SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
THE CATO CORPORATION
--------------------------------------------------------------------------------
(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:
-----------------------------------------------------------------------
[LOGO] CATO
THE CATO CORPORATION
April 25, 2006
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to be
held at the Corporate Office of the Company, 8100 Denmark Road, Charlotte, North
Carolina 28273 on Thursday, May 25, 2006 at 11:00 A.M., Eastern Time.
The Notice of the Annual Meeting of Shareholders and Proxy Statement are
attached. The matters to be acted upon by our shareholders are set forth in the
Notice of Annual Meeting of Shareholders and discussed in the Proxy Statement.
We would appreciate your signing, dating, and returning to the Company the
enclosed proxy card in the enclosed envelope at your earliest convenience.
We look forward to seeing you at our Annual Meeting.
Sincerely yours,
/s/ JOHN P. D. CATO
-------------------
JOHN P. D. CATO
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
8100 DENMARK ROAD
P. O. BOX 34216
CHARLOTTE, NC 28234
(704) 554-8510
THE CATO CORPORATION
--------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 25, 2006
--------------------------------------------------
TO THE SHAREHOLDERS OF
THE CATO CORPORATION
Notice is hereby given that the Annual Meeting of Shareholders of The
Cato Corporation (the "Company") will be held on Thursday, May 25, 2006 at 11:00
A.M., Eastern Time, at the Corporate Office of the Company, 8100 Denmark Road,
Charlotte, North Carolina 28273, for the following purposes:
1. To elect three Directors to serve until their successors are
elected and qualified;
2. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent registered public accounting firm for the
fiscal year ending February 3, 2007; and
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 28, 2006
as the record date for determination of shareholders entitled to notice of and
to vote at the meeting or any adjournments thereof.
By Order of the Board of Directors
/s/ ROBERT C. BRUMMER
---------------------
ROBERT C. BRUMMER
Dated: April 25, 2006 ASSISTANT SECRETARY
--------------------------------------------------------------------------------
SHAREHOLDERS ARE URGED TO SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED
ENVELOPE TO ENSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT WHETHER YOU OWN
FEW OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO
ADDITIONAL EXPENSE.
THE CATO CORPORATION
8100 Denmark Road
Charlotte, North Carolina 28273
---------------
PROXY STATEMENT
---------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Cato Corporation (the "Company") for
use at the Annual Meeting of Shareholders of the Company to be held on May 25,
2006, and at any adjournment or adjournments thereof. This proxy statement and
the accompanying proxy card are first being mailed to shareholders on or about
April 25, 2006.
Only shareholders of record at the close of business on March 28, 2006
are entitled to notice of and to vote at the meeting. As of March 28, 2006, the
Company had outstanding and entitled to vote 30,547,172 shares of Class A Common
Stock ("Class A Stock") held by approximately 1,261 holders of record and
690,525 shares of Class B Common Stock ("Class B Stock") held by 3 holders of
record. The Company's transfer agent estimates that there are approximately
6,160 beneficial owners in total. Holders of Class A Stock are entitled to one
vote per share and holders of Class B Stock are entitled to ten votes per share.
Holders of Class A Stock vote with holders of Class B Stock as a single class.
All proxies which are properly executed and received prior to the
meeting will be voted at the meeting. If a shareholder specifies how the proxy
is to be voted on any of the business to come before the meeting, the proxy will
be voted in accordance with such specification. If no specification is made, the
proxy will be voted FOR the election as Directors of the three persons named as
nominees in this Proxy Statement, and FOR the ratification of
PricewaterhouseCoopers LLP as the Company's independent registered public
accounting firm. A proxy may be revoked, to the extent it has not been
exercised, at any time prior to its exercise by written notice to the Secretary
of the Company, by executing and delivering a proxy with a later date, or by
voting in person at the meeting.
If you plan to attend and vote at the meeting and your shares are held
in the name of a broker or other nominee, please bring with you a proxy or
letter from the broker or nominee to confirm your ownership of shares.
In accordance with applicable Delaware law and the Company's Bylaws, the
holders of a majority of the combined voting power of Class A Stock and Class B
Stock present in person or represented by proxy at the meeting will constitute a
quorum. Abstentions are counted for purposes of determining the presence or
absence of a quorum. With regard to the election of directors, votes may either
be cast in favor of or withheld, and, assuming the presence of a quorum,
directors will be elected by a plurality of the votes cast. Votes that are
withheld will be excluded entirely from the vote and will have no effect on the
outcome of the election. Ratification of PricewaterhouseCoopers LLP as the
Company's independent registered public accounting firm requires the affirmative
vote of a majority of the combined voting power of the Class A Stock and Class B
Stock present in person or represented by proxy at the meeting and entitled to
vote. On any proposal other than the election of directors, an abstention will
have the same effect as a negative vote but, because shares held by brokers will
not be considered entitled to vote on matters which the brokers withhold
authority, a broker non-vote will have no effect on the vote on any such
proposal.
The Company will bear the expense of preparing, printing, and mailing
the proxy statement to shareholders. The Company will reimburse brokers,
dealers, banks, and other custodians, nominees, and fiduciaries for their
reasonable expenses in forwarding proxy solicitation materials to beneficial
owners of the Company's Class A Stock and Class B Stock and securing their
voting instructions. Georgeson Shareholder Communications, Inc. has assisted the
Company in conducting the search for beneficial owners at a cost of
approximately $975.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of March 28, 2006, certain
information regarding the ownership of the outstanding shares of Class A Stock
and Class B Stock by (i) each director and nominee, (ii) each person who is
known by the Company to own more than 5% of such stock, (iii) each executive
officer listed in the Summary Compensation Table, and (iv) all directors and
executive officers as a group. Unless otherwise indicated in the footnotes
below, each shareholder named has sole voting and investment power with respect
to such shareholder's shares.
SHARES BENEFICIALLY OWNED (1) (2)
--------------------------------- PERCENT
CLASS A STOCK CLASS B STOCK OF TOTAL
------------- ------------- VOTING
NUMBER PERCENT NUMBER PERCENT POWER
------ ------- ------ ------- -----
John P. D. Cato (3) 237,090 * 1,739,025 99.7 36.7
Michael O. Moore (4) 6,512 * -- * *
B. Allen Weinstein 17,738 * -- * *
Howard A. Severson (5) 48,708 * -- * *
Sally J. Almason (6) 4,649 * -- * *
Michael T. Greer 1,508 * -- * *
Robert W. Bradshaw, Jr. 750 * -- * *
George S. Currin 16,930 * -- * *
William H. Grigg 1,500 * -- * *
Grant L. Hamrick 4,500 * -- * *
James H. Shaw 6,654 * -- * *
A. F. (Pete) Sloan 10,800 * -- * *
D. Harding Stowe 0 * -- * *
All directors and executive officers as a 352,867 1.2 1,739,025 99.7 36.9
group (14 persons) (7)
Royce & Associates, LLC (8) 2,355,590 7.7 -- * 6.3
NFJ Investment Group, L. P. (9) 2,075,050 6.8 -- * 5.5
LSV Asset Management (10) 1,625,870 5.3 -- * 4.3
Barclays Global Investors N. A., et al. (11) 1,545,651 5.1 -- * 4.1
-----------------
* Less than 1%
(1) Includes the vested interest of executive officers in the Company's
Employee Stock Ownership Plan and Employee Stock Purchase Plan. The
aggregate vested amount credited to their accounts as of March 28, 2006
was 37,512 shares of Class A Stock.
(2) Share amounts shown as subject to stock options in the footnotes below
cover shares under options that are presently exercisable or will become
exercisable within 60 days after March 28, 2006.
(3) The amount shown for Class A Stock includes 9,000 shares held by Mr.
Cato's wife and 2,250 shares subject to stock options held by Mr. Cato's
wife. The amount for Class B Stock includes 1,050,000 shares subject to
stock options held by Mr. Cato and 3,000 shares subject to stock options
held by Mr. Cato's wife. Mr. Cato disclaims beneficial ownership of
shares held directly or indirectly by his wife. The address of this
shareholder is 8100 Denmark Road, Charlotte, North Carolina 28273.
(4) Mr. Moore, Executive Vice President, Chief Financial Officer and
Secretary, resigned his position on December 14, 2005.
2
(5) Includes 37,000 shares of Class A Stock subject to stock options.
(6) Includes 3,000 shares of Class A Stock subject to stock options.
(7) The amounts shown for Class A Stock include 42,250 shares subject to
stock options.
(8) Based on an amended Schedule 13G filed by this shareholder with the
Securities and Exchange Commission on or about January 12, 2006. The
address of this shareholder is 1414 Avenue of the Americas, New York,
New York 10019.
(9) Based on an amended Schedule 13G filed by this shareholder with the
Securities and Exchange Commission on or about February 14, 2006. The
address of this shareholder is 2100 Ross Avenue, Suite 1840, Dallas,
Texas 75201.
(10) Based on a Schedule 13G filed by LSV Asset Management with the
Securities and Exchange Commission on or about February 10, 2006. The
address of this shareholder is 1 N. Wacker Drive, Suite 4000, Chicago,
Illinois 60606. This shareholder reports sole voting power over 952,000
of such shares.
(11) Based on a Schedule 13G filed by Barclays Global Investors, N. A. and
certain of its affiliates with the Securities and Exchange Commission on
or about January 26, 2006. The address of this shareholder is 45 Fremont
Street, San Francisco, California 94105. This shareholder and its
affiliates collectively report sole voting power over 1,404,165 of such
shares.
ELECTION OF DIRECTORS
The Board of Directors, currently consisting of eight members, is
divided into three classes with terms expiring alternately over a three-year
period. The terms of three incumbent directors expire at the annual meeting. The
directors whose terms expire at this year's annual meeting, Mr. John P. D. Cato,
Mr. William H. Grigg and Mr. James H. Shaw, have been nominated by the Corporate
Governance and Nominating Committee to succeed themselves and to serve until the
2009 annual meeting and until their successors are elected and qualified. The
Corporate Governance and Nominating Committee nominates director candidates in
accordance with the Company's Bylaws and the policies described below under
"Corporate Governance Matters - Director Nomination Criteria and Process."
It is the intention of the persons named in the proxy to vote for the
nominees above to serve for the terms described above, except to the extent
authority to so vote is withheld with respect to one or more nominees. Should
any nominee be unable to serve, which is not anticipated, the proxy will be
voted for the election of a substitute nominee selected by the Board of
Directors. The three nominees shall be elected by a plurality of the votes of
Class A Stock and Class B Stock voting as a single class.
NOMINEES
Information with respect to each nominee, including biographical data
for at least the last five years, is set forth below.
JOHN P. D. CATO, 55, has been employed as an officer of the Company
since 1981 and has been a director of the Company since 1986. Since January
2004, he has served as Chairman, President and Chief Executive Officer. From May
1999 to January 2004, he served as President, Vice Chairman of the Board and
Chief Executive Officer. From June 1997 to May 1999, he served as President,
Vice Chairman of the Board and Chief Operating Officer. From August 1996 to June
1997, he served as Vice Chairman of the Board and Chief Operating Officer. From
1989 to 1996, he managed the Company's off-price division, serving as Executive
Vice President and as President and General Manager of the It's Fashion!
Division from 1993 to August 1996. Mr. John Cato is currently a director of
Ruddick Corporation.
3
WILLIAM H. GRIGG, 73, has been a director of the Company since 2005. Mr.
Grigg is Chairman Emeritus (Retired) of Duke Energy Corporation, where he held
positions including Chairman, President and Chief Executive Officer, Vice
Chairman, Chief Financial Officer and General Counsel over a 35 year career. Mr.
Grigg retired from Duke Energy Corporation in 1997. He currently serves on the
Board of Directors of Associated Electric and Gas Insurers, Ltd., Kuhlman
Electric Corporation and Fasion Enterprises and has served on the Boards of
Directors of Nations Fund Group, Shaw Group, Inc. and Coltec Industries, Inc.
JAMES H. SHAW, 77, has been a director of the Company since 1989. Mr.
Shaw was Chairman of Consolidated Ivey's, a regional department store chain,
from 1988 until his retirement in 1989, Chairman and Chief Executive Officer of
J. B. Ivey & Company from 1986 to 1988 and Chairman and Chief Executive Officer
of Ivey's Carolinas from 1983 to 1986.
CONTINUING DIRECTORS
Information with respect to the five continuing members of the Board of
Directors, including biographical data for the last five years, is set forth
below.
ROBERT W. BRADSHAW, JR., 72, has been a director of the Company since
1994. Since 1961, he has been engaged in the private practice of law with
Robinson, Bradshaw & Hinson, P.A. and currently serves of counsel to the firm.
GEORGE S. CURRIN, 69, has been a director of the Company since 1973.
Since 1989, he has served as Chairman and Managing Director of Fourth Stockton
Company LLC and Chairman of Currin-Patterson Properties LLC, both privately held
real estate investment companies.
GRANT L. HAMRICK, 67, has been a director of the Company since 1994. Mr.
Hamrick was Senior Vice President and Chief Financial Officer for American City
Business Journals, Inc. from 1989 until his retirement in 1996. From 1961 to
1985, Mr. Hamrick was employed by the public accounting firm Price Waterhouse
and served as Managing Partner of the Charlotte, North Carolina office.
A. F. (PETE) SLOAN, 76, has been a director of the Company since 1994.
Mr. Sloan is retired Chairman and Chief Executive Officer of Lance, Inc. where
he was employed from 1955 until his retirement in 1990.
D. HARDING STOWE, 50, has been a director of the Company since 2005. Mr.
Stowe has been the President and Chief Executive Officer of R.L. Stowe Mills,
Inc. since 1994. Mr. Stowe currently serves on the board of the National Council
of Textile Organizations, the National Cotton Council, The Foundation of the
University of North Carolina at Charlotte, Inc. and the Board of Advisors of
Belmont Abbey College. Mr. Stowe also serves by appointment of the Bush
Administration on the United States Manufacturing Council.
The five continuing members of the Board of Directors are divided into
two classes with current terms expiring in 2007 and 2008. On the expiration of
each director's term, his successor in office will be elected for a three-year
term. The terms of Messrs. George S. Currin, A.F. (Pete) Sloan, and D. Harding
Stowe expire in 2007. The terms of Messrs. Robert W. Bradshaw and Grant L.
Hamrick, expire in 2008. In addition, this latter class of directors includes a
vacancy created by the resignation of Michael O. Moore in December 2005. The
Corporate Governance and Nominating Committee is currently seeking a qualified
candidate to fill this vacancy.
DIRECTORS' COMPENSATION
Directors who are not employees of the Company receive a fee for their
services of $27,000 per year. Each non-employee director is paid $1,000 for
attending each Board of Directors meeting and each committee meeting scheduled
other than in conjunction with a regularly scheduled Board of Directors meeting.
The Committee Chairs of the Corporate Governance and Nominating Committee and
the Compensation Committee receive an additional $3,000 per year. The Committee
Chair of the Audit Committee receives an additional $5,000 per year. Directors
are reimbursed for reasonable expenses incurred in attending director meetings
and committee meetings.
4
MEETINGS AND COMMITTEES
During the fiscal year ended January 28, 2006, the Company's Board of
Directors held four meetings. The Board typically schedules a meeting in
conjunction with the Company's annual meeting of shareholders and expects that
all directors will attend the annual meeting absent a schedule conflict or other
valid reason. All directors attended the Company's 2005 Annual Meeting.
The Board of Directors, pursuant to authority granted in the Company's
Bylaws, has established an Audit Committee, Compensation Committee, and
Corporate Governance and Nominating Committee. During the fiscal year ended
January 28, 2006, the Audit Committee held seven meetings; the Compensation
Committee held five meetings and the Corporate Governance and Nominating
Committee held three meetings.
Mr. William H. Grigg attended 50% of various scheduled Board of
Directors Meetings and Committee Meetings during fiscal 2005, respectively. All
other Board Members each attended 100% of all scheduled Board of Directors
Meetings and Committee Meetings during fiscal 2005.
AUDIT COMMITTEE
The Audit Committee assists the Board of Directors in fulfilling its
oversight responsibilities regarding the integrity of the Company's financial
statements, the Company's compliance with legal and regulatory requirements, the
safeguarding of Company's assets, the independence, qualifications and
performance of the independent auditors, the performance of the Company internal
audit function, and such other matters as the Committee deems appropriate or as
delegated to the Committee from time to time. During the fiscal year ended
January 28, 2006, the Audit Committee held seven meetings. The Board of
Directors has determined that each member of the Audit Committee is an
independent director, in accordance with the independence requirements of the
New York Stock Exchange ("NYSE"). In addition, the Board has determined that
each member of the Audit Committee meets the heightened standards of
independence for audit committee members under the Securities Exchange Act of
1934. Messrs. Grant L. Hamrick, Chair, Robert W. Bradshaw, Jr., William H. Grigg
and A. F. (Pete) Sloan are members of the Audit Committee. Additional
information concerning the Audit Committee is set forth below under "Selection
of Independent Registered Public Accounting Firm."
COMPENSATION COMMITTEE
The Compensation Committee assesses the Company's overall compensation
programs and philosophies. The Committee reviews and approves, on an annual
basis, the Company's goals and objectives for compensation of the Chief
Executive Officer and evaluates the Chief Executive Officer's performance in
light of those goals and objectives at least annually. Based on this evaluation,
the Compensation Committee determines and reports to the Board the Chief
Executive Officer's compensation, including salary, bonus, incentive, and equity
compensation.
The Compensation Committee also reviews and approves, on an annual
basis, the evaluation process and compensation structure of the Company's other
executive officers and evaluates those other officers' performance at least
annually. Based on this evaluation, the Compensation Committee determines and
reports to the Board the other executive officers' compensation, including
salary, bonus, incentive, and equity compensation.
In addition, the Compensation Committee grants stock options and other
awards to employees of the Company and its subsidiaries pursuant to the
Company's benefit and incentive compensation plans and reports such actions to
the Board of Directors. The Board of Directors has determined that each member
of the Compensation Committee is an independent director, in accordance with the
independence requirements of the NYSE. The Compensation Committee held five
meetings during the fiscal year ended January 28, 2006. Messrs. A. F. (Pete)
Sloan, Chair, George S. Currin, James H. Shaw and D. Harding Stowe are members
of the Compensation Committee.
5
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Corporate Governance and Nominating Committee reviews, evaluates and
recommends nominees for the Board of Directors. In addition, the Corporate
Governance and Nominating Committee monitors and evaluates the performance of
the directors on a periodic basis, individually and collectively. The Committee
also periodically reviews the Company's corporate governance principles and
recommends changes to the Board of Directors. The Board of Directors has
determined that each member of the Corporate Governance and Nominating Committee
is an independent director, in accordance with the independence requirements of
the NYSE. The Corporate Governance and Nominating Committee held three meetings
during the fiscal year ended January 28, 2006. Messrs. George S. Currin, Chair,
Robert W. Bradshaw, Jr., William H. Grigg, James H. Shaw and D. Harding Stowe
are members of the Corporate Governance and Nominating Committee.
CORPORATE GOVERNANCE MATTERS
CORPORATE GOVERNANCE GUIDELINES AND COMMITTEE CHARTERS
In furtherance of its longstanding goal of providing effective
governance of the Company's business and affairs for the benefit of
shareholders, the Board of Directors has approved Corporate Governance
Guidelines for the Company. The Guidelines are available on the Company's
website at WWW.CATOCORP.COM, as are the committee charters for the Company's
Audit Committee, Compensation Committee and Corporate Governance and Nominating
Committee. Print copies of these documents are available to any shareholder that
requests a copy by writing to Corporate Governance and Nominating Committee, c/o
Office of the Corporate Secretary, 8100 Denmark Road, Charlotte, North Carolina
28273.
DIRECTOR INDEPENDENCE
The Board of Directors made a determination as to the independence of
each of its members. The Board of Directors determined, that each of the
following Board members is independent: Mr. Robert W. Bradshaw, Jr., Mr. George
S. Currin, Mr. William H. Grigg, Mr. Grant L. Hamrick, Mr. James H. Shaw, Mr.
A.F. (Pete) Sloan, and Mr. D. Harding Stowe. The Board determined that Mr. John
P. D. Cato an employee of the Company, is not independent. The Board made these
determinations based upon, among other things, the definition of an "independent
director" set forth in the NYSE listing standards, as supplemented by the
Company's Corporate Governance Guidelines. A director will be independent only
if the director has no material relationship with the Company. For purposes of
such determination the Board must affirmatively determine whether a material
relationship exists between the director and the Company. This determination is
in addition to the analysis under the NYSE Independence Tests and SEC Rule 10A-3
and must be based on the overall facts and circumstances specific to that
director.
In order to assist the Board in making determinations of independence,
any relationship described below will be presumed material:
(i) The director is, or has been within the last three years, an
employee of the listed Company, or an immediate family member
is, or has been within the last three years, an executive
officer, of the Company.
(ii) The director has received, or has an immediate family member has
received, during any twelve-month period within the last three
years, more than $100,000 in direct compensation from the
Company, other than director and committee fees and pension or
other forms of deferred compensation for prior service (provided
such compensation is not contingent in any way on continued
service).
(iii) The director or an immediate family member is a current partner
of a firm that is the Company's internal or external auditor;
the director is a current employee of such a firm; the director
has an immediate family member who is a current employee of such
a firm and who participates in the firm's audit, assurance or
tax compliance (but not tax planning) practice; or the director
or an immediate family member was within the last three years
(but is no longer) a partner or employee of such a firm and
personally worked on the Company's audit within that time.
6
(iv) The director or an immediate family member is, or has been
within the last three years, employed as an executive officer of
another company where any of the Company's present executive
officers at the same time serves or served on that company's
compensation committee.
(v) The director is a current employee, or an immediate family
member is a current executive officer, of a company that has
made payments to, or received payments from, the listed company
for property or services in an amount which, in any of the last
three fiscal years, exceeds the greater of $1 million, or 2% of
such other company's consolidated gross revenues.
AUDIT COMMITTEE FINANCIAL EXPERTS
The Board of Directors has determined that at least one member of the
Audit Committee, Mr. Grant L. Hamrick, is a financial expert.
EXECUTIVE SESSIONS OF NON-MANAGEMENT DIRECTORS
Non-management Board members meet without management at regularly
scheduled executive sessions. In addition, to the extent that the group of
non-management directors includes directors that are not independent, at least
once a year there will be scheduled an executive session including only
independent directors. The Chair of the Corporate Governance and Nominating
Committee will preside over meetings of the non-management or independent
directors.
CODE OF ETHICS AND CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a written Code of Ethics (the "Code of Ethics")
that applies to the Company's Chairman, President and Chief Executive Officer
(principal executive officer), Executive Vice President, Chief Financial Officer
and Secretary (principal financial officer), and Senior Vice President,
Controller (principal accounting officer). The Company has adopted a Code of
Business Conduct and Ethics (the "Code of Conduct") that applies to all
employees, officers, and directors of the Company. The Code of Ethics and Code
of Conduct are available on the Company's website at WWW.CATOCORP.COM, under the
"Corporate Governance" caption and print copies are available to any shareholder
that requests a copy by writing to Corporate Governance and Nominating
Committee, c/o Office of the Corporate Secretary, 8100 Denmark Road, Charlotte,
North Carolina 28273. Any amendments to the Code of Ethics or Code of Conduct,
or any waivers of the Code of Ethics, or any waiver of the Code of Conduct for
directors or executive officers, will be disclosed on the Company's website
promptly following the date of such amendment or waiver. Information on the
Company's website, however, does not form a part of this Proxy Statement.
COMMUNICATIONS WITH DIRECTORS
You may communicate directly with any member or committee of the Board
of Directors by writing to: Chair of the Corporate Governance and Nominating
Committee, c/o Office of the Corporate Secretary, The Cato Corporation, 8100
Denmark Road, Charlotte, North Carolina 28273. Depending on the subject matter,
the Chair of the Corporate Governance and Nominating Committee, with the
assistance of the Company's Senior Vice President, Human Resources, will
determine whether to forward it to the director or directors to whom it is
addressed, attempt to handle the inquiry directly (for example, where it is a
request for information about the Company or it is a stock-related matter), or
not forward the communication if it is primarily commercial in nature or if it
relates to an improper or irrelevant topic.
If the subject matter involves a matter relating to accounting, internal
accounting controls, or auditing matters, the Senior Vice President, Human
Resources will report the matter to the Chair of the Audit Committee and also
advise the Chief Executive Officer and Chief Financial Officer. The Chair of the
Audit Committee and the Chief Executive Officer will determine what action, if
any, should be taken. The Office of the Corporate Secretary and Chair of the
Audit Committee will investigate the matter, if necessary, and file a report
with the Audit Committee. The Audit Committee, at its discretion, may discuss
the matter with the Board of Directors.
7
The Senior Vice President, Human Resources will maintain a log of all
complaints, tracking their receipt, investigation and resolution and will
prepare a periodic summary thereof for the Board of Directors, and the Audit
Committee, as appropriate.
DIRECTOR NOMINATION CRITERIA AND PROCESS
Directors may be nominated by the Board of Directors in accordance with
the Company's Bylaws or by shareholders in accordance with the procedures
specified in Article II, Section 3 of the Company's Bylaws. The Company's
Corporate Governance and Nominating Committee will consider all nominees,
including any submitted by shareholders, for the Board of Directors. The
assessment of a nominee's qualifications will include a review of Board of
Director qualifications as described in the Company's Corporate Governance
Guidelines.
As specified in Article II, Section 3 of the Company's Bylaws, notice of
a shareholder nomination for a director nominee to be considered at an annual
meeting must be in writing and received by the Secretary of the Company at the
Company's principal executive offices, 8100 Denmark Road, Charlotte, North
Carolina 28273-5975 no later than 90 days prior to the anniversary of the
preceding year's annual meeting (in the case of the Company's 2007 annual
meeting of shareholders, no later than February 26, 2007). The shareholder's
notice must also set forth, with respect to any director nominee, his or her
name, age, business and residential address, principal occupation, the class and
number of shares of the Company owned by the nominee, the nominee's consent to
being named in the proxy statement and serving if elected, and any other
information required by the proxy rules of the Securities and Exchange
commission pursuant Regulation 14A of the Securities and Exchange Act of 1934,
as amended. The notice must also include the name and address of the nominating
shareholder as it appears on the Company's stock transfer records and the class
and number of shares of the Company beneficially owned by the nominating
shareholder.
The Corporate Governance and Nominating Committee will select qualified
nominees and review its recommendations with the full Board of Directors. The
Board of Directors will decide whether to invite the nominee to join the Board.
Nominees for director will be selected on the basis of outstanding achievement
in their personal careers, broad experience, wisdom, integrity, ability to make
independent, analytical inquiries, understanding of the business environment,
diversity, and willingness to devote adequate time to Board duties. The Board
believes that each director should have a basic understanding of (i) the
principal operational and financial objectives and plans and strategies of the
Company, (ii) the results of operations and financial condition of the Company
and of any significant subsidiaries or business segments, and (iii) the relative
standing of the Company and its business segments in relation to its
competitors.
The Board will have a majority of directors who meet the criteria for
independence required by the NYSE. The Corporate Governance and Nominating
Committee is responsible for reviewing with the Board, on an annual basis, the
requisite skills and characteristics that the Board seeks in Board members as
well as the composition of the Board as a whole. On an annual basis the Board
will evaluate whether members qualify as independent under applicable standards.
During the course of a year, directors are expected to inform the Board of any
material changes in their circumstances or relationships that may impact their
designation by the Board as independent.
8
SUMMARY COMPENSATION TABLE
The table below sets forth the compensation for the persons who were at
January 28, 2006 the Chief Executive Officer and the four other most highly
compensated executive officers.
LONG TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
------------------------------------- -----------------
FISCAL RESTRICTED ALL
YEAR SALARY BONUS STOCK OTHER
AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) ($)(2)
John P. D. Cato 2005 862,500 1,968,750 (3) 25,888
Chairman, President and 2004 818,750 1,237,500 -- 9,135
Chief Executive Officer 2003 787,500 -- -- 9,101
B. Allen Weinstein 2005 488,250 562,500 -- 25,888
Executive Vice President 2004 449,750 339,750 -- 10,370
Chief Merchandising Officer 2003 435,000 -- -- 10,336
Michael O. Moore (4) 2005 305,737 -- -- 2,498
Former Executive Vice President 2004 337,500 255,000 -- 9,210
Chief Financial Officer 2003 326,250 -- -- 9,176
and Secretary
Howard A. Severson 2005 282,000 255,600 -- 26,488
Executive Vice President 2004 274,250 207,000 -- 10,075
Chief Real Estate and 2003 267,000 -- -- 9,341
Store Development Officer
Sally J. Almason 2005 267,500 243,000 -- 25,168
Senior Vice President 2004 226,500 120,000 -- 8,691
General Merchandise Manager 2003 198,250 -- -- 8,407
of the Cato Division
Michael T. Greer (5) 2005 195,000 225,000 -- 25,025
Senior Vice President 2004 180,000 110,000 -- 7,982
Director of Stores 2003 138,750 -- -- 5,544
--------------
(1) No named executive officer received perquisites or other personal
benefits, securities or property which, in the aggregate, exceeded the
lesser of $50,000 or 10% of the total annual salary and bonus reported
for the named executive officer.
9
(2) Matching contributions by the Company to 401(k) Plan account,
contributions to the Employee Stock Ownership Plan and imputed income
amounts for group term life and income tax preparation as follows:
EMPLOYEE
STOCK GROUP TAX
FISCAL 401K OWNERSHIP TERM LIFE PREPARATION
NAME YEAR CONTRIBUTION PROGRAM INSURANCE SERVICES TOTAL
---------------------- --------- -------------- ------------- ------------ ------------- ---------
John P. D. Cato 2005 7,625 16,715 1,548 -- 25,888
2004 7,569 -- 966 600 9,135
2003 7,535 -- 966 600 9,101
B. Allen Weinstein 2005 7,625 16,715 1,548 -- 25,888
2004 7,569 -- 1,806 995 10,370
2003 7,535 -- 1,806 995 10,336
Michael O. Moore (4) 2005 -- -- 1,548 950 2,498
2004 7,569 -- 966 675 9,210
2003 7,535 -- 966 675 9,176
Howard A. Severson 2005 7,625 16,715 1,548 600 26,488
2004 7,569 -- 1,806 700 10,075
2003 7,535 -- 1,806 -- 9,341
Sally J. Almason 2005 7,625 16,715 828 -- 25,168
2004 7,569 -- 1,122 -- 8,691
2003 7,441 -- 966 -- 8,407
Michael T. Greer (5) 2005 7,625 16,715 360 325 25,025
2004 7,569 -- 413 -- 7,982
2003 5,212 -- 332 -- 5,544
(3) As of January 28, 2006, Mr. Cato held a total of 150,000 restricted
shares of Class B Stock at a value of $3,237,000 based on the closing of
trading price of the Class A Stock of $21.58 on January 27, 2006, the
last trading day before fiscal year end. Dividends are payable on the
restricted shares.
(4) Mr. Moore resigned his position on December 14, 2005.
(5) Mr. Greer, Senior Vice President, was promoted to Director of Stores of
the Company on November 15, 2004.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has a severance agreement with Mr. Allen Weinstein currently
providing for the continuation of his base salary for 12 months upon the
termination of his employment without cause.
10
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning certain options
granted by the Company to the named executive officers during the fiscal year
ended January 28, 2006.
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL EXERCISE STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED OF BASE FOR OPTION TERM
OPTIONS TO EMPLOYEES PRICE EXPIRATION ----------------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
-----------------------------------------------------------------------------------------------------------------
John P. D. Cato -- -- -- -- -- --
B. Allen Weinstein -- -- -- -- -- --
Michael O. Moore (1) -- -- -- -- -- --
Howard A. Severson -- -- -- -- -- --
Sally J. Almason -- -- -- -- -- --
Michael T. Greer -- -- -- -- -- --
----------------
(1) Mr. Moore, Executive Vice President, Chief Financial Officer and
Secretary, resigned his position on December 14, 2005.
11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table presents certain information concerning the exercise
of stock options during the fiscal year ended January 28, 2006 and the value of
unexercised options held at January 28, 2006 by the named executives.
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
SHARES AT FISCAL OPTIONS AT
ACQUIRED YEAR-END (#)(1) FISCAL YEAR-END ($)(2)
ON VALUE ------------------------- ---------------------------
EXERCISE REALIZED EXERCISABLE (E)/ EXERCISABLE (E)/
NAME (#) ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
------------------------------------------------------------------------------- ---------------------------
John P. D. Cato 71,250 941,213 1,050,000 (3) 14,974,500
0 0
B. Allen Weinstein 0 0 0 0
0 0
Michael O. Moore (4) 45,000 614,340 0 0
0 0
Howard A. Severson 0 0 42,000 594,660
0 0
Sally J. Almason 0 0 3,000 22,230
12,000 88,920
Michael T. Greer 7,500 63,465 0 0
18,000 137,340
----------------
(1) Except as otherwise indicated in the footnotes below, all options are
for shares of Class A Stock.
(2) Value is based on difference between exercise price and market price of
the underlying securities as of January 27, 2006, the last trading day
before the fiscal year-end.
(3) Includes options to acquire 1,050,000 shares of Class B Stock.
(4) Mr. Moore, Executive Vice President, Chief Financial Officer and
Secretary, resigned his position on December 14, 2005.
12
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information regarding the shares of the
Company's Class A Stock and Class B Stock issuable under all of the Company's
equity compensation plans as of January 28, 2006:
(C)
NUMBER OF SECURITIES
(A) (B) REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE EQUITY COMPENSATION
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS (1) RIGHTS COLUMN (A))
------------------------------- --------------------------- ------------------------------- --------------------------
Equity compensation plans
approved by security holders 1,341,900 8.23 (2) 1,611,195 (3)
Equity compensation plans not
approved by security holders
-- None -- -- --
--------------------------- ------------------------------- --------------------------
TOTAL 1,341,900 8.23 1,611,195
=============================== =========================== =============================== ==========================
(1) This category includes the 1987 Non-Qualified Stock Option Plan and the
2004 Incentive Compensation Plan. The Company has no outstanding
warrants or rights.
(2) This amount does not include the exercise price of options outstanding
under the Employee Stock Purchase Plan because the exercise price is not
determinable as of the date of this Proxy Statement. The exercise price
to purchase a share of Class A Stock under such an option equals 85% of
the lesser of the fair market value per share of Class A Stock at the
beginning of the applicable offering period or the fair market value per
share of Class A Stock at the end of the applicable offering period.
(3) This category includes 6,727 shares of Class A or Class B Stock
available for future issuance under the Company's 1987 Non-Qualified
Stock Option Plan, 303,968 shares of Class A Stock available for
issuance under the Company's 2003 Employee Stock Purchase Plan and
1,300,500 shares of Class A Stock available for issuance under the
Company's 2004 Incentive Compensation Plan.
13
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The following report submitted by the Compensation Committee of the
Board of Directors addresses the Company's executive compensation policies for
fiscal 2005.
The Compensation Committee is composed of four members. The members are
Messrs. A. F. (Pete) Sloan, Chair, George S. Currin, James H. Shaw and D.
Harding Stowe. The Compensation Committee provides guidance for the Company's
executive compensation programs to insure a direct relationship between
executive compensation and corporate performance.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program has been designed (i) to
provide compensation equivalent to compensation offered by other retailers in
order to attract and retain the most qualified executives, (ii) to motivate
executive officers by rewarding them for attaining pre-established Company
financial goals and (iii) to align the interest of executive officers with the
long-term interest of shareholders.
In designing the compensation packages for executive officers, the
Compensation Committee compares the Company's executive officer compensation
packages with other retail executive officer compensation packages, some of
which are included in the Dow Jones U.S. Retailers, Apparel Index and other
retailers in the Company's industry segment used in the performance graph.
Companies which are similar in size and operate in the specialty apparel retail
market are given particular consideration.
The executive compensation program is focused on attainment of
profitability and enhancement of shareholder equity. Currently, the Company's
executive compensation program consists of three principal types of
compensation: annual base salary, incentive bonuses and long-term stock option
awards. Executive officers are rewarded when the Company achieves financial
goals, particularly related to net income, and when the executive officer
achieves individual performance levels related to the executive officer's
specific area of responsibility.
ANNUAL BASE SALARY - The annual base salary of each executive officer is
based on the scope of his or her responsibility and accountability. Each year
the Compensation Committee determines the base salary for each executive officer
taking into consideration whether the Company achieved net income results and
whether the executive officer achieved individual performance levels established
for the prior fiscal year.
INCENTIVE BONUS - A significant component of an executive officer's
total cash compensation consists of an incentive bonus. Each executive officer
is eligible to earn a bonus based on achievement of the targeted net income
performance criteria. A bonus accrual is made based on the achievement of the
net income performance criteria. If net income performance criteria are not
achieved, the accrual may be reduced or eliminated.
No weighting is applied to the criteria established for each executive
officer. If an executive officer achieves all of his or her performance goals
and if the Company's profit plan is achieved, the executive officer is eligible
to receive an incentive bonus. In the event an executive officer achieves some,
but not all, of the performance goals, he or she is eligible to receive a
portion of the executive officer's potential maximum bonus.
LONG-TERM STOCK OPTION AWARDS - Stock options or restricted stock are
awarded by the Compensation Committee under the Company's 2004 Incentive
Compensation Plan to executive officers to provide incentive for the executive
officer to focus on the Company's future financial performance and as a means to
encourage an executive officer to remain with the Company. The stock option
exercise price is 100% of the fair market value of the shares on the date of
grant and, historically, the stock options have vested in 20% increments over
five years. Stock option grants are made when executive officers join the
Company and thereafter at the discretion of the Compensation Committee.
The Compensation Committee recognizes that, to varying degrees, the
determination of an executive officer's compensation package involves subjective
considerations.
14
CHIEF EXECUTIVE OFFICER
The Compensation Committee discusses and determines the compensation
package for the Chief Executive Officer. Mr. John P. D. Cato was appointed Chief
Executive Officer on May 20, 1999. The employment arrangement provides for the
compensation discussed herein. Mr. Cato's compensation package consists of base
salary, incentive bonus, long-term stock option awards and restricted stock
grants. Mr. Cato received no long-term stock option awards during fiscal 2005.
In determining Mr. Cato's compensation package, the Compensation
Committee compared Mr. Cato's package with the compensation packages of other
retailers, including the Chief Executive Officer compensation package of
companies listed in the Dow Jones U.S. Retailers, Apparel Index and other
retailers in the Company's industry segment. The Compensation Committee took
into consideration Mr. Cato's years of service and experience with the Company
and in the specialty retail apparel industry. The Compensation Committee
believes that the compensation package offered Mr. Cato is consistent with Chief
Executive Officer packages of companies used in the review, considering Mr.
Cato's experience and longevity with the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION PACKAGE
Base Salary - Mr. Cato's salary was increased to $875,000 from $825,000
for fiscal 2005 in response to the Company's performance in fiscal 2004.
Incentive Bonus - Mr. Cato is eligible to receive an annual bonus of up
to 150% of his base salary depending on the achievement of performance goals
established by the Compensation Committee. The main performance goal is based on
achievement of targeted net income. Based on the Company's performance for
fiscal 2005 as measured by the performance criteria established by the
Compensation Committee, Mr. Cato received 150% of his annual bonus payout
potential.
This report has been provided by the Compensation Committee:
A. F. (Pete) Sloan, Chair
George S. Currin
James H. Shaw
D. Harding Stowe
CERTAIN TRANSACTIONS
During fiscal 2005, the Company had 24 lease agreements with entities in
which Mr. George S. Currin, a director of the Company, had an ownership
interest. One lease agreement was signed in fiscal 1993, three were signed in
fiscal 1994, one was signed in fiscal 1995, one was signed in fiscal 1997, four
were signed in fiscal 2000, five were signed in fiscal 2002, three were signed
in fiscal 2003, three were signed in fiscal 2004 and three were signed in fiscal
2005. The lease term of each agreement is for a period ranging from five years
to ten years with renewal terms at the option of the Company. The Company
believes that the terms and conditions of the lease agreements are comparable to
those which could have been obtained from unaffiliated leasing companies. The
Company paid to the entities controlled by Mr. Currin or his family the amount
of $303,612 for rent and related charges during fiscal 2005. The Company paid to
entities in which Mr. Currin or his family has a minority interest the amount
$770,563 for rent and related charges during fiscal 2005.
The firm of Robinson, Bradshaw & Hinson, P. A. was retained to perform
certain legal services for the Company during the last fiscal year. Mr. Robert
W. Bradshaw, Jr., a director of the Company, was a shareholder of Robinson,
Bradshaw & Hinson, P. A. until December 31, 2000 and currently serves of counsel
to the firm. It is anticipated that the firm will continue to provide legal
services to the Company during the current fiscal year. Fees paid by the Company
to Robinson, Bradshaw & Hinson, P.A. in fiscal 2005 were $125,170.
15
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
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Shares and other equity securities of the
Company. Executive officers, directors and greater than 10% shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, during the year ended January
28, 2006, all Section 16(a) filing requirements applicable to its executive
officers and directors and any greater than 10% beneficial owners were complied
with, except that the following reports were filed late: one transaction report
each for Mr. Allen Weinstein and Mr. Robert Sandler.
STOCK PERFORMANCE GRAPH
The following graph compares the yearly change in the Company's
cumulative total shareholder return on the Company's Common Stock (which
includes Class A Stock and Class B Stock) for each of the Company's last five
fiscal years with (i) the Dow Jones Total Market Index, (ii) the Dow Jones U.S.
Retailers, Apparel Index, (iii) an index of four (4) peer companies and (iv) the
Russell 2000 Index. The peer group includes Charming Shoppes, Inc., Deb Shops,
Inc., The Dress Barn , Inc., and United Retail Group, Inc. In the past, the
Company has chosen to use this peer group index in its performance graph because
management believed the peer group was the best reflection of the Company's
competitors in the market place. However, the Company feels that it lacks true
comparable industry peers and it will no longer use the peer group, but has
adopted the Russell 2000 Index for 2005 and forward as it provides a better
comparison of companies of similar market capitalization. Similarly, the Company
will replace the Dow Jones Total Market Index with the Russell 2000 Index.
-------------------------
THE CATO CORPORATION
STOCK PERFORMANCE TABLE
-------------------------
[PERFORMANCE GRAPH]
16
THE CATO CORPORATION
STOCK PERFORMANCE TABLE
(BASE 100 - IN DOLLARS)
DOW JONES DOW JONES
LAST TRADING DAY THE CATO TOTAL U.S RETAILERS, PEER RUSSELL 2000
OF THE FISCAL YEAR CORPORATION MKT INDEX APPL INDEX GROUP INDEX
------------------ ----------- --------- ---------- --------- ------------
2/02/01 100 100 100 100 100
2/01/02 115 84 87 116 97
1/31/03 101 66 75 87 76
1/30/04 119 90 101 98 121
1/28/05 171 95 122 129 129
1/27/06 184 108 139 230 156
The graph assumes an initial investment of $100 on February 2, 2001, the
last trading day prior to the commencement of the Company's 2001 fiscal year,
and that all dividends were reinvested.
17
SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected PricewaterhouseCoopers LLP as
independent auditor to examine the Company's financial statements for fiscal
year ended February 3, 2007. This selection is being presented to the
shareholders for their ratification at the annual meeting.
PricewaterhouseCoopers LLP audited the Company's financial statements for the
fiscal years ended January 31, 2004, January 29, 2005 and January 28, 2006. A
representative of PricewaterhouseCoopers LLP is expected to attend the meeting,
respond to appropriate questions from shareholders present at the meeting and,
if such representative desires, to make a statement. The affirmative vote of a
majority of the votes present or represented at the annual meeting and entitled
to vote by the holders of Class A Stock and Class B Stock, voting as a single
class, is required to approve the proposal. The directors recommend that
shareholders vote FOR the proposal to ratify the selection of
PricewaterhouseCoopers LLP as the Company's independent auditor.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is composed of four
independent directors and operates under a written charter, a copy of which is
available on the Company's website at WWW.CATOCORP.COM. The Board of Directors
has determined that all members of the Audit Committee possess the required
level of financial literacy and are "independent" in accordance with the
independence requirements of the NYSE.
Management is responsible for the Company's internal controls and the
financial reporting process. PricewaterhouseCoopers LLP, the Company's
independent registered public accounting firm, is responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with standards of the Public Company Accounting Oversight Board and
issuing a report thereon. The Audit Committee, among other things, is
responsible for monitoring and overseeing these processes and is directly
responsible for the appointment, compensation, retention and oversight of the
Company's independent registered public accounting firm.
The primary purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibility for safeguarding the
Company's assets and for the integrity of the accounting and reporting practices
of the Company and such other duties as directed by the Board. As set forth in
the Audit Committee Charter, the Audit Committee is not responsible for
conducting audits or preparing or determining whether the Company's financial
statements are accurate or complete or conform with accounting principles
generally accepted in the United States of America. The Company's independent
registered public accounting firm is responsible for expressing an opinion on
the conformity of audited financial statements to accounting principles
generally accepted in the United States of America.
In the performance of its oversight function and in accordance with its
responsibilities under its charter, the Audit Committee has reviewed and
discussed the audited financial statements for the year ended January 28, 2006
with management and the independent registered public accounting firm. The Audit
Committee also discussed with management and the independent registered public
accounting firm, the adequacy of the Company's internal controls, and discussed
with management the effectiveness of the Company's internal controls and
procedures used for periodic public reporting. The Audit Committee reviewed with
the independent registered public accounting firm their audit plans, audit scope
and identification of audit risks. The Audit Committee has discussed with the
independent registered public accounting firm the communications required by
generally accepted auditing standards and the Public Company Accounting
Oversight Board (United States), including those described in Statement on
Auditing Standards No. 61, as amended or supplemented. In addition, the Audit
Committee has received from the independent registered public accounting firm
the written disclosures and letter required by the Independence Standards Board,
Standard No. 1 titled "Independence Discussions with Audit Committees" and
discussed with the independent registered public accounting firm their
independence from the Company and its management. The Audit Committee also has
considered whether the independent registered public accounting firm's provision
of non-audit services to the Company is compatible with the auditor's
independence.
18
Based on the reviews and discussions mentioned above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements for the year ended January 28, 2006 be included in the Company's
Annual Report to shareholders and to the Securities and Exchange Commission on
Form 10-K.
AUDIT COMMITTEE MEMBERS
Grant L. Hamrick, Chair
Robert W. Bradshaw, Jr.
William H. Grigg
A. F. (Pete) Sloan
AUDIT FEES
PricewaterhouseCoopers LLP audited the Company's consolidated financial
statements for the fiscal years ended January 28, 2006 and January 29, 2005. The
aggregate PricewaterhouseCoopers LLP fees for all professional services rendered
for fiscal years ended January 28, 2006 and January 29, 2005 were:
PricewaterhouseCoopers LLP Audit Fees
FISCAL YEAR ENDED FISCAL YEAR ENDED
JANUARY 28, 2006 JANUARY 29, 2005
-------------------- --------------------
Audit Fees $ 519,600(1) $ 654,250(1)
Audit Related Fees 67,900(2) 66,450(2)
Tax Fees 27,600(3) 26,300(3)
All Other Fees 30,800(4) --
-------------------- --------------------
$ 645,900 $ 747,000
(1) Includes $280,000 and $380,000 for audit services under Section
404 of the Sarbanes-Oxley Act of 2002 for the years ended
January 28, 2006 and January 29, 2005, respectively and expenses
of $75,000 related to a restatement for lease accounting
practices for the fiscal year ended January 29, 2005.
(2) Consists of audits of employee benefit plans, subsidiaries, and
expenses related thereto.
(3) Consists of tax compliance and related tax matters.
(4) Consists of expenses related to review of new systems and
controls for fiscal year ended January 28, 2006.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES BY THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee is responsible for the appointment, compensation and
oversight of the work of the independent registered public accounting firm. As
part of this responsibility, the Audit Committee is required to pre-approve the
audit and non-audit services performed by the independent registered public
accounting firm in order to assure that they do not impair the auditor's
independence from the Company. Accordingly, the Audit Committee has adopted
procedures and conditions under which services proposed to be performed by the
independent registered public accounting firm must be pre-approved.
Pursuant to this policy, the Audit Committee will consider annually and
approve the terms of the audit engagement. Any proposed engagement relating to
permissible non-audit services must be presented to the Audit Committee and
pre-approved on a case-by-case basis. In addition, particular categories of
permissible non-audit services that are recurring may be pre-approved by the
Audit Committee subject to pre-set fee limits. If a category of services is so
approved, the Audit Committee will be regularly updated regarding the status of
those services and the fees incurred. The Audit Committee reviews requests for
the
19
provision of audit and non-audit services by the Company's independent
registered public accounting firm and determines if they should be approved.
Such requests could be approved either at a meeting of the Audit Committee or
upon approval of the Chair of the Audit Committee, or another member of the
Audit Committee designated by the Chair. If a permissible non-audit service is
approved by the Chair or his designee, that decision is required to be presented
at the next meeting of the Audit Committee. Prior to approving any services, the
Audit Committee considers whether the provision of such services are consistent
with the SEC's rules on auditor independence and are compatible with maintaining
the auditor's independence.
SHAREHOLDER PROPOSALS
Shareholders who intend to present proposals for consideration at next
year's annual meeting are advised that, pursuant to rules of the Securities and
Exchange Commission, any such proposal must be received by the Secretary of the
Company at the Company's principal executive offices, 8100 Denmark Road,
Charlotte, North Carolina 28273-5975 no later than the close of business on
December 26, 2006 if such proposal is to be considered for inclusion in the
proxy statement and proxy appointment form relating to that meeting. Only
persons who have held beneficially or of record at least $2,000 in market value,
or 1% of the combined class of Class A and Class B Common Stock, for at least
one year on the date the proposal is submitted and who continue in such capacity
through the meeting date are eligible to submit proposals to be considered for
inclusion in the Company's proxy statement. In addition, the Company may direct
the persons named in the Company's annual meeting proxy to exercise
discretionary voting authority to vote against any matter, without any
disclosure of such matter in the Company's proxy statement, unless a shareholder
provides notice of the matter pursuant to the procedures specified in Article
II, Section 4 of the Company's bylaws. Such notice must be received by the
Secretary of the Company at the Company's principal executive offices as
described above in this paragraph not later than ninety days prior to the
anniversary date of the immediately preceding annual meeting (in the case of the
Company's 2007 annual meeting of shareholders, no later than February 26, 2007).
The shareholder's notice must set forth, as to each matter of business proposed
for consideration, a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, the name and address, as they appear on the Company's stock
transfer records, of the proposing shareholder, the class and number of shares
of the Company's stock beneficially owned by the proposing stockholder, and any
material interest of the proposing stockholder in the proposed business.
OTHER MATTERS
The Board of Directors of the Company knows of no matters which will be
presented for consideration at the meeting other than those set forth in this
proxy statement. However, if any other matters are properly presented for
action, it is the intention of the persons named in the proxy to vote on them in
accordance with their best judgment.
For the Board of Directors
THE CATO CORPORATION
/s/ ROBERT C. BRUMMER
---------------------
ROBERT C. BRUMMER
April 25, 2006 ASSISTANT SECRETARY
20
ANNUAL MEETING OF SHAREHOLDERS OF
THE CATO CORPORATION
MAY 25, 2006
CLASS A COMMON STOCK
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
------------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSALS 2 AND 3. PLEASE SIGN, DATE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
------------------------------------------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS: 2. Proposal to ratify the selection of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as the
NOMINEES: Company's independent auditor for
[ ] ALL NOMINEES O John P. D. Cato fiscal year ending February 3, 2007;
[ ] WITHHOLD AUTHORITY O William H. Grigg and
FOR ALL NOMINEES O James H. Shaw
[ ] FOR ALL EXCEPT 3. In their discretion, the Proxies are [ ] [ ] [ ]
(See instructions below) authorized to vote upon such other
business as may properly come before
the meeting or any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL
PROPOSALS AND "FOR" ELECTION OF ALL NOMINEES FOR DIRECTOR.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE
ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY STATEMENT AND
REVOKES ALL PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED.
INSTRUCTION: To withhold authority to vote for any individual
nominee(s), mark "FOR ALL EXCEPT" and fill in the PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY
circle next to each nominee you wish to withhold, SO AS TO INSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT
as shown here: O WHETHER YOU OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR
-------------------------------------------------------------- PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE.
To change the address on your account, please check
the box at right and indicate your new address in the [ ]
address space above. Please note that changes to the
registered name(s) on the account may not be submitted
via this method.
--------------------------------------------------------------
------------------------ --------- ------------------------ ---------
Signature of Shareholder Date: Signature of Shareholder Date:
------------------------ --------- ------------------------ ---------
NOTE: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer
is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is
a partnership, please sign in partnership name by authorized person.
CLASS A COMMON STOCK
THE CATO CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John P. D. Cato and Robert C. Brummer,
and each of them, with full power of substitution, attorneys and proxies to
appear and vote, as indicated on the reverse side of this card, all of the
shares of Class A Common Stock of The Cato Corporation that the undersigned
would be entitled to vote at the Annual Meeting of Shareholders of The Cato
Corporation to be held on May 25, 2006 and at any and all adjournments thereof.
The Board recommends a vote FOR the following items:
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
ANNUAL MEETING OF SHAREHOLDERS OF
THE CATO CORPORATION
MAY 25, 2006
CLASS B COMMON STOCK
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
------------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSALS 2 AND 3. PLEASE SIGN, DATE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
------------------------------------------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS: 2. Proposal to ratify the selection of
PricewaterhouseCoopers LLP as the
NOMINEES: Company's independent auditor for
[ ] ALL NOMINEES O John P. D. Cato fiscal year ending February 3, 2007;
[ ] WITHHOLD AUTHORITY O William H. Grigg and
FOR ALL NOMINEES O James H. Shaw
[ ] FOR ALL EXCEPT 3. In their discretion, the Proxies are
(See instructions below) authorized to vote upon such other
business as may properly come before
the meeting or any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL
PROPOSALS AND "FOR" ELECTION OF ALL NOMINEES FOR DIRECTOR.
INSTRUCTION: To withhold authority to vote for any individual THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE
nominee(s), mark "FOR ALL EXCEPT" and fill in the ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY STATEMENT AND
circle next to each nominee you wish to withhold, REVOKES ALL PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED.
as shown here: O
-------------------------------------------------------------- PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY
SO AS TO INSURE A QUORUM AT THE MEETING. THIS IS IMPORTANT
WHETHER YOU OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR
PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE.
--------------------------------------------------------------
To change the address on your account, please check
the box at right and indicate your new address in the [ ]
address space above. Please note that changes to the
registered name(s) on the account may not be submitted
via this method.
--------------------------------------------------------------
------------------------ --------- ------------------------ ---------
Signature of Shareholder Date: Signature of Shareholder Date:
------------------------ --------- ------------------------ ---------
NOTE: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer
is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is
a partnership, please sign in partnership name by authorized person.
CLASS B COMMON STOCK
THE CATO CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John P. D. Cato and Robert C. Brummer,
and each of them, with full power of substitution, attorneys and proxies to
appear and vote, as indicated on the reverse side of this card, all of the
shares of Class B Common Stock of The Cato Corporation that the undersigned
would be entitled to vote at the Annual Meeting of Shareholders of The Cato
Corporation to be held on May 25, 2006 and at any and all adjournments thereof.
The Board recommends a vote FOR the following items:
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)