive any
dividends declared with respect to Shares which have been earned in connection
with grants of Performance Units and/or Performance Shares which have been
earned, but not yet distributed to Participants (such dividends shall be subject
to the same accrual, forfeiture, and payout restrictions as apply to dividends
earned with respect to Shares of Restricted Stock, as set forth in Section 8.6
herein). In addition, Participants may, at the discretion of the Board, be
entitled to exercise their voting rights with respect to such Shares.
7.5 TERMINATION OF EMPLOYMENT/DIRECTORSHIP DUE TO DEATH, DISABILITY, EARLY
RETIREMENT OR RETIREMENT. Unless determined otherwise by the Board and set
forth in the Participant's Award Agreement, in the event the employment or
directorship of a Participant is terminated by reason of death, Disability,
Early Retirement or Retirement during a Performance Period, the Participant
shall receive a payout of the Performance Units/Shares or Cash-Based Awards
which is prorated.
Payment of earned Performance Units/Shares or Cash-Based Awards shall be
made at a time specified by the Board in its sole discretion and set forth in
the Participant's Award Agreement. Notwithstanding the foregoing, with respect
to Covered Employees who retire during a Performance Period, payments shall be
made at the same time as payments are made to Participants who did not terminate
employment during the applicable Performance Period.
7.6 TERMINATION OF EMPLOYMENT/DIRECTORSHIP FOR OTHER REASONS. In the
event that a Participant's employment or directorship terminates for any reason
other than those reasons set forth in Section 7.5 herein during a Performance
Period, all Performance Units/Shares and Cash-Based Awards shall be forfeited by
the Participant to the Company unless determined otherwise by the Board, as set
forth in the Participant's Award Agreement.
7.7 NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares and Cash-Based Awards may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, a Participant's rights
under the Plan shall be asserted during the Participant's lifetime only by the
Participant or the Participant's legal representative.
ARTICLE 8. RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Board, at any time and from time to time, may grant Shares of
Restricted Stock or Restricted Stock Units to Participants in such amounts as
the Board shall determine.
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<PAGE> 41
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Board shall determine.
8.3 TRANSFERABILITY. Except as provided in this Article 8, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Board and specified in the Restricted Stock Award
Agreement, or upon earlier satisfaction of any other conditions, as specified by
the Board in its sole discretion and set forth in the Restricted Stock Award
Agreement. All rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be available during his or her lifetime only to
such Participant.
8.4 OTHER RESTRICTIONS. Subject to Article 11 herein, the Board shall
impose such other conditions and/or restrictions on any Shares of Restricted
Stock granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock, restrictions based upon the achievement of
specific performance goals described in Article 9 (Company-wide, divisional,
and/or individual), time-based restrictions on vesting following the attainment
of the performance goals, and/or restrictions under applicable federal or state
securities laws.
The Company may retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 8, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
8.5 VOTING RIGHTS. Participants holding Shares of Restricted Stock
granted hereunder may be granted the right to exercise full voting rights with
respect to those Shares during the Period of Restriction.
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. The Board may apply any restrictions to the dividends
that the Board deems appropriate. Without limiting the generality of the
preceding sentence, if the grant or vesting of Restricted Shares granted to a
Covered Employee is designed to comply with the requirements of the
Performance-Based Exception, the Board may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such Restricted
Shares, such that the dividends and/or the Restricted Shares maintain
eligibility for the Performance-Based Exception.
8.7 TERMINATION OF EMPLOYMENT/DIRECTORSHIP. Each Restricted Stock Award
Agreement shall set forth the extent to which the Participant shall have the
right to receive unvested Restricted Shares following termination of the
Participant's employment or directorship with the Company. Such provisions shall
be determined in the sole discretion of the Board, shall be included in the
Award Agreement entered into with each Participant, need not be uniform among
all Shares of Restricted Stock issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination.
ARTICLE 9. PERFORMANCE MEASURES
Unless and until the Committee proposes for shareholder vote and
shareholders approve a change in the general performance measures set forth in
this Article 9, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Covered Employees (or Employees who may
become Covered Employees) which are designed to qualify for the
Performance-Based Exception, the performance measure(s) to be used for purposes
of such grants shall be chosen from among:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Operating Income (before or after taxes);
(d) Return on invested capital, return on assets, or return on equity;
40
<PAGE> 42
(e) Cash flow return on investments which equals net cash flows divided by
owners' equity;
(f) Earnings before interest or taxes;
(g) Gross revenues or revenue growth;
(h) Market Share; and
(i) Growth in share price or total shareholder return.
The Board shall have the discretion to adjust the determinations of the
degree of attainment of the preestablished performance goals on a Company-wide
or divisional basis; provided, however, that Awards which are designed to
qualify for the Performance-Based Exception may not be adjusted upward (the
Board shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Board discretion to alter the governing performance measures without obtaining
shareholder approval of such changes, the Board shall have sole discretion to
make such changes without obtaining shareholder approval. In addition, in the
event that the Board determines that it is advisable to grant Awards which shall
not qualify for the Performance-Based Exception, the Board may make such grants
without satisfying the requirements of Code Section 162(m).
ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 11. DEFERRALS
The Board may permit or require a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of the exercise of an Option, the lapse or
waiver of restrictions with respect to Restricted Stock, or the satisfaction of
any requirements or goals with respect to Performance Units/Shares and
Cash-based Awards. If any such deferral election is required or permitted, the
Board shall, in its sole discretion, establish rules and procedures for such
payment deferrals.
ARTICLE 12. RIGHTS OF EMPLOYEES/DIRECTORS
12.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
12.2 PARTICIPATION. No Employee or Director shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
ARTICLE 13. CHANGE IN CONTROL
13.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all Options granted hereunder shall become immediately
exercisable;
41
<PAGE> 43
(b) Any restriction periods and restrictions imposed on Restricted Shares
which are not performance-based, as set forth in the Restricted Stock
Award Agreement, shall lapse;
(c) The target payout opportunities attainable under all outstanding
Awards of Restricted Stock, Performance Units, Performance Shares, and
Cash-Based Awards shall be deemed to have been fully earned for the
entire Performance Period(s) as of the effective date of the Change in
Control. The vesting of all Awards denominated in Shares shall be
accelerated as of the effective date of the Change in Control, and
there shall be paid out to Participants within thirty (30) days
following the effective date of the Change in Control a pro rata
number of shares based upon an assumed achievement of all relevant
targeted performance goals and upon the length of time within the
Performance Period which has elapsed prior to the Change in Control.
Awards denominated in cash shall be paid pro rata to participants in
cash within thirty (30) days following the effective date of the
Change in Control, with the proration determined as a function of the
length of time within the Performance Period which has elapsed prior
to the Change in Control, and based on an assumed achievement of all
relevant targeted performance goals.
13.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan (but subject to
the limitations of Section 14.3 hereof) or any Award Agreement provision, the
provisions of this Article 13 may not be terminated, amended, or modified on or
after the date of a Change in Control to affect adversely any Award theretofore
granted under the Plan without the prior written consent of the Participant with
respect to said Participant's outstanding Awards; provided, however, the Board
may terminate, amend, or modify this Article 13 at any time and from time to
time prior to the date of a Change in Control.
13.3 POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other provision
of the Plan to the contrary, in the event that the consummation of a Change in
Control is contingent on using the pooling of interests accounting method, the
Board may take any action necessary to preserve the use of pooling of interests
accounting.
ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION
14.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the terms of
the Plan, the Board may at any time and from time to time, alter, amend, suspend
or terminate the Plan in whole or in part.
14.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Board may make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Board determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan; provided that, unless the Board determines
otherwise at the time such adjustment is considered, no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
Plan's meeting the requirements of Section 162(m) of the Code, as from time to
time amended or the requirements of any state law.
14.3 AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of
the Plan to the contrary (but subject to Section 13.2 hereof), no termination,
amendment, or modification of the Plan shall adversely affect in any material
way any Award previously granted under the Plan, without the written consent of
the Participant holding such Award.
14.4 COMPLIANCE WITH CODE SECTION 162(M). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Board determines that such compliance is not desired with respect to any Award
or Awards available for grant under the Plan, then compliance with Code Section
162(m) will not be required. In addition, in the event that changes are made to
Code Section 162(m) to permit greater flexibility with
42
<PAGE> 44
respect to any Award or Awards available under the Plan, the Board may, subject
to this Article 14, make any adjustments it deems appropriate.
ARTICLE 15. WITHHOLDING
15.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
15.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options, upon the lapse of restrictions on Restricted Stock, or upon
any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Board, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Board, in its sole discretion, deems appropriate.
ARTICLE 16. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit, or proceeding against him or her, provided he
or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled under
the Company's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
ARTICLE 18. LEGAL CONSTRUCTION
18.1 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
18.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent
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<PAGE> 45
any provision of the plan or action by the Board fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Board.
18.5 GOVERNING LAW. For purposes of shareholder approval, the Plan shall
be governed by the laws of the State of New York. To the extent not preempted by
federal law, the Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the substantive laws of the State of Missouri
without regard to conflicts of laws principles which might otherwise apply. Any
litigation arising out of, in connection with, or concerning any aspect of the
Plan or Awards granted hereunder shall be conducted exclusively in the State or
Federal courts in Missouri.
44
<PAGE> 46
EXHIBIT 3
POLICY ON CONFIDENTIAL SHAREHOLDER VOTING
"It is the policy of the Corporation that all proxies, ballots and vote
tabulations that identify the vote of a Shareholder will be kept confidential
from the Corporation, its Directors, Officers and employees until after a final
vote is tabulated and announced, except in limited circumstances including any
contested solicitation of proxies, when required to meet a legal requirement, to
defend a claim against the Corporation or to assert a claim by the Corporation,
and when written comments by a Shareholder appear on a proxy and/or other voting
material. The Corporation intends to continue its long standing practice of
retaining an independent tabulator to receive and tabulate proxies, and
independent inspectors of election to certify the results."
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<PAGE> 47
BROWN GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
FOR ANNUAL MEETING MAY 27, 1999
The undersigned hereby constitutes and appoints Ronald A. Fromm, 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 27 1999, 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 hereof and in their
discretion on such other business as may properly come before the meeting.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
[BROWN GROUP LOGO]
8300 MARYLAND AVENUE, ST. LOUIS, MISSOURI 63105
April 23, 1999
Dear Shareholder:
The Annual Meeting of Shareholders of Brown Group, Inc. will be held on the
27th day of May, 1999, 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 proxy materials,
complete the attached proxy form above, and return it promptly in the envelope
provided or vote electronically as instructed on the reverse side hereof.
(over)
<PAGE> 48
[X] Please mark your 2283
votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. ELECTION OF [ ] [ ] Nominees: 2. RATIFICATION AND APPROVAL OF THE PROPOSAL TO [ ] [ ] [ ]
DIRECTORS Ronald A. Fromm AMEND THE CERTIFICATE OF INCORPORATION OF THE
Richard A. Liddy CORPORATION SO AS TO CHANGE ITS NAME TO "BROWN
SHOE COMPANY, INC.".
For, except vote withheld from the
following nominee(s): 3. RATIFICATION AND APPROVAL OF THE BROWN GROUP, INC. [ ] [ ] [ ]
INCENTIVE AND STOCK COMPENSATION PLAN OF 1999 AND
THE ALLOCATION OF 900,000 SHARES OF THE CORPORA-
_____________________________ TION'S COMMON STOCK TO THE PLAN.
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, 2 and 3, as recommended by the Board of
Directors.
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
- ------------------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY, USING THE ENCLOSED ENVELOPE.
- ------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
PLEASE DETACH PROXY HERE, SIGN AND MAIL
</TABLE>
Dear Shareholder:
Brown Group, Inc. encourages you to take advantage of the convenient ways by
which you can vote your shares. You can vote your shares electronically through
the internet or by telephone. This eliminates the need to return the proxy card.
To vote your shares electronically, you must use the control number. The
control number is the series of numbers printed in the box above, just below
the perforation. This control number must be used to access the system.
1. To vote over the internet:
- Log on to the Internet and go to the web site [http://www.vote-by-net.com]
2. To vote by telephone:
- On a touch-tone telephone call [1-800-OK2-VOTE (1-800-652-8683)]
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
