<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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
McRAE INDUSTRIES, 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
McRAE INDUSTRIES, INC.
400 North Main Street
Mount Gilead, North Carolina 27306
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 18, 1997
To: The Shareholders of McRae Industries, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of McRae
Industries, Inc. (the "Company") will be held at 3:00 p.m. on the 18th day of
December, 1997, at the offices of the Company located at 400 North Main Street,
Mount Gilead, North Carolina, for the following purposes:
1. To elect the Board of Directors consisting of seven persons,
of whom five are to be elected by the holders of the Class B
Common Stock and two are to be elected by the holders of the
Class A Common Stock.
2. To ratify the appointment of Gleiberman Spears Shepherd &
Menaker, P.A. as independent certified public accountants for
the current fiscal year.
3. To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on November 3, 1997 as
the record date for the shareholders entitled to notice of and to vote at the
meeting or any adjournment thereof and only holders of Class A and Class B
Common Stock of record at such date are entitled to notice of and to vote at the
Annual Meeting of Shareholders.
By Order of the Board of Directors
James W. McRae
Secretary
November 19, 1997
IMPORTANT
Whether you expect to attend the meeting or not, please vote, sign, date, and
return the enclosed proxy in the enclosed self-addressed envelope as promptly as
possible. If you attend the meeting, you may vote your shares in person, even
though you have previously signed and returned your proxy.
<PAGE> 3
McRAE INDUSTRIES, INC.
400 North Main Street
Mount Gilead, North Carolina 27306
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of proxies to be used at the Annual Meeting of Shareholders
of McRae Industries, Inc., a Delaware corporation (the "Company"), to be held at
3:00 p.m., local time, on December 18, 1997 at its principal office, 400 North
Main Street, Mount Gilead, North Carolina. This Proxy Statement and accompanying
proxy are being sent to the shareholders of the Company on or about November 19,
1997.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees, and fiduciaries for the out-of-pocket and
clerical expenses of transmitting copies of the proxy material to the beneficial
owners of shares held of record by such persons will be borne by the Company.
The Company does not intend to solicit proxies otherwise than by use of the
mail, but certain officers and regular employees of the Company or its
subsidiaries, without additional compensation, may use their personal efforts,
by telephone or otherwise, to obtain proxies. The materials are being mailed to
shareholders of record at the close of business on November 3, 1997.
A shareholder signing and returning a proxy on the enclosed form has the power
to revoke it at any time before the shares subject to it are voted by filing
with the Secretary of the Company an instrument revoking it, by filing a duly
executed proxy bearing a later date with the Secretary of the Company or by
attending the meeting and voting in person. If a shareholder specifies how the
proxy is to be voted with respect to any of the proposals for which a choice is
provided, the proxy will be voted in accordance with such specifications. If a
shareholder fails to so specify with respect to such proposals, the proxy will
be voted FOR the proposals.
Only shareholders of the Class A and Class B Common Stock of record at the close
of business on November 3, 1997 are entitled to vote at the meeting. On that
date, the Company had outstanding and entitled to vote a total of 1,819,728
shares of Class A Common Stock and 948,771 shares of Class B Common Stock. Each
share of Class A is entitled to one-tenth vote and each share of Class B is
entitled to one full vote at meetings of shareholders.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any shareholder proposal to be presented at the Company's 1998 annual meeting of
shareholders must be received at the offices of the Company, Post Office Box
1239, 400 North Main Street, Mount Gilead, North Carolina 27306, no later than
July 23, 1998 for inclusion in the Company's proxy statement and form of proxy
for that meeting.
PRINCIPAL SHAREHOLDERS AND HOLDINGS OF MANAGEMENT
Listed in the following table are the only beneficial owners, known to the
Company as of October 8, 1997, of more than five percent of the Company's $1 par
value Class A and Class B Common Stock and the number of shares beneficially
owned by directors and executive officers as a group. Voting securities
beneficially owned by individual directors, director nominees and Named
Executive Officers (as defined herein) are disclosed under Election of
Directors, below.
<PAGE> 4
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
AMOUNT AND AMOUNT AND
NATURE OF PERCENT NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP (1) CLASS A OWNERSHIP (1) CLASS B
- ---------------------------------------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
D. Gary McRae 549,276 (2) 30% 552,079 (3) 58%
P.O. Box 1239
Mount Gilead, NC 27306
James W. McRae 532,652 (4) 29% 544,265 (3) 57%
P.O. Box 1239
Mt. Gilead, NC 27306
Branch Banking & Trust Co. 334,837 (5) 18% 115,107 (5) 12%
P.O. Box 29542
Raleigh, NC 27626
All Directors and Executive Officers 593,536 (6) 33% 573,555 (7) 60%
as a group (7 persons)
</TABLE>
(1) All shares owned directly and with sole voting and investment power
except as otherwise noted.
(2) Includes 4,000 shares owned by Mr. D. Gary McRae's minor children,
1,111 shares owned by his wife and 509,352 shares held by the estate of
the late B. J. McRae (the "Estate") as to which he has shared voting
and investment power as co-executor with his brother, Mr. James W.
McRae. Does not include any interest in shares held by the Company's
Employee Stock Ownership Plan (the "ESOP").
(3) Includes 523,877 shares held by the Estate as to which Messrs. D. Gary
McRae and James W. McRae have shared voting and investment power as
co-executors of the Estate. Does not include any interest in shares
held by the ESOP.
(4) Includes 4,000 shares owned by Mr. James W. McRae's children and
509,352 shares held by the Estate as to which he has shared voting and
investment power as co-executor with his brother, Mr. D. Gary McRae.
Does not include any interest in shares held by the ESOP.
(5) These shares represent shares held by Branch Banking & Trust Co.
("BB&T") and include all shares held by the ESOP for which BB&T serves
as trustee. BB&T has sole voting and investment power with respect to
such shares. Information with respect to BB&T is as of November 5, 1997
and was provided to the Company by BB&T in a telephone call on November
6, 1997.
(6) Includes 509,352 shares held by the Estate.
(7) Includes 523,877 shares held by the Estate
ELECTION OF DIRECTORS
The Bylaws of the Company provide for seven directors, two to be elected by the
holders of the Class A Common Stock and five to be elected by the holders of the
Class B Common Stock. Directors elected at the Annual Meeting will serve,
subject to the provisions of the Bylaws, until the next Annual Meeting of
Shareholders and until their successors are duly elected and qualified. If for
any reason any nominee shall not become a candidate for election as a director
at the meeting, an event not now anticipated, the enclosed proxy will be voted
for such substitute as shall be designated by the Board of Directors.
2
<PAGE> 5
It is the intention of the persons named in the accompanying Proxy to vote all
proxies solicited by the Board of Directors FOR the seven nominees listed below
unless authority to vote for the nominees is withheld by a shareholder in such
shareholder's proxy. Directors are elected by a plurality of the votes of the
applicable class of Common Stock cast by the holders of shares of such class
entitled to vote at a meeting at which a quorum is present. The Company's Bylaws
provide that, where a class vote is required, a quorum consists of the presence,
in person or by proxy, of the holders of a majority of the outstanding shares of
a particular class entitled to vote as a class at the meeting. Provided a quorum
is represented at the meeting, abstentions and shares not voted are not taken
into account in determining a plurality with respect to the directors elected by
the holders of either class of Common Stock. Cumulative voting for directors is
not permitted.
The two nominees for election as Directors by the holders of Class A Common
Stock, both of whom are currently members of the Board of Directors, are listed
below. Mr. Smith was elected to his term, which expires in 1997, at the Annual
Meeting of Shareholders held on December 19, 1996. Brady W. Dickson was
appointed by the Board of Directors on May 25, 1997 to fill the vacancy created
upon the death of Mr. B. J. McRae.
DIRECTORS TO BE ELECTED BY HOLDERS OF CLASS A COMMON STOCK
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF COMMON STOCK COMMON STOCK
FIRST BENEFICIALLY OWNED(1) OUTSTANDING
NAME AND PRINCIPAL BECAME ---------------------- -----------------
OCCUPATION OR EMPLOYMENT AGE DIRECTOR CLASS A CLASS B CLASS A CLASS B
- ------------------------ --- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Brady W. Dickson 52 1997 9,960 - (2) (2)
Consultant since 1995; President,
Standard Packaging, Mount Gilead,
North Carolina from 1972 to 1995.
Harold W. Smith 54 1985 4,700 - (2) (2)
Vice President - McRae
Graphics since 1993;
Vice President-Finance and
Accounting 1981 to 1993.
</TABLE>
The five nominees for election as Directors by holders of Class B Common Stock,
all of whom are currently members of the Board of Directors, are listed below.
The five nominees were elected to their terms, which expire in 1997, at the
Annual Meeting of Shareholders held on December 19, 1996.
DIRECTORS TO BE ELECTED BY HOLDERS OF CLASS B COMMON STOCK
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF COMMON STOCK COMMON STOCK
FIRST BENEFICIALLY OWNED (1) OUTSTANDING
NAME AND PRINCIPAL BECAME ---------------------- --------------
OCCUPATION OR EMPLOYMENT AGE DIRECTOR CLASS A CLASS B CLASS A CLASS B
- ------------------------ --- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
George M. Bruton 68 1982 588 588 (2) (2)
Owner of George M. Bruton
Insurance Agency, Inc.,
Mount Gilead, North Carolina
since 1950.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF COMMON STOCK COMMON STOCK
FIRST BENEFICIALLY OWNED (1) OUTSTANDING
NAME AND PRINCIPAL BECAME ---------------------- --------------
OCCUPATION OR EMPLOYMENT AGE DIRECTOR CLASS A CLASS B CLASS A CLASS B
- ------------------------ --- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Hilton J. Cochran 67 1985 400 500 (2) (2)
President and Part-Owner of
J. Morris & Associates,
Inc., Troy, NC since 1952.
Victor A. Karam 63 1972 5,312 - (2) (2)
Vice President-Footwear and
General Manager, Footwear
Division since 1969.
D. Gary McRae (3) 47 1979 549,276 (4) 552,079 (4) 30% 58%
President of the Company since
1997, Treasurer since 1991 and Vice
President 1980-1997.
James W. McRae (3) 45 1985 532,652 (4) 544,265 (4) 29% 57%
Vice President
since 1986; Secretary since 1991;
plant manager Footwear Division
since 1985.
</TABLE>
(1) All shares owned directly and with sole voting and investment power as
of November 3, 1997 except as otherwise noted. Does not include any
interest in shares held by the Company's ESOP.
(2) Less than 1%.
(3) D. Gary McRae and James W. McRae are brothers.
(4) Information as to beneficial ownership of these shares is provided in
the table of principal shareholders on page 2.
DIRECTOR COMPENSATION
Directors are paid $700 for attending meetings of each of the Board of Directors
and the Audit and Incentive Stock Option Committee (directors who are also
officers or employees of the Company are paid $350 for attending such meetings).
EXECUTIVE OFFICERS
Messrs. D. Gary McRae, James W. McRae, Victor A. Karam and Harold W. Smith are
executive officers as well as directors. The executive officers of the Company
were appointed at the annual meeting of the Board of Directors on December 19,
1996, except that D. Gary McRae was appointed President on March 10, 1997, and
serve at the pleasure of the Board of Directors. Marvin Kiser, age 49, has
served as Controller for the Company since September, 1996. Previously, Mr.
Kiser was treasurer of Robert W. Chapman & Company from 1988 to 1996.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held five meetings during the past year. Each director
attended more than 75% of the aggregate total number of meetings of the Board of
Directors and the total number of meetings of any Committee on which he served.
The Board of Directors has no nominating committee.
4
<PAGE> 7
The Audit and Incentive Stock Option Committee is composed of George M. Bruton
and Hilton J. Cochran and is responsible for recommending independent auditors
for the Company, reviewing the Company's financial statements, audit report,
internal financial controls and internal audit procedures and approving services
to be performed by the Company's independent auditors. The Committee is also
responsible for selecting key employees to whom stock options and stock
appreciation rights will be awarded under the 1985 McRae Industries, Inc.
Non-Qualified Stock Option Plan, for reviewing any transactions or arrangements
between the Company and any of its affiliates, and along with the President of
the Company, for recommending executive compensation to the Board of Directors.
The Committee met once during the fiscal year.
INTERLOCKS AND INSIDER PARTICIPATION
The Audit and Incentive Stock Option Committee of the Board of Directors of the
Company, along with the President of the Company, makes recommendations to the
Board of Directors concerning the Company's compensation arrangements. The
Company's Audit and Incentive Stock Option Committee is also responsible for,
among other things, selecting key employees to whom stock options and stock
appreciation rights will be awarded under the 1985 McRae Industries, Inc.
Non-Qualified Stock Option Plan. The Board of Directors is currently composed of
D. Gary McRae, President and Treasurer of the Company, George M. Bruton, Hilton
J. Cochran, Brady W. Dickson, Victor A. Karam, Vice President - Footwear, James
W. McRae, Vice President and Secretary, and Harold W. Smith, Vice President -
McRae Graphics. Messrs. Bruton and Cochran currently comprise the Company's
Audit and Incentive Stock Option Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS INVOLVING AMERICAN MORTGAGE & INVESTMENT COMPANY
Since 1970, the Company has owned a substantial equity interest in American
Mortgage & Investment Company ("AMIC"), a company engaged primarily in the
business of land development and sales in the coastal region of South Carolina.
The late B. J. McRae served as a director and president of AMIC without
compensation. D. Gary McRae serves as a director of AMIC and was appointed its
president on March 18, 1997. He serves without compensation.
The Company owns shares of the common stock of AMIC which represents about 13%
of its outstanding common stock. In addition, the Company owns all outstanding
shares of AMIC's 20% Cumulative Convertible Preferred Stock. Because of
arrearages in dividends on the preferred stock, each share of preferred stock is
currently entitled to one vote on any matter submitted to a vote of AMIC
shareholders. The Company presently has the majority of the voting power of
AMIC. The Estate owns 1,996 shares of AMIC's $20 par value Common Stock. Messrs.
D. Gary McRae and James W. McRae are co-executors of the Estate.
At the beginning of the Company's 1997 fiscal year, the Company had investments
in and advances to AMIC of approximately $631,000. During the 1997 fiscal year,
the Company made additional advances to AMIC totaling approximately $10,000. The
investment in AMIC's stock and amounts due from AMIC were reduced to the extent
that the recorded amounts exceed shareholder equity as reported by AMIC. Because
of AMIC's financial condition, the Company has not accrued any interest on the
AMIC obligations. At the end of the fiscal year, the Company had recorded
investments in and advances to AMIC of approximately $822,000. AMIC has been
operating under Chapter X of the United States Bankruptcy Act since 1974 and the
court has imposed certain restrictions under a Plan of Reorganization.
Management believes that the Company's advances to and continued financial
support of AMIC are justified in light of its investment to date in AMIC and a
lack of any other viable alternative. AMIC cannot continue operations without
the support of the Company and, in management's opinion, the ultimate realizable
market
5
<PAGE> 8
value of AMIC's real estate holdings is greater than the value of such holdings
were the Company to discontinue its support, forcing AMIC to liquidate its
holdings at substantially discounted values. Management believes remaining
amounts due the Company from AMIC are ultimately recoverable.
TRANSACTIONS WITH AUTOMOBILE DEALERSHIP
During fiscal 1997, the Company rented facilities to an automobile dealership
which was formerly owned by the Estate. The Estate sold substantially all of the
assets of the dealership to a third party on October 27, 1997. Rent paid during
the past fiscal year was $24,000. During fiscal 1997, the Company also purchased
vehicles from the dealership for a total purchase price of approximately
$76,000. The Company believes that the costs of automobiles from the dealership
were comparable to or lower than the cost of comparable automobiles from other
dealerships. During fiscal 1997, the Company also provided financing of
approximately $875,000 for vehicles purchased from the dealership by third
parties.
At August 2, 1997 the dealership owed the Company approximately $1,225,000 which
is composed of accounts receivable and notes that bear interest at the federal
funds rate plus 2%. Such indebtedness is composed of rent obligations, funds
advanced to the dealership for working capital, and interest on such amounts.
Amounts owed by the dealership are guaranteed by the Estate.
INDEBTEDNESS OF THE ESTATE
The Company from time to time made loans to the late B. J. McRae prior to his
death. At August 2, 1997, the Estate owed the Company approximately $629,000,
under these loans, which was the maximum outstanding during the year.
Approximately $357,000 of this indebtedness bears interest at the federal funds
rate plus 2%. The remaining $272,000 of indebtedness, which does not bear
interest, represents a guarantee from the Estate on certain receivables
purchased from the automobile dealership by the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than 10% of the
Company's Class A Common Stock and Class B Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of such Class A and Class B Common Stock. Executive
officers, directors and greater than 10% stockholders are required to furnish
the Company with copies of all such reports they file. To the Company's
knowledge, based solely on a review of the copies of such reports furnished to
the Company, during the fiscal year ended August 2, 1997, all Section 16(a)
filing requirements applicable to its executive officers, directors and greater
than 10% beneficial owners were complied with, except Brady W. Dickson and
Marvin Kiser were late filing their Form 3s.
EXECUTIVE COMPENSATION
The table below shows the compensation paid or accrued by the Company, for the
three fiscal years ended August 2, 1997, to or for the account of each person
who has served as Chief Executive Officer during the fiscal year and James W.
McRae, Victor A. Karam and Harold W. Smith, the only executive officers of the
Company whose total annual salary and bonus exceeded $100,000 for the 1997
fiscal year (collectively, the "Named Executive Officers").
6
<PAGE> 9
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM
COMPENSATION
--------------------------------------- ------------------------
AWARDS
----------------------
OTHER RESTRICTED
NAME AND ANNUAL STOCK OPTIONS/ ALL OTHER
PRINCIPAL FISCAL SALARY BONUS COMPEN- AWARD(S) SARS COMPENSATION
POSITION YEAR ($) ($) SATION ($) (#) ($)
($)(1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
B. J. McRae(2) 1997 128,061 45,000 -- 0 0 214,000 (3)
President 1996 222,684 45,000 -- 0 0 212,000 (3)
1995 214,191 50,000 -- 0 0 223,000 (3)
D. Gary McRae(2) 1997 122,495 25,000 -- 0 0 0
President and 1996 116,112 24,000 -- 0 0 0
Treasurer 1995 112,348 24,000 -- 0 0 5,600 (4)
Victor A. Karam 1997 130,220 27,000 -- 0 0 0
Vice President-- 1996 128,456 15,750 -- 0 0 0
Footwear 1995 125,184 17,500 -- 0 0 5,900 (4)
Harold W. Smith 1997 100,972 8,000 -- 0 0 0
Vice President-- 1996 98,488 8,800 -- 0 0 0
McRae Graphics 1995 95,649 11,000 -- 0 0 4,400 (4)
James D. McRae (5) 1997 87,854 15,000 -- 0 0 --
Vice President and
Secretary
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No Named Executive Officer received personal benefits during the listed
years in excess of 10% of his respective annual salary and bonus.
(2) Mr. B. J. McRae served as President and Chief Executive Officer until
his death on February 26, 1997. Mr. D. Gary McRae was appointed by the
Board of Directors as President and Chief Executive Officer on March
10, 1997.
(3) Represents $214,000, $212,000 and $212,000 in premiums paid for the
purchase of split-dollar life insurance on the lives of Mr. and Mrs.
McRae in 1997, 1996 and 1995, respectively, and $11,000 accrued for the
account of Mr. McRae in 1995 under the ESOP. Upon Mrs. McRae's death,
the Company will be paid death benefits under the policies not to
exceed the greater of (i) the cash surrender value of the policy or
(ii) the cumulative premiums paid by the Company. The remainder of the
life insurance proceeds will be payable to her children.
(4) Represents amounts accrued under the ESOP.
(5) Mr. James W. McRae first became a Named Executive Officer in fiscal
1997.
The following table presents the value of all unexercised options that were held
by the Named Executive Officers at fiscal year end. All unexercised options held
by the Named Executive Officers are currently exercisable. No options were
granted during the past three fiscal years.
7
<PAGE> 10
AGGREGATE OPTION/SAR EXERCISES IN THE 1997 FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ON EXERCISE REALIZED OPTIONS AT FISCAL IN-THE MONEY OPTIONS AT
NAME (#SH) ($) YEAR-END FISCAL YEAR-END($)(1)
- ------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
B. J. McRae 7,500 7,500 78,376 0 0 0 0
D. Gary McRae 7,000 7,000 73,150 0 0 0 0
Victor A. Karam 0 0 0 0 0 0 0
Harold W. Smith James 0 0 0 0 0 0 0
W. McRae 0 0 0 0 0 0 0
</TABLE>
(1) Represents the total gain which would be realized if all options were
exercised for which the fair market value of the stock at fiscal
year-end was greater than the exercise price.
COMPENSATION COMMITTEE REPORT
The Audit and Incentive Stock Option Committee, whose members are named above,
together with the Chairman of the Board, make recommendations to the Board of
Directors concerning the Company's compensation arrangements. In connection with
such arrangements, Messrs. D. Gary McRae, Bruton and Cochran have provided the
following report:
The Company's overall compensation philosophy is as follows:
- Attract and retain quality talent, which is critical to both
the short-term and long-term success of this Company;
- Reinforce strategic performance objectives through the use of
incentive compensation programs; and
- Create a mutuality of interest between executive officers and
shareholders through compensation structures that share the
rewards and risks of strategic decision making.
Base Compensation - The Company's approach to base compensation is to offer
competitive salaries in comparison to market practices. The 1997 average base
salaries of the three Named Executive Officers other than those persons serving
as the President increased an average of 6 percent in 1997.
The Committee, consisting of two outside directors, along with the Chairman of
the Board of Directors, Mr. D. Gary McRae, annually examine market compensation
levels and trends observed in the labor market. For its purposes, the Committee
has defined the labor market as the pool of executives who are currently
employed in similar positions in companies with similar sales and market
capitalization. Market information is used as a frame of reference for annual
salary adjustments and starting salaries.
The Committee makes salary decisions in the annual review process with input
from the President. This annual review considers the decision-making
responsibilities of each position and the experience, work performance, and
team-building skills of position incumbents. The Committee views work
performance as the single most important measurement factor and places most of
the weight in this area. The remaining measurement factors, decision-making
responsibilities and team-building skills, are weighted equally.
8
<PAGE> 11
Incentive Compensation - The Audit and Incentive Stock Option Compensation
Committee, along with the Chairman of the Board of Directors, annually make
recommendations to the Board of Directors whether to pay and the amount of cash
incentive bonuses. For executive officers other than the President,
consideration is given to overall corporate performance of the specific areas of
the Company under a participant's direct control. This balance supports the
accomplishment of overall objectives and rewards individual contributions by our
executive officers. Individual annual bonus level targets are consistent with
market practices for positions with comparable decision-making responsibilities.
Target performance levels are based upon historic patterns of Company
performance and strategic objectives. All annual bonus-level performance targets
are set above normal expectations of performance. Such performance measure
threshold ensures that bonuses are not paid for substandard accomplishments. The
average bonus earned by the three Named Executive Officers other than the
President was 14 percent of their base salaries compared to 14 percent in 1996.
President Compensation - As indicated in the discussion above, the Company's
total compensation program is based upon market conditions and business
performance. A portion of an executive's yearly compensation is dependent upon
the Company's performance for the fiscal year based upon the executive's level
of responsibility and authority. Therefore, the President's bonus is generally a
larger percentage of his total compensation than for the other officers. In
1997, Mr. B. J. McRae received a bonus equal to 20 percent of his base salary
(and his base salary was increased 3 percent over 1996). Mr. D. Gary McRae was
appointed President in March, 1997 and his bonus, which was based on his
activities as First Vice President, was 21 percent of his base salary (and his
base salary was increased by 7 percent over 1996).
Hilton J. Cochran George M. Bruton D. Gary McRae
STOCK PERFORMANCE GRAPH
The accompanying graph and table set forth the cumulative total shareholder
return to the Company's shareholders during the five year period ended August 2,
1997, for each of the Company's Class A and Class B Common Stock, as well as an
overall stock market index (AMEX Index) and the Dow Jones Industry Group Index
for each of footwear, office equipment and industrial technology, the principal
industry segments in which the Company is actively involved. Due to the
discontinuance by the American Stock Exchange of its high technology and
consumer products indices, the Company has substituted indices for each of the
three principal segments in which the Company is actively involved.
<TABLE>
<CAPTION>
EQUITY/INDEX 1992 1993 1994 1995 1996 1997
- ------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
McRae Class A Common Stock 100 147 154 168 181 220
McRae Class B Common Stock 100 114 133 121 140 164
AMEX Index 100 114 112 132 142 174
Dow Jones Industrial Group Index - Office Equipment 100 113 133 156 207 325
Dow Jones Industrial Group Index - Industrial Technology 100 90 107 147 132 162
Dow Jones Industrial Group Index - Footwear 100 88 99 122 225 259
</TABLE>
[STOCK PERFORMANCE GRAPH WITH ABOVE PLOT POINTS.]
9
<PAGE> 12
RATIFICATION OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has appointed Gleiberman Spears Shepherd & Menaker, P.A.
as independent certified public accountants for the 1998 fiscal year and
recommends to shareholders that they vote for ratification of that appointment.
The Board of Directors will reconsider the selection of independent certified
public accountants if the shareholders do not ratify the appointment of
Gleiberman Spears Shepherd & Menaker, P.A. A representative of Gleiberman Spears
Shepherd & Menaker, P.A. is expected to attend the annual meeting with the
opportunity to make a statement if the representative desires to do so, and is
expected to be available to respond to appropriate questions.
The Board of Directors recommends a vote FOR ratification of the appointment of
Gleiberman Spears Shepherd & Menaker, P.A. as its independent certified public
accountants to audit the consolidated financial statements of the Company for
the 1998 fiscal year and proxies solicited by the Board of Directors will be so
voted unless shareholders specify otherwise.
OTHER MATTERS
The Board of Directors is not aware of any other matters which may be presented
for action at the meeting, but if other matters do properly come before the
meeting, it is intended that shares represented by proxies in the accompanying
form will be voted in accordance with the best judgment of the person or persons
voting the proxy.
10
<PAGE> 13
APPENDIX A
FOR USE BY CLASS A SHAREHOLDERS
MCRAE INDUSTRIES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDER TO BE HELD
DECEMBER 18, 1997
The undersigned hereby appoints D. Gary McRae and James W. McRae and each or
either of them, with full power of substitution, with all the powers which the
undersigned would possess if personally present, to vote as designated below,
all shares of the $1 par value Class A Common Stock of the undersigned in McRae
Industries, Inc. at the Annual Meeting of Shareholders to be held at 3:00 P.M.
on the 18th day of December, 1997, and at any adjournment thereof.
UNLESS SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2 SHOWN BELOW: The
Board of Directors recommends voting for all items.
1. Election of Directors: Nominees are Brady W. Dickson and Harold W.
Smith.
[ ] For all listed nominees (except do not vote for nominee(s) whose
name(s) I have written below)
[ ] WITHHOLD AUTHORITY to vote for all listed nominees
2. Ratification of appointment of Gleiberman Spears Shepherd and
Menaker, P.A. as accountants
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(Please sign on reverse side)
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Receipt of Notice of Annual Meeting and accompanying Proxy Statement is
hereby acknowledge.
Please date, sign exactly as printed below and return promptly in the
enclosed postage-paid envelope.
Date , 1997
-------------------------------
--------------------------------------------
--------------------------------------------
(When signing as attorney, executor,
administrator, trustee, guardian, etc. give
title as such. If a joint account, each
joint owner should sign personally.)
<PAGE> 14
APPENDIX B
FOR USE BY CLASS B SHAREHOLDERS
MCRAE INDUSTRIES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDER TO BE HELD
DECEMBER 18, 1997
The undersigned hereby appoints D. Gary McRae and James W. McRae and each or
either of them, with full power of substitution, with all the powers which the
undersigned would possess if personally present, to vote as designated below,
all shares of the $1 par value Class B Common Stock of the undersigned in McRae
Industries, Inc. at the Annual Meeting of Shareholders to be held at 3:00 P.M.
on the 18th day of December, 1997, and at any adjournment thereof.
UNLESS SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2 SHOWN BELOW: The
Board of Directors recommends voting for all items.
1. Election of Directors: Nominees are George M. Bruton, Hilton J.
Cochran, Victor A. Karam, D. Gary McRae, and James W. McRae.
[ ] FOR all listed nominees (except do not vote for nominee(s) whose
name(s) I have written below)
[ ] WITHHOLD AUTHORITY to vote for all listed nominees
2. Ratification of appointment of Gleiberman Spears Shepherd and Menaker,
P.A. as accountants
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(Please sign on reverse side)
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
Receipt of Notice of Annual Meeting and accompanying Proxy Statement is
hereby acknowledge.
Please date, sign exactly as printed below and return promptly in the
enclosed postage-paid envelope.
Date , 1997
-------------------------------
--------------------------------------------
--------------------------------------------
(When signing as attorney, executor,
administrator, trustee, guardian, etc. give
title as such. If a joint account, each
joint owner should sign personally.)
