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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. Yes o No þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No þ

There is no non-voting common equity. The Registrant consummated its initial public offering on February 10, 2004. The aggregate market value of the common stock held by nonaffiliates (based upon the closing price of $11.60 for the shares on the Nasdaq National Market on March 31, 2004) was approximately $34,096,564, as of March 31, 2004. For this purpose, all shares held by directors, executive officers and shareholders beneficially holding five percent or more of the Registrant’s common stock have been treated as held by affiliates. There was no market for the Registrant’s common stock prior to the initial public offering.

Immediately after the Registrant closed the sale of 324,000 shares of common stock in connection with the underwriters’ exercise of their over-allotment option, relating to the Registrant’s initial public offering, on March 12, 2004, there were 5,102,481 shares of the Registrant’s common stock issued and outstanding.

Portions of the Registrant’s definitive proxy statement for the Registrant’s 2004 Annual Meeting of Shareholders to be filed within 120 days of the end of the Registrant’s fiscal year (the “2004 Proxy Statement”) are incorporated by reference in Part III.

We are a national, mall-based, specialty retailer of distinctive footwear and accessories targeting young women who demand quality fashion products. We sell both private label and national brand dress, casual and sport shoes, boots, sandals and accessories. We strive to create a fun, exciting and fashion oriented customer experience through an attractive store environment and an enthusiastic, well-trained sales force. Our Bakers stores’ buying teams constantly modify our product offering to reflect widely accepted fashion trends. As of January 3, 2004, we operated 185 of our 215 stores under the Bakers format, which targets young women between the ages of 12 and 29. This target customer is in a fast growing demographic segment, is extremely appearance conscious and spends a high percentage of disposable income on footwear, accessories and apparel. Based on our analysis of our competitors, we believe that our Bakers stores are the only national, full service retailer specializing in moderately priced footwear for this segment. We also operate the Wild Pair chain, which consisted of 30 stores as of January 3, 2004 and offers edgier, faster fashion-forward footwear that reflects the attitude and lifestyles of both women and men between the ages of 17 and 24. As a result of offering a greater proportion of national brands, Wild Pair has somewhat higher average prices than our Bakers stores.

On February 10, 2004, we sold 2,160,000 shares of our common stock in our initial public offering. We sold an additional 324,000 shares of our common stock on March 12, 2004 in connection with the exercise of the over-allotment option relating to our initial public offering. Upon consummation of our initial public offering our previously outstanding shares of capital stock and our subordinated convertible debentures converted into shares of our one class of common stock. Please see the information set forth herein under “Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters” which is incorporated herein by this reference. In connection with our initial public offering, we took a variety of corporate actions. Please see the information set forth herein under “Item 4. Submission of Matters to a Vote of Security Holders” which is incorporated herein by this reference. As of February 29, 2004, we operated 207 stores, 178 of which were Bakers stores and 29 were Wild Pair stores.

In this Annual Report on Form 10-K, we refer to the fiscal years ended December 31, 1999, December 30, 2000, January 5, 2002, January 4, 2003 and January 3, 2004 and the fiscal years ending January 1, 2005 and December 31, 2005 as “fiscal year 1999,” “fiscal year 2000,” “fiscal year 2001,” “fiscal year 2002,” “fiscal year 2003,” “fiscal year 2004” and “fiscal year 2005,” respectively. For more information, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Fiscal Year,” appearing elsewhere herein. When this report uses the words “Company,” “we,” “us” or “our,” these words refer to Bakers Footwear Group, Inc., unless the context otherwise requires.

We were founded in 1926 as Weiss-Kraemer, Inc., which was later renamed Weiss and Neuman Shoe Co., a regional chain of footwear stores. In 1997, we were acquired principally by our current chief executive officer, Peter Edison, who had previously spent 12 years in various senior management positions at Edison Brothers Stores, Inc. In June 1999, we teamed with Bakers’ existing management to purchase selected assets of the Bakers and Wild Pair chains, including approximately 200 store locations and merchandise inventory from Edison Brothers, which had filed for bankruptcy protection in March 1999. We also retained the majority of Bakers’ employees, including key senior management, merchandise buyers, store operating personnel and administrative support personnel. At the time of the acquisition, we had approximately 60 Weiss and Neuman locations, which we have subsequently closed or re-merchandised into the Bakers or Wild Pair formats. In February 2001, we changed our name to Bakers Footwear Group, Inc.

We operate as one business segment for accounting purposes. See “Item 8. Financial Statements and Supplementary Data.” We are incorporated under the laws of the State of Missouri. Our executive offices are located at 2815 Scott Avenue, St. Louis, Missouri 63103 and our telephone number is (314) 621-0699.

We believe our long operating history and management expertise provide us several key competitive advantages that have historically allowed us to operate our stores to generate strong cash flow and operating margins.


	•	We strive to be the store of choice for young women between the ages of 12 and 29 who seek quality, fashionable footwear at an affordable price. Based on our analysis of our competitors, we believe we are the only national, full service retailer specializing in serving this segment. We provide a high energy, fun shopping experience and attentive, personal service primarily in highly visible fashion mall locations.

	•	The average retail prices of our private label footwear range from $39 to $65. We are able to offer these prices without sacrificing merchandise quality, creating a high perceived value, promoting multiple sale transactions, and allowing us to build a loyal customer base.

	•	Our micro-merchandising strategy enables us to adapt our store inventories with the trends and demographics of individual locations. As a result, we are able to stock the styles our customers desire, increasing sales and customer loyalty.

	•	Our marketing initiatives foster additional customer loyalty, while expanding our presence in serving our target market. This can be exemplified by our successful introduction of our Bakers Frequent Buyer Card, which our customers purchase to obtain a discount on all future purchases until the expiration of the card.


	•	We believe our senior management team combines a unique blend of experience with our company and other national specialty retailers. Our six-member senior management team averages approximately 24 years of individual experience in footwear and accessories retailing.

	•	Our organizational structure is designed to respond to the changes that are inherent in our business. Our senior management, merchandisers and buyers work closely with our flexible network of manufacturing sources and efficient third-party distribution system to give our customers the styles they demand in a timely manner.

	•	During the recent challenges in the retail environment, our senior management team utilized our management structure to effectively control overhead and our administrative operations. We also reacted quickly to changes in consumer demand and strategically reduced inventory purchases to reduce the need for markdowns and clearance merchandise.

	•	We intend to continually focus on improving profitability by:


	—	Leveraging our investment in corporate infrastructure. We have invested in technology, including integrated inventory management and logistics systems, point of sale systems and equipment, and planning and allocation systems. Because these information systems and personnel costs are primarily fixed, as net sales increase, our profitability should increase at a greater rate.

	—	Improving our inventory turns through the use of our new planning, allocation and assortment planning systems, and through the increase in our mix of branded products, which should lead to fewer markdowns.

	—	Constantly reviewing our store locations and proactively closing underperforming stores and remodeling older stores, while building new stores with attractive unit economics.

A key factor in our ability to offer our merchandise at moderate prices and respond quickly to changes in consumer trends is our sourcing proficiency. We rely primarily on third party foreign manufacturers in China, Brazil, Italy, Spain and other countries for the production of our private label merchandise. Our buying agents have long-term relationships with these manufacturers and have been successful in minimizing the lead times for sourcing merchandise. These relationships have allowed us to work very close to our expected delivery dates and reduce our markdowns. In addition, our “test and react” strategy supported by these strong relationships with manufacturers allows our merchandising and buying teams to test new styles and react quickly to fashion trends, while keeping fast-moving inventory in stock.

In fiscal year 2003, we completed the final step in the implementation and integration of our planning, purchasing, allocation, assortment planning and point of sale systems. These systems allow us to better execute our micro-merchandising strategy through more efficient management and allocation of our store inventories to reduce further our response times in reaction to fashion trends. Our micro-merchandising strategy requires us to adapt the merchandise mix by location, with different assortments depending on store level customer demographics. We now have the capability to constantly monitor inventory levels and purchases by store, enabling us to manage our merchandise mix.

We believe that effective use of our systems has allowed us to reduce markdowns, resulting in higher gross margins. Over the last 18 months, our systems facilitated the process of reducing inventory commitments in light of changes in consumer demand. Our buyers and inventory management team were able to efficiently adjust our store inventory levels to effectively control excess inventory and markdowns.

Our multiple concepts and variety of formats within these concepts allow us to operate profitably in a wide range of shopping malls. New and remodeled Bakers stores located in A and B malls have been designed in a new format. 32 locations have been remodeled to feature this format and have shown stronger sales and profits than non-remodeled stores. We continue to operate lower cost formats in C malls which can generate the same return on investment as the new format store. Additionally, our Wild Pair concept, operating at a similar return on investment, can succeed in smaller spaces than those typically required by Bakers stores. Wild Pairs’ higher sales per square foot often allow it to operate in some higher-end malls as well. This flexibility to operate in a wide variety of malls enhances Bakers’ potential to grow and supports strong landlord relationships with the national real estate developers.

Our goal is to position Bakers as the fashion footwear merchandise authority for young women. We intend to effect this strategy through:


	•	We plan to open new stores in a controlled and disciplined manner. Our strong relationships with landlords allow us to secure desirable locations in fashion malls. In selecting a specific site, we look for high traffic locations primarily in regional shopping malls. We evaluate proposed sites based on the traffic patterns, type and quality of other tenants, average sales per square foot achieved by neighboring stores, lease terms and other factors considered important with respect to the specific location.

	•	Once we have identified a key location and secured a lease, we build our store in our distinctive new upscale contemporary format. We expect these new stores to average approximately $750,000 a year in store volume and contribute approximately $100,000 of cash flow per year. We have identified 200 additional locations for new format stores and plan to open approximately 15 new stores by the end of


		fiscal year 2004 and an additional 30 to 35 new stores in fiscal year 2005. We also have identified 100 of our current stores for remodeling into new format stores.

	•	While we are not currently in negotiations, from time to time, we will explore acquisitions of regional chains or groups of stores. Historically, we have been able to acquire stores at prices below our cost to open new stores. For example, in fiscal year 2002, we spent $1.8 million to acquire 33 former Sam & Libby locations. We spent approximately $360,000 to convert those 33 locations into our formats. The expenditures consisted mainly of minor remodeling, signage, and point of sale equipment and software, and averaged approximately $11,000, excluding inventory, for each location. These costs are considerably below our typical cost to open a new store of $200,000, and accordingly, these stores have had a substantially higher return on invested capital.

	•	Management believes that the operating infrastructure we have in place is capable of integrating a significant number of new stores with little additional increase in general and administrative expenses. Virtually all of our senior management executives have held similar positions at specialty retail chains of substantially greater size. We believe that our buying teams have sufficient levels of experience to support our expected new store growth. Finally, we believe that our information and logistics systems are scalable to support significant growth.

	•	We opened a total of 41 stores in key locations in fiscal year 2002, including the 33 former Sam & Libby stores we acquired. In fiscal year 2003, we opened three new stores.


	•	We are in the process of remodeling existing Bakers stores into our new format design which will provide a consistent look with our newly opened stores. Through January 3, 2004, 32 existing Bakers stores have been remodeled into the new store format. Sales of the remodeled stores showed significant increases in volume after they are opened in the new format. We believe the new format stores average higher annual sales because they feature a distinctive upscale contemporary format that is attractive to our customers.

	•	Construction costs to remodel stores into the new format average approximately $200,000 and the remodeling requires the store to be closed for four to five weeks. We plan to remodel existing stores into the new format in locations where we believe the additional investment will produce a higher return on investment than maintaining the current format. We plan to remodel approximately 17 existing stores into the new format during fiscal year 2004 and have identified an additional 80 stores to be upgraded. Typically, our stores are remodeled in connection with a lease renewal. Construction management for the remodeling is provided by third party contractors for fixed fees.

	•	In addition to transforming stores into the new concept, we are performing minor remodeling at selected stores. Typically, the minor remodeling is undertaken in conjunction with the signing of a new lease. Construction costs for the minor remodels average $40,000. These stores often generate lower sales volume but a similar return on investment. During fiscal year 2004, we plan to undertake minor remodeling projects at ten of our stores.


	•	We keep our product mix fresh and on target by constantly testing new fashions and actively monitoring sell-through rates in our stores. Our team of footwear retailers, in-house designers and merchants use their industry experience, relationships with agents and branded footwear producers, and their participation in industry trade shows to analyze, interpret and translate fashion trends affecting today’s young women into the footwear and accessory styles they desire.

	•	We employ a test and react strategy that constantly updates our product mix while minimizing inventory risk. This strategy is supported by our strong relationships with manufacturers which allow our merchandising and buying teams to negotiate short lead-times, enabling us to test new styles and react quickly to fashion trends and keep fast-moving inventory in stock.


	•	To complement the introduction of new merchandise, we view the majority of our styles as “core” fashion styles that carry over for multiple seasons. Our merchants make subtle changes to these styles each season to keep them fresh, while reducing our fashion risk exposure.


	•	Approximately 17.1% of our net shoe sales for fiscal year 2003 consisted of branded footwear, up from 9.3% in fiscal year 2000. Bakers stores began to sell national branded footwear in fiscal year 2000 because we believe that branded merchandise is important to our customers, adds credibility to our stores and drives customer traffic, increasing our overall sales volume and profitability, while reducing our overall exposure to fashion risk.

	•	We believe the further penetration of national branded merchandise as a percentage of our product mix will be a key driver of same store sales growth, as it serves to increase customer traffic and customer loyalty in our stores, which we believe will also increase the sales of our private label merchandise.

Our merchants analyze, interpret and translate current and emerging lifestyle trends into footwear and accessories for our target customers. Our merchants and senior management use various methods to monitor changes in culture and fashion.

For example, we monitor current music, television, movie and magazine themes as they relate to clothing and footwear styles. Our buyers travel to major domestic and international markets, such as New York, London and Milan, to gain an understanding of fashion trends. We attend major footwear trade shows and analyze various information services which provide broad themes on the direction of fashion and color for upcoming seasons.

A crucial element of our product development is our test and react strategy, which lowers our inventory risk. We typically buy small quantities of new footwear and deliver merchandise to a cross-section of stores. We closely monitor sell-through rates on test merchandise and, if the tests are successful, quickly re-order product to be distributed to a larger base of stores. Frequently, in as little as a week, we can make initial determinations as to the results of a product test.

In addition to our test and react strategy, we can also reduce our fashion risk exposure by increasing the national branded component of our merchandise mix. The national brands carried by our stores tend to focus on fashion basic merchandise supported by national advertising by the producer of the brand, which helps generate demand from our target customer. We believe we gain substantial brand affinity by carrying these lines. We believe that a customer who enters our store with the intent of shopping for national branded footwear will consider the purchase of our lower price, higher gross margin private label merchandise.

We sell both casual and dress footwear. Casual footwear include sport shoes, sandals, athletic shoes, outdoor footwear, casual daywear, weekend casual, casual booties and tall-shafted boots. Dress footwear includes career footwear, tailored shoes, dress shoes, special occasion shoes and dress booties.

Our private label merchandise, which comprised over 82.9% of our net shoe sales in our stores for fiscal year 2003, is generally sold under the Bakers label and, in some instances, is supplied to us on an exclusive basis. Once our management team has arrived at a consensus on fashion themes for the upcoming season, our buyers translate these themes into our merchandise. We currently have two dress footwear buyers, three casual footwear buyers and two accessory buyers.

To produce our private label footwear, we generally begin with a shoe that our buying teams have discovered during their travels or that is brought to us by one of our commissioned buying agents. Working

with our agents, we develop a prototype shoe, which we refer to as a sample. We control the process by focusing on key color, fabric and pattern selections, and collaborate with our buying agents to establish production deadlines. Once our buyers have approved the sample, our buying agents arrange for the purchase of necessary materials and contract with factories to manufacture the footwear to our specifications.

We establish manufacturing deadlines in order to ensure a consistent flow of inventory into the stores. Our disciplined product development process has led to a reduction in lead times. Depending upon where the shoes are produced and where the materials are sourced, we can have shoes delivered to our stores in four to eight weeks. For more information, please see “— Sourcing and Distribution.”

Our success depends upon our customers’ perception of new and fresh merchandise. Our test and react strategy reduces our risk on new styles of footwear. We also reduce our markdown risk by re-interpreting our core product. Approximately one-half of our private label mix is core product, which we define as styles that carry over for multiple seasons. Our buyers make changes to core product which include colors, fabrications and modified styling to create renewed interest among our customers. We also have relationships with some producers of national brands that, from time to time, produce comparable versions of their branded footwear under our private label brands.

Our information systems are designed to identify trends by item, style, color and/or size. In response, our merchandise team generates a key-item report to more carefully monitor and support sales, including reordering additional units of certain items, if available. Merchandising teams and buyers work together to develop new styles to be presented at monthly product review and selection meetings. These new styles incorporate variations on existing styles in an effort to capitalize further on the more popular silhouettes and heel heights or entirely new styles and fabrications that respond to emerging trends or customer preferences.

In 2000, our Bakers stores began to carry nationally recognized branded merchandise which we believe increases the attractiveness of our product offering to our target customers. Our branded shoe sales comprised approximately 9.3% of net shoe sales in fiscal year 2000, 13.6% in fiscal year 2001, 19.0% in fiscal year 2002, and 17.1% for fiscal year 2003. We believe that branded merchandise is important to our customers, adds credibility to our stores and drives customer traffic resulting in increased customer loyalty and sales. Important national brands in our stores include Skechers®, Guess Sport®, Steve Madden®, Diesel®, bebe® and Chinese Laundry®. We believe offering nationally recognized brands is a key element to attracting appearance conscious young women. We believe it is strategically important to increase the branded component of our merchandise mix, which should drive comparable store sales. Branded merchandise sells at a higher price point than our private label merchandise. As a result, despite a lower gross margin percentage, branded merchandise generates greater gross profits per pair and leverages our relatively fixed operating costs.

Our accessories include handbags, jewelry, sunglasses, ear clips and earrings, hosiery, scarves and other items. Our accessory products allow us to offer the convenience of one-stop shopping to our customers, enabling them to complement their seasonal ready-to-wear clothing with color coordinated footwear and accessories. Accessories add to our overall sales and typically generate higher gross margins than our footwear. Our average selling price for handbags is $15, and for all accessories, excluding handbags, the average selling price is $5.

The following table illustrates net sales by merchandise category as a percentage of our total net sales for fiscal years 2000, 2001, 2002 and 2003:

We have developed a micro-merchandising strategy for each of our Bakers stores through market research and sales experience. We maintain the level and type of styles demanded by subsets of our target customers. We have categorized each of our Bakers stores as being predominantly a mainstream, fashion or urban location, and if appropriate we identify subcategories for certain stores. We have implemented a similar micro-merchandising strategy for our Wild Pair stores.

Our micro-merchandising strategy of classifying multiple stores and merchandising them similarly based upon customer demographics enables our merchants to provide an appropriate merchandise mix in order to meet that particular store’s customers’ casual, weekend/club, career and special occasion needs. In determining the appropriate merchandise mix and inventory levels for a particular store, among other factors, for a particular store’s profile, we consider:


	•	selling history;

	•	importance of branded footwear;

	•	importance of accessories;

	•	importance of aggressive fashion;

	•	the stock capacity of the store; and

	•	sizing trends and color preferences.

Our merchandising plan includes sales, inventory and profitability targets for each product classification. This plan is reconciled with our store sales plan, a compilation of individual store sales projections that is developed biannually, but reforecasted monthly. We also update the merchandising plan on a monthly basis to reflect current sales and inventory trends. The plan is then distributed throughout the merchandising department, which analyzes trends on a weekly, and sometimes daily, basis. We use the reforecasted merchandising plan to adjust production orders as needed to meet inventory and sales targets. This process keeps tight control over our inventory levels and reduces markdowns.

Our buyers typically order merchandise 60 to 90 days in advance of anticipated delivery. Frequently, we order merchandise 30 to 60 days in advance of delivery. This strategy allows us to react to both the positive and negative trends and customer preferences identified through our information systems and other tracking procedures. Through this purchasing strategy, we can take advantage of positive trends by quickly replenishing our inventory of popular products. This strategy also reduces our exposure to risk because we are less likely to be overstocked with less desirable items. During the recent challenging retail environment, we reacted quickly to declining sales trends by reducing purchases and keeping inventories in line to avoid excessive markdowns.

We utilize rigorous clearance and markdown procedures to reduce our inventory of slower moving styles. Our management carefully monitors pricing and markdowns to facilitate the introduction of new merchandise and to maintain the freshness of our fashion image.

We have five clearance sales each year, which coincide with the end of a particular selling season. For more information regarding our selling seasons, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Seasonality and Quarterly Fluctuations.” During a clearance sale, we instruct our stores systematically to lower the price of the items, and if not sold, to ship them to 10 to 12 of our stores which have special clearance sections. We believe that our test and react strategy and our careful monitoring of inventories and consumer buying trends help us to reduce sales at clearance prices.

Our stores are designed to attract customers who are intrigued by a young and contemporary lifestyle and to create an inviting, exciting atmosphere in which it is fun for them to shop in locations where they want to shop. Our stores average approximately 2,400 square feet and are primarily located in regional shopping malls. Seven of our stores, which are located in dense urban markets such as New York City and Chicago, have freestanding street locations.

Our stores are designed to create a clean, upscale boutique environment, featuring contemporary finishings and sophisticated details. Glass exteriors allow passersby to see easily into the store from the high visibility, high traffic locations in the malls where we have located most of our stores. The open floor design allows customers to readily view the majority of the merchandise on display while store fixtures allow for the efficient display of accessories.

Every three weeks, we provide the stores with specific merchandise display directions from the corporate office. Our in-store product presentation utilizes a variety of different fixtures to highlight the breadth of our product line. Various fashion themes are displayed throughout the store utilizing combinations of styles and colors.

We operate our stores under two different concepts, Bakers and Wild Pair. As of January 3, 2004, 185 of our stores were Bakers stores and 30 of our stores were Wild Pair stores.

Our Bakers stores focus on widely-accepted, mainstream fashion and provide a fun, high-energy shopping environment geared toward young women between the ages of 12 and 29.

Our Wild Pair stores feature fashion-forward merchandise for hip young women and men between the ages of 17 and 24 and are becoming recognized for reflecting the attitude and lifestyle of this demographic niche. The Wild Pair customer demands edgier, faster fashion that exists further towards the “leading edge” than does the typical Bakers customer, which allows us to better monitor the direction of the fashion-forward look that our Bakers customer will be seeking. To match the attitude of our Wild Pair merchandise, we have created a “club” atmosphere and a fast, fun environment within our Wild Pair stores.

Wild Pair stores carry a higher proportion of branded merchandise, which generally sells at higher price points than our Bakers footwear.

Our stores can operate profitably in a wide range of mall classifications. We principally open our new stores in malls that are considered “A” and “B” locations. However, some of our stores are located in malls that are less attractive and do not warrant the investment required to fully remodel a store at its lease renewal. However, we will continue to operate these stores as long as they meet profitability requirements. In addition, these stores are valuable in maintaining strong relationships with our national landlords. Many of these stores are larger in size than our newly designed stores, but have significantly lower per square foot occupancy costs.

We expect new stores to average approximately $750,000 per year in store volume and contribute approximately $100,000 of cash flow from operating activities per year. We typically invest approximately $200,000 in new store construction costs.

During our transition from Weiss and Neuman to Bakers, we closed a significant number of stores that were either underperforming or did not meet our strategy. We closed 40 stores in fiscal year 2000, 21 in fiscal year 2001, and 10 in fiscal year 2002. We closed 21 stores in fiscal year 2003, primarily due to a lack of profitability. We have completed the planned closing of an additional eight stores in fiscal year 2004 as of February 29, 2004.

Our store operations are organized into three divisions, east, central and west, which are subdivided into 15 regions. Each region is managed by a regional manager, who is typically responsible for 12 to 16 stores. Each store is typically staffed with a manager and an assistant manager, in addition to approximately five sales associates. In some markets where stores are more closely located, one of the store managers may also act as an area manager for the stores in that area, assisting the regional manager for those stores.

Our regional managers are primarily responsible for the operation and results of the stores in their region, including the hiring or promotion of store managers. We develop new store managers by promoting from within and selectively hiring from other retail organizations. Our store managers are primarily responsible for sales results, customer service training, hiring of store level staff, payroll control and shortage control. Merchandise selections, inventory management and visual merchandising strategies for each store are largely determined at the corporate level and are communicated by email to the stores generally on a weekly basis.

Our commitment to customer satisfaction and service is an integral part of building customer loyalty. We seek to instill enthusiasm and dedication in our store management personnel and sales associates through incentive programs and regular communication with the stores. Sales associates receive commissions on sales with a guaranteed minimum hourly compensation. From time to time, we run sales contests to encourage our sales associates to maximize sales volume. Store managers receive base compensation plus incentive

We have well-established store operating policies and procedures and use an in-store training regimen for all new store employees. On a regular basis, our merchandising staff provides the stores with merchandise presentation instructions, which include diagrams and photographs of fixture presentations. In addition, our internal newsletter provides product descriptions, sales histories and other milestone information to sales associates to enable them to gain familiarity with our product offerings and our business. We offer our sales associates a discount on our merchandise to encourage them to wear our merchandise and to reflect our lifestyle image both on and off the selling floor.

Our regional managers are responsible for completing a loss prevention program in each of our stores. Our loss prevention efforts include monitoring returns, voided transactions, employee sales and deposits, as well as educating our store personnel on loss prevention. We monitor inventory through electronic receipt acknowledgment to better monitor loss prevention factors, which allows us to identify variances and further to reduce our losses due to damage, theft or other reasons. Since these systems were implemented, our shrinkage has dropped significantly. In addition to these internal control measures, we commission an independent loss prevention audit twice per year.

We source each of our private label product lines separately based on the individual design, styling and quality specifications of those products. We do not own or operate any manufacturing facilities and rely primarily on third party foreign manufacturers in China, Brazil, Italy, Spain, and other countries for the production of our private label merchandise.

We believe that this sourcing of footwear products and our short lead times minimize our working capital investment and inventory risk, and enable efficient and timely introduction of new product designs. Although we have not entered into any long-term manufacturing or supply contracts, we believe that a sufficient number of alternative sources exist for the manufacture of our products. The principal materials used in the manufacture of our footwear and accessory merchandise are available from any number of domestic or international sources.

Management, or its agents, performs an array of quality control inspection procedures at stages in the production process, including examination and testing of:


	•	prototypes of key products prior to manufacture;

	•	samples and materials prior to production; and

	•	final products prior to shipment.

All of the merchandise for our stores is initially received, inspected, processed and distributed through one of our two distribution centers, each of which is part of a third-party warehousing system. Merchandise that is manufactured in Asia is delivered to our west coast distribution center in Los Angeles, California, and merchandise that is manufactured elsewhere in the world is delivered to our east coast distribution center located near Philadelphia, Pennsylvania. In accordance with our micro-merchandising strategy, our allocation teams determine how the product should be distributed among the stores based on current inventory levels, sales trends, specific product characteristics and the buyers’ input. Merchandise typically is shipped to the stores as soon as possible after receipt in our distribution center using third party carriers, and any goods not shipped to stores are stored in warehouse space in Sikeston, Missouri, for replenishment purposes.

Our information systems integrate our individual stores, merchandising, distribution and financial systems. Daily sales and cash deposit information is electronically collected from the stores’ point of sale

terminals nightly. This allows management to make timely decisions in response to market conditions. These include decisions about pricing, markdowns, reorders and inventory management. Our customers use cash, checks and third-party credit cards to purchase our products. We do not issue private credit cards or make use of complicated financing arrangements.

Currently, our focus is the further integration of our planning, purchasing and point of sale systems. We have recently completed the transition to a new point of sale system and implemented Arthur Allocation and MarketMax assortment planning. These new systems allow us to better execute our micro-merchandising strategy through more efficient management and allocation of our store inventories to reduce further our response times in reaction to fashion trends. In addition, these systems also allow us to identify and reduce our losses due to damage, theft or other reasons, and to improve monitoring of employee productivity.

Our marketing consists primarily of an in-store, high-impact, visual advertising campaign. Marketing materials are particularly positioned to exploit our high visibility, high traffic mall locations. Banners in our windows and signage on our walls and tables may highlight a particular fashion story, a seasonal theme or a featured piece of merchandise. We utilize promotional giveaways or promotional event marketing.

To cultivate brand loyalty, we successfully introduced our Bakers Frequent Buying Card program nationwide in late 2001. This program allows our customers to purchase a plastic, bar-coded card bearing our logo in order to obtain a discount on all future purchases in our stores until the expiration of the card. We believe that this program has improved customer loyalty.

We believe that our Bakers stores have no direct national competitors who specialize in full-service, moderate-priced fashion footwear for young women. Yet, the footwear and accessories retail industry is highly competitive and characterized by low barriers to entry.


	•	brand name recognition;

	•	product styling;

	•	product quality;

	•	product presentation;

	•	product pricing;

	•	store ambiance;

	•	customer service; and

	•	convenience.

We believe that we match or surpass our competitors on the competitive factors that matter most to our target customer. We offer the convenience of being located in high-traffic, high-visibility locations within the shopping malls in which our customer prefers to shop. We have a focused strategy on our target customer that offers her the fun store atmosphere, full service and style that she desires.


	•	department stores (such as Bloomingdale’s, Dillard’s, Macy’s and May Department Stores);

	•	national branded wholesalers (such as Candie’s, Nine West, Steve Madden and Vans);

	•	national branded off-price retailers (such as DSW, Rack Room and Shoe Carnival);

	•	national specialty retailers (such as Finish Line, Journey’s, Naturalizer, Aldo’s and Parade of Shoes);


	•	regional chains (such as Cathy Jean and Sheik);

	•	discount stores (such as Wal-Mart, Target and K-Mart); and, to a lesser extent,

	•	apparel retailers (such as bebe, Charlotte Russe, Express, Rampage and Wet Seal).

Department stores generally are not located within the interior of the mall where our target customer prefers to shop with her friends. National branded wholesalers generally have a narrower line of footwear with higher average price points and target a more narrowly focused customer. Specialty retailers also cater to a different demographic than our target customer. Regional chains generally do not offer the depth of private label merchandise that we offer. National branded off-price retailers and discount stores do not provide the same level of fashion or customer service. Apparel retailers, if they sell shoes or accessories, generally offer a narrow line of styles, which can encourage a customer to come to our store to purchase shoes or accessories to complement her new outfit. Our competitors sell a broad assortment of footwear and accessories that are similar and sometimes identical to those we sell, and at times may be able to provide comparable merchandise at lower prices. While each of these different distribution channels may be able to compete with us on fashion, value or service, we believe that none of them can successfully match or surpass us on all three of these elements.

Our Wild Pair stores compete on most of the same factors as Bakers. However, due to Wild Pair’s market position, it is subject to more intense competition from national specialty retailers and national branded wholesalers.

Under Edison Brothers, the first Bakers shoe store opened in Atlanta, Georgia, in 1924. Bakers grew to be one of the nation’s largest women’s moderately priced specialty fashion footwear retailer. At its peak in 1988, Bakers had grown to approximately 600 stores. At that time, it was one of several footwear, apparel and entertainment retail specialty chains that were owned and operated by Edison Brothers, which in 1995 had over 2,500 stores in the United States, Puerto Rico, the Virgin Islands, Mexico and Canada. Edison Brothers filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code on November 3, 1995. After an unsuccessful reorganization, Edison Brothers refiled for bankruptcy on March 9, 1999, and immediately commenced a liquidation of all its assets. In June 1999, we purchased selected assets of the Bakers and Wild Pair chains, approximately 200 store locations, from Edison Brothers Stores, Inc., the debtor-in-possession.

As of January 3, 2004, we employed approximately 597 full-time and 1,635 part-time employees. As of January 3, 2004, we employed approximately 108 of our employees in general administrative functions at our corporate offices and warehouse, and 2,124 at our store locations. The number of part-time employees fluctuates depending on our seasonal needs. None of our employees are represented by a labor union, and we believe our relationship with our employees is good.

We acquired the right and title to several trademarks in connection with the Bakers acquisition, including our trademarks Bakers^TM and Wild Pair®. In addition, we currently have several applications pending with the United States Patent and Trademark Office for additional registrations. For more information on our trademarks, please see “— Our ability to expand into some territorial and foreign jurisdictions under the trademarks ‘Bakers’ and ‘Wild Pair’ is restricted” and “— Our potential inability or failure to register, renew or otherwise protect our trademarks could have a negative impact on the value of our brand names” below.

Cautionary Statements Regarding Forward-Looking Statements and Certain Risks

This Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which involve known and unknown risks and uncertainties or other factors that

may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. The words “believes,” “anticipates,” “plans,” “expects,” “intends,” “estimates” and similar expressions are intended to identify forward-looking statements. You should not place undue reliance on those statements, which speak only as of the date on which they are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances arising after such dates. You should read this Form 10-K completely and with the understanding that our actual results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

These risks, uncertainties and other factors, including the risks set forth below, may cause our actual results, performances or achievements to be materially different from those expressed or implied by our forward-looking statements. Our forward-looking statements in this Form 10-K include, but are not limited to, the following risks including those described in more detail below:


	•	our expectations regarding future financial results or performance contained in Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”);

	•	our business strategy;

	•	the market opportunity for our services and products;

	•	our estimates regarding our capital requirements and needs for additional financing;

	•	any of our other plans, objectives, expectations and intentions contained in this Form 10-K that are not historical facts; and

	•	changes in general economic and business conditions and the risks referred to below.

The footwear industry is subject to rapidly changing consumer fashion preferences. Our sales and net income are sensitive to these changing preferences, which can be rapid and dramatic. Accordingly, we must identify and interpret fashion trends and respond in a timely manner. We continually market new styles of footwear, but demand for and market acceptance of these new styles are uncertain. Our failure to anticipate, identify or react appropriately to changes in consumer fashion preferences may result in lower sales, higher markdowns to reduce excess inventories and lower gross profits. Conversely, if we fail to anticipate consumer demand for our products, we may experience inventory shortages, which would result in lost sales and could negatively impact our customer goodwill, our brand image and our profitability. Moreover, our business relies on continuous changes in fashion preferences. Stagnating consumer preferences could also result in lower sales and would require us to take higher markdowns to reduce excess inventories. For example, in fiscal year 2002 and the nine months ended October 4, 2003, changes in consumer fashion trends, primarily a decline in demand for boots and booties and a preference for low priced flip-flops, negatively impacted sales and profitability. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In addition to consumer fashion preferences, consumer spending habits are affected by, among other things, prevailing economic conditions, levels of employment, salaries and wage rates, consumer confidence and consumer perception of economic conditions. A general slowdown in the United States economy or an uncertain economic outlook would adversely affect consumer spending habits, which would likely cause us to delay or slow our expansion plans and result in lower net sales than expected on a quarterly or annual basis.

From time to time, we have had and in the future we could have operating losses because of fashion preferences, general economic conditions and other factors. For example, for the nine months ended October 4, 2003, we incurred a net loss of approximately $3.6 million and an operating loss of $2.2 million. Such future losses could adversely affect our business and an investment in our common stock.

Our growth will largely depend on our ability to open and operate new stores successfully. We expect to open a total of approximately 45 to 50 additional new stores by the end of fiscal year 2005 in new and existing markets. Although we have successfully integrated a significant number of new stores in the past, including the former Sam & Libby stores, that growth primarily related to acquisitions. We expect a large portion of our future growth to occur through the development of new stores. Our proposed expansion will place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our business less effectively, which in turn could cause deterioration in the financial performance of our business.

If we fail to successfully implement our growth strategy, the opening of new stores, in new or current markets, could be delayed or prevented, could cost more than we have anticipated and could divert resources from other areas of our business, any of which would have a material adverse effect on our sales and earnings growth.

To prepare for peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry during other times of the year. Any unanticipated decrease in demand for our products during these peak seasons could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross margins and could negatively impact our profitability.

Traditionally, our sales and net income during the second and fourth quarters of our fiscal year are significantly higher due primarily to increased shopping during the spring/ summer prom and wedding season and the winter holiday season. In contrast, our sales and net income are typically lower during the first quarter of our fiscal year due, in part, to the traditional retail slowdown immediately following the winter holiday season and during our third quarter because we have two of our five clearance sales during the third quarter. In addition to our normal seasonal fluctuations, some events, in particular the Easter holiday, shift between fiscal quarters due to the nature of our fiscal year. This shift will likely affect customer shopping patterns and will influence our quarterly comparable results.

In addition to holiday shifts and customer shopping patterns, our quarterly results are affected by a variety of other factors, including:


	•	fashion trends;

	•	the effectiveness of our inventory management;

	•	changes in our merchandise mix;

	•	weather conditions;

	•	changes in general economic conditions; and

	•	actions of competitors, mall anchor stores or co-tenants.

Due to factors such as these, our quarterly results of operations have fluctuated in the past and can be expected to continue to fluctuate in the future. For example, quarterly comparable store sales for fiscal year 2003 compared to fiscal year 2002 were: a decline of 13.5% in the first quarter, a decline of 2.1% in the second quarter, a decline of 4.0% in the third quarter and an increase of 4.0% in the fourth quarter. While in management’s opinion sales during these periods cannot be used as an accurate indicator of annual results, if our future quarterly results fail to meet the expectations of research analysts, then the market price of our common stock could decline substantially. For more information, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Seasonality and Quarterly Fluctuations.”

We operate in a highly competitive environment characterized by low barriers to entry. We compete against a diverse group of competitors, including national branded wholesalers, national specialty retailers, regional chains, national branded off-price retailers, traditional department stores, discounters and apparel retailers. Many of our competitors may be larger and have substantially greater resources than we do. Our market share and results of operations are adversely impacted by this significant number of competitors. For more information about our competition, please see “Business — Competition.”

The success of our business depends upon our senior management closely supervising all aspects of our business, in particular the operation of our stores and the design, procurement and allocation of our merchandise. Retention of senior management is especially important in our business due to the limited availability of experienced and talented retail executives. If we were to lose the services of Peter Edison, our Chairman and Chief Executive Officer, or Michele Bergerac, our President, or other members of our senior management, our business could be adversely affected if we are unable to employ a suitable replacement in a timely manner.

Our ability to obtain attractive pricing, quick response, ordering flexibility and other terms from our manufacturers depends on their perception of us and our buying agents. We do not own any production facilities or have any long term contracts with any manufacturers, and we typically order our inventory through purchase orders. Because of our relatively short lead times and fast inventory turns, any disruption in our supply chain could more quickly impact our sales compared to other retailers. Our failure or the failure of our buying agents to maintain good relationships with these manufacturers could increase our exposure to changing fashion cycles, which may lead to increased inventory markdown rates. It is possible that we could be unable to acquire sufficient quantities or an appropriate mix of merchandise or raw materials at acceptable prices. Furthermore, we have received in the past, and may receive in the future, shipments of products from manufacturers that fail to conform to our quality control standards. In this event, unless we are able to obtain replacement products in a timely manner, we may lose sales.

For fiscal year 2003, our top five buying agents accounted for approximately 24% of our merchandise purchases, with one buying agent accounting for approximately 14% of our merchandise purchases. Our buying agents assist in developing our private label merchandise, arrange for the purchase of necessary materials and contract with manufacturers. We execute nonexclusive agreements with some of our buying agents. These agreements prohibit our buying agents from sharing commissions with manufacturers, owning stock or holding any ownership interest in, or being owned in any way by, any of our manufacturers or suppliers. The agreements do not prohibit our buying agents from acting as agents for other purchasers, which could negatively impact our sales. If they were to disclose our plans or designs to our competitors, our sales

Although all of our stores are located in the United States, virtually all of our merchandise is produced in China, Brazil, Italy, Spain and other foreign countries. Therefore, we are subject to the risks associated with international trade, which include:


	•	adverse fluctuations in currency exchange rates;

	•	changes in import tariffs, duties or quotas;

	•	the imposition of taxes or other charges on imports;

	•	the imposition of restrictive trade policies or sanctions by the United States on one or more of the countries from which we obtain footwear and accessories;

	•	expropriation or nationalization;

	•	compliance with and changes in import restrictions and regulations;

	•	exposure to different legal standards and the burden of complying with a variety of foreign laws and changing foreign government policies;

	•	international hostilities, war or terrorism;

	•	changes in foreign governments, regulations, political unrest, work stoppages, shipment disruption or delays; and

	•	changes in economic conditions in countries in which our manufacturers and suppliers are located.

For example, in fiscal year 2002 the West Coast Longshoremen’s strike increased our freight costs and adversely affected our sales and operating margin for that fiscal year.

In addition, our imported products are subject to United States customs duties, which make up a material portion of the cost of the merchandise. If customs duties are substantially increased, it would harm our profitability. The United States and the countries in which our products are produced may impose new quotas, duties, tariffs, or other restrictions, or adversely adjust prevailing quota, duty, or tariff levels, any of which could have a harmful effect on our profitability.

Furthermore, when declaring the duties owed on and the classifications of our imported products, we make various good faith assumptions. We regularly employ a third party to review our customs declarations, and we will notify the appropriate authorities if any erroneous declarations are revealed. However, the customs authorities retain the right to audit our declarations, which could result in additional tariffs, duties and/or penalties if the authorities believe that they have discovered any errors.

Manufacturing facilities in China produce a significant portion of our products. Generally, approximately two-thirds, or more, of our private label footwear units are manufactured in China and virtually all of our private label accessories are manufactured in China each year. If there are changes in the Chinese government or economy, or the current tariff or duty structures or if the United States adopts trade polices or sanctions adverse to China, it could harm our ability to obtain inventory in a timely and cost effective manner.

When we acquired selected assets of the Bakers and Wild Pair chains from Edison Brothers Stores, Inc. in a bankruptcy auction in June 1999, we were assigned title to and the right to use the trademarks “Bakers,”

“The Wild Pair,” “Wild Pair” and other trademarks to the extent owned by Edison Brothers at that time. Our rights to use the trademarks are subject to a Concurrent Use Agreement which recognizes the geographical division of the trademarks between us and a Puerto Rican company. At approximately the same time as we acquired our rights and title, Edison Brothers also assigned to the Puerto Rican company title to and the right to use the trademarks, subject to the Concurrent Use Agreement. Under the Concurrent Use Agreement, we and the Puerto Rican company agree that the Puerto Rican company has the exclusive right to use the trademarks in the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Central and South America, Cuba, the Dominican Republic, the Bahamas, the Lesser Antilles and Jamaica and that we have the exclusive right to use the trademarks in the United States and throughout the world, except for the territories and jurisdictions in which the Puerto Rican company was assigned the rights. Consequently, we do not have the right to use the trademarks “Bakers” and “Wild Pair” in those territories and foreign jurisdictions in which the Puerto Rican company owns the trademark rights, which may limit our growth.

Because the trademarks assigned to us by Edison Brothers are subject to the Concurrent Use Agreement, the U.S. trademark applications and registrations are jointly owned by us and a Puerto Rican company, which could impair our ability to renew and enforce the assigned applications and registrations. Simultaneously with the Puerto Rican company, we have filed separate concurrent use applications for the “Bakers” and “Wild Pair” trademarks, and we have requested that existing applications for the trademark “Bakers” also be divided territorially. While we are in agreement with the Puerto Rican company that confusion is not likely to result from concurrent use of the trademarks in our respective territories, the United States Patent and Trademark Office may not agree with our position. If we are not able to register or renew our trademark registrations, our ability to prevent others from using trademarks and to capitalize on the value of our brand names may be impaired. Further, our rights in the trademarks could be subject to security interests granted by the Puerto Rican company. Our potential inability or failure to renew, register or otherwise protect our trademarks and other intellectual property rights could negatively impact the value of our brand names.

The efficient operation of our stores is dependent on our ability to distribute merchandise to locations throughout the United States in a timely manner. We depend on third parties to receive and distribute substantially all of our merchandise. A third party in Los Angeles, California accepts delivery of our merchandise from Asia, and another third party near Philadelphia, Pennsylvania accepts delivery of our merchandise from elsewhere. Merchandise not shipped to our stores generally is shipped to our replenishment warehouse in Sikeston, Missouri, where a third party provides warehousing services. These parties have provided these services to us pursuant to written agreements since 1999 and 2000. One of these agreements is terminable upon 30 days notice and one expires in 2004, but renews automatically unless notice is provided, and terminates after a notice period in the event we were to fail to meet our obligations under the agreement. We also continue to operate under the terms of an expired agreement with the remaining third party. If we need to replace one of these service providers, our operations could be disrupted for more than 60 days while we identify and integrate a replacement into our system. As a result, the termination of these agreements or the failure by any of these third parties to respond adequately to our warehousing and distribution needs could materially negatively impact our ability to maintain sufficient inventory in our stores and consequently our profitability.

We lease all of our store locations. We acquired most of these leases from Edison Brothers, as debtor-in-possession, or from other bankrupt entities through auctions in which a bankruptcy court ordered the assignment of the debtor’s interest in the leases to us. As a result, we have not separately negotiated a majority

of our leases, which are generally drafted in favor of the landlord. In addition, many of these leases contain provisions that, while applicable to the business structure of Edison Brothers, which had multiple wholly-owned subsidiaries that were the tenants under the leases, would not have been necessary for our business structure.

A number of our leases include termination and default provisions which apply if we do not meet certain sales levels or in other circumstances. In addition, some of these leases contain various restrictions relating to dilutions in, or changes of, the ownership of our company. Some of these provisions are difficult to interpret. As of January 3, 2004, approximately 22% of our leases contained provisions which by their terms prohibit a dilution in, or a change of, the ownership of our company which may have been contravened by our initial public offering and other prior ownership changes. As of January 3, 2004, similar provisions in an additional 21% of our leases may be construed, depending on how these provisions are interpreted, to have been triggered by our initial public offering and other prior ownership changes. In addition, our leases subject us to risks relating to compliance with changing mall rules and the exercise of discretion by our landlords on various matters. Moreover, as of January 3, 2004, approximately 17% of our leases were set to expire by December 31, 2004. If one or more of our landlords decides to terminate our leases, or to not allow us to renew, our business could be materially and adversely affected.

We have a $25.0 million secured revolving credit facility with Fleet Retail Finance, Inc. The amount outstanding under our credit facility was $2.2 million at January 3, 2004. As of March 1, 2004, we had no outstanding balance and had approximately $11.0 million in availability. For fiscal year 2003, the average daily outstanding balance was $11.9 million. Our credit facility includes financial and other customary covenants which, among other things, limit our capital expenditures, restrict our business activities and our ability to incur debt, make acquisitions and pay dividends. A change in control of our company, including any person or group acquiring beneficial ownership of 30% or more of our common stock or our combined voting power (as defined in the credit facility), is also prohibited.

In the event that we were to violate any of the covenants in our credit facility, or if we were to violate the provisions of any of our other lending arrangements or of more than 10% of our leases (other than solely as a result of this offering), the lender would have the right to accelerate repayment of all amounts outstanding under the credit agreement, or to commence foreclosure proceedings on our assets.

For more information about our credit facility, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

The market price of our common stock is expected to be highly volatile, both because of actual and perceived changes in our financial results and prospects and because of general volatility in the stock market. The factors that could cause fluctuations in our stock price may include, among other factors discussed in this section, the following:


	•	actual or anticipated variations in comparable store sales or operating results;

	•	changes in financial estimates by research analysts;

	•	actual or anticipated changes in the United States economy or the retailing environment;

	•	changes in the market valuations of other footwear or retail companies; and

	•	announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives.

Affiliates of Peter Edison and members of his family and our current management are our largest shareholders. Accordingly, they will continue to have significant influence in determining the outcome of all matters submitted to shareholders for approval, including the election of directors and significant corporate transactions. The interests of these shareholders may differ from the interests of other shareholders, and their concentration of ownership may have the effect of delaying or preventing a change in control that may be favored by other shareholders. As long as these people are our principal shareholders, they will have the power to significantly influence the election of our entire board of directors.

Provisions of our restated articles of incorporation, our restated bylaws and Missouri law could make it more difficult for a third party to acquire us, even if closing the transaction would be beneficial to our shareholders. For example, our restated articles of incorporation provide, in part, that directors may be removed from office by our shareholders only for cause and by the affirmative vote of not less than two-thirds of our outstanding shares and that vacancies may be filled only by a majority of remaining directors. Under our restated bylaws, shareholders must follow detailed notice and other requirements to nominate a candidate for director or to make shareholder proposals. In addition, among other requirements, our restated bylaws require at least a two-thirds vote of shareholders to call a special meeting. Moreover, Missouri law and our bylaws provide that any action by written consent must be unanimous. Furthermore, our bylaws may be amended only by our board of directors. Certain amendments to our articles of incorporation require the vote of two-thirds of our outstanding shares in certain circumstances, including the provisions of our articles of incorporation relating to business combinations, directors, bylaws, limitations on director liabilities and amendments to our articles of incorporation. We are also generally subject to the business combination provisions under Missouri law, which allow our board of directors to retain discretion over the approval of certain business combinations. In our bylaws, we have elected to not be subject to the control shares acquisition provision under Missouri law, which would deny an acquiror voting rights with respect to any shares of voting stock which increase its equity ownership to more than specified thresholds. These and other provisions of Missouri law and our articles of incorporation and bylaws, Peter Edison’s substantial beneficial ownership position, our board’s authority to issued preferred stock and the lack of cumulative voting in our articles may have the effect of making it more difficult for shareholders to change the composition of our board or otherwise to bring a matter before shareholders without our board’s consent. Such items may reduce our vulnerability to an unsolicited takeover proposal and may have the effect of delaying, deferring or preventing a change in control, may discourage bids for our common stock at a premium over its market price and may adversely affect the market price of our common stock.

The information set forth herein under the caption “Item 10. Directors and Executive Officers of the Registrant — Executive Officers of the Registrant” is incorporated herein by reference.

Information relating to properties set forth in Item 1 of this report under “Item 1. Business — Stores” is incorporated herein by this reference. All of our stores are located in the United States.

We lease all of our store locations. Most of our leases have an initial term of at least ten years. A number of our leases provide a lease termination option in specified years of the lease if we do not meet certain sales levels. In addition, leases for locations typically require us to pay property taxes, utilities, repairs, maintenance, common area maintenance and, in some instances, merchant association fees. Some of our leases also require contingent rent based on sales.

We lease approximately 38,000 square feet for our headquarters, located at 2815 Scott Avenue, St. Louis, Missouri 63103. The lease has approximately three years remaining, which we can extend for an additional

From time to time, the Company is involved in ordinary routine litigation common to companies engaged in the Company’s line of business. Currently, the Company is not involved in any material pending legal proceedings.

In anticipation of our initial public offering, on December 19, 2003, we asked our shareholders to unanimously consent to several items of corporate action and to become parties to certain other agreements. At the time, we had two classes of common stock outstanding, 1,693,244.92 shares of Class A common stock and 271,910 shares of Class B common stock. We received unanimous approval from all of our shareholders, effective January 3, 2004, for each of the following corporate actions:


	•	Amendments to Articles of Incorporation. The shareholders approved three amendments to the Company’s articles of incorporation to facilitate the initial public offering. The first set of amendments made several changes, including:


	•	increasing the number of shares of our authorized common stock;

	•	creating a new class of common stock;

	•	providing for the automatic conversion and reclassification of our capital structure under which each outstanding share of our three classes of common stock authorized would automatically convert, upon completion of the initial public offering, into one share of the new class of common stock;

	•	increasing the size of our board of directors; and

	•	creating a class of preferred stock, of which no shares are outstanding.

The second set of amendments removed references to the previously authorized classes of common stock and the conversion. The first and second sets of amendments were implemented by filing with the Missouri Secretary of State. Subsequently, we restated our articles of incorporation to take into account the effects of the amendments. A copy of our restated articles, as currently in effect, has been filed as Exhibit 3.1 to this Annual Report on Form 10-K. Under our restated articles of incorporation, we have the authority to issue 45,000,000 shares of stock, including 5,000,000 shares of preferred stock, $0.0001 par value per share, and 40,000,000 shares of common stock, $0.0001 par value per share. The third set of amendments would have changed our number of directors back to one and was only to be used if the initial public offering did not occur. That set of amendments has been abandoned.


	•	Adoption of new incentive plans. The shareholders approved and adopted the Bakers Footwear Group, Inc. Cash Bonus Plan and the Bakers Footwear Group, Inc. 2003 Stock Option Plan.

	•	Revocation of the Company’s S corporation status. The shareholders approved and consented to the revocation of our S corporation status, which became effective at the beginning of fiscal year 2004. The revocation of our S corporation status will result in the Company being taxed under Subchapter C of the Internal Revenue Code.

In connection with the amendment of our articles of incorporation, our board of directors adopted our restated bylaws, expanded the board of directors to six members and nominated and appointed five additional directors effective upon the completion of the initial public offering. In addition, all of our shareholders prior to our initial public offering entered into an agreement, which had the effect of terminating each of the three shareholder agreements and the Class B Shareholder Voting Trust Agreement in effect prior to our initial public offering. In addition, all of our shareholders prior to our initial public offering entered into a tax indemnification agreement with us under which we have generally agreed to indemnify them for any tax liabilities that may result from the termination of our S corporation status. Further, all of our pre-initial public

offering shareholders (including our director, director nominees and executive officers who owned shares at the time) and our option holders (excluding our warrant holders) approved and executed “lock-up” agreements pursuant to which each person generally agreed not to sell or otherwise dispose of any shares of common stock of the Company for one year after February 5, 2004. Those persons also agreed that until February 5, 2005 if that person desires to sell any of our securities in accordance with Rule 144 under the Securities Act, those securities shall be sold under Rule 144 through Ryan Beck and Co., Inc., which has been granted a right of first refusal with respect to such sales.

The common stock of Bakers Footwear Group, Inc. has been quoted in the Nasdaq National Market under the symbol “BKRS” since February 5, 2004. Prior to this time, there was no public market for the Company’s common stock. The initial public offering price of the Company’s common stock was $7.75 per share. The initial public offering closed on February 10, 2004. On March 12, 2004, we sold an additional 324,000 shares of common stock at the same price in connection with the full exercise of the underwriters’ over-allotment option. The closing sales price of Bakers Footwear Group, Inc.’s common stock on the Nasdaq National Market was $11.60 per share on March 31, 2004. From February 5, 2004 through March 31, 2004, the range of the high and low sales prices for the Company’s common stock was $7.51 to $11.85. As of March 31, 2004, there were approximately 1,000 holders of record of the Company’s common stock.

Prior to our initial public offering, we operated under Subchapter S of the Internal Revenue Code and comparable provisions of some state income tax laws. By reason of our treatment as an S corporation for Federal and state income tax purposes, prior to our initial public offering we generally distributed to our shareholders funds for the payment of income taxes on our earnings. During the two most recent fiscal years, we have declared quarterly distributions in the aggregate consisting of amounts attributable to payment of those taxes as follows:

In connection with our initial public offering, we revoked our S election, effective on the first day of fiscal year 2004. As of January 3, 2004, we have accrued $75,000 as a liability for taxes payable on behalf of our shareholders, which we expect to distribute in the next two months, as a result of our prior S corporation status.

We currently intend to retain our earnings, if any, for use in our business and do not anticipate paying any cash dividends in the foreseeable future. Any future payments of dividends will be at the discretion of our

In connection with the consummation of the initial public offering on February 10, 2004, the Company issued to Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc., the underwriters’ representatives for the initial public offering, or their designees, five year warrants to purchase up to 216,000 shares of the Company’s common stock, subject to antidilution adjustments, at an exercise price of $12.7875 per share of common stock. The representatives paid a purchase price of $0.0001 per warrant, an aggregate of $21.60. The warrant holders may exercise the warrants at any time during the four-year period commencing February 10, 2005 and ending February 10, 2009. In the foregoing transaction, the Company relied on the exemption from registration for private transactions not involving any public offering pursuant to Section 4(2) under the Securities Act of 1933 and/or the rules and regulations thereunder for transactions by an issuer not involving any public offering.

In April 2002, the Company issued $4.9 million of subordinated convertible debentures to a group of accredited investors in an offering not involving a public offering. Pursuant to an exchange agreement entered into on January 2, 2004, the Company exchanged those debentures for a new issuance of $4.9 million in subordinated convertible debentures. The new subordinated convertible debentures automatically converted into an aggregate of 653,331 shares of the Company’s common stock at a conversion price of $7.50 upon the consummation of the initial public offering. For the issuance of the original debentures, the exchange of the original debentures for the new issuance of debentures and the issuance of the shares of common stock underlying the new debentures the Company relied on the exemption(s) from registration relating to offerings that did not involve any public offering pursuant to Section 4(2) under the Securities Act of 1933 and/or an exchange by the issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange pursuant to Section 3(a)(9) under the Securities Act of 1933.

In June 2003, the Company granted immediately exercisable options to purchase 24,718 shares of Class C common stock at an exercise price of $0.01 per share, an aggregate of $247.18, pursuant to a written compensation agreement to a member of the Company’s management team. For these option grants, the Company relied on the exemption from registration pursuant to Section 3(b) of the Securities Act of 1933 and Rule 701 promulgated thereunder as grants pursuant to written compensatory benefit plans. The aggregate exercise prices were less than 15% of our total assets as of the relevant balance sheet date.

Immediately prior to consummation of the initial public offering, the Company had three classes of common stock authorized, Class A common stock, Class B common stock and Class C common stock, of which only shares of Class A and Class B common stock were outstanding. Upon the completion of the initial public offering, in accordance with the then existing articles of incorporation, 1,693,244.92 shares of Class A common stock and 271,910 shares of Class B common stock automatically converted into an aggregate of 1,965,150 shares of common stock. The conversion was on 1.0-for-1.0 basis, excluding fractional shares. As a result, the Company now has one class of voting common stock issued and outstanding. In addition, holders of Class C options amended their option award agreements to purchase Class C common stock to cover shares of the new class of common stock. The Company relied on the exemption from registration under the Securities Act of 1933 pursuant to Section 3(a)(9) and/or the rules and regulations thereunder for securities exchanged by an issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange.

In June 1999, the Company issued a subordinated note to Mississippi Valley Capital Company in the aggregate principal amount of $500,000, bearing interest at 6.0% per annum and due January 31, 2003. In connection with this note, the Company issued a warrant exercisable for 76,907 shares of Class A common stock at an aggregate exercise price of $76.91 to Mississippi Valley Capital Company. In January 2003, the note and warrant held by Mississippi Valley Capital Company were transferred to Mississippi Valley Capital,

LLC, a manager-managed limited liability company. On January 31, 2003, the note and the warrant were extended when the Company amended and restated the note payable and warrant. The amended and restated note bore interest at the rate of 10% per annum and was due on March 1, 2004. The warrant became exercisable upon completion of the initial public offering. The amended and restated warrant was redeemable, if not exercised, on March 1, 2004, for $850,000. The warrant has been redeemed and the note paid in full. The note and warrant were amended and restated in an offering not involving any public offering pursuant to Section 4(2) under the Securities Act of 1933.

In all the foregoing transactions in which the Company has relied on the exemption from registration for private transactions not involving any public offering pursuant to Section 4(2) under the Securities Act of 1933 and/or the rules and regulations thereunder for transactions by an issuer not involving any public offering, sales of the securities were without the use of an underwriter, and the certificates evidencing the securities relating to the foregoing transactions bore restrictive legends permitting the transfer thereof only upon registration of such securities or an exemption under the Securities Act. The recipients of securities in these transactions represented their intention to acquire the securities for investment purposes only and not with a view to or for distribution in connection with these transactions. Each security bore a restrictive legend and/or the recipient was a party to an agreement restricting transfer and had adequate access to information about us through such recipient’s relationship with us or through information provided to them.

On February 5, 2004, the Company commenced its initial public offering. On February 10, 2004, the Company consummated its initial public offering with the sale of 2,160,000 shares of common stock, excluding exercise of the underwriters’ over-allotment option. In connection with the Company’s initial public offering, the Company also sold 216,000 warrants to purchase shares of common stock to Ryan Beck & Co., Inc. and BB&T Capital Markets, as the representatives of the underwriters, or their designees. On March 12, 2004, the Company sold an additional 324,000 shares of common stock in connection with the exercise, by the underwriters, of the full over-allotment option. The public offering price of the common stock was $7.75 per share. We sold the warrants for $0.0001 per warrant.

The shares of common stock sold in the offering and the warrants to purchase common stock were registered under the Securities Act of 1933, as amended, on two Registration Statements (Nos. 333-86332 and 333-112477) on Form S-1. The Securities and Exchange Commission declared Registration Statement No. 333-86332 effective on February 3, 2004. Registration Statement No. 333-112477 was effective upon filing on February 4, 2004 pursuant to Rule 462(b) under the Securities Act of 1933. All 2,160,000 shares of common stock sold to the public in the initial closing, plus all 324,000 shares of common stock covered by an over-allotment option granted to the underwriters were sold at a price of $7.75 per share. The warrants were sold to the representatives of the underwriters at a price of $0.0001 per warrant. Each warrant may be converted into one share of common stock at an exercise price $12.7875. The Registration Statements collectively registered 2,484,000 shares of common stock at a maximum aggregate offering price of $26,772,000, 216,000 warrants at a maximum aggregate offering price of $22, all of which common stock and warrants were sold in the offering, and 216,000 shares of common stock underlying the warrants at a maximum aggregate offering price of $2,851,000.

The aggregate gross proceeds from the shares of common stock and the warrants sold were approximately $19.3 million. The net proceeds to the Company from the offering were approximately $15.5 million after deducting the underwriting discount of $1.9 million and $1.9 million of other expenses incurred in connection with the offering. A reasonable estimate for the amount of expenses incurred has been provided instead of the actual amount of expenses. None of such payments were to directors, officers, ten percent shareholders or affiliates of the issuer.

As a result of the initial public offering closing in fiscal year 2004, no proceeds from the initial public offering were used during fiscal year 2003. As of April 1, 2004, the Company has used the net proceeds received from the initial public offering for the following purposes: $4.9 million to repay the balance on its revolving credit agreement to Fleet Retail Finance, Inc., $1.4 million to redeem outstanding warrants and a

note payable in favor of Mississippi Valley Capital, LLC, and $0.4 million to repay subordinated debt in favor of the Company’s prior Class B shareholders. The credit agreement and the subordinated debt were secured, in part, by a personal guaranty of Peter Edison, the Company’s Chairman of the Board and Chief Executive Officer. Mississippi Valley Capital, LLC is a member managed limited liability company, of which Mr. Baur, one of the Company’s directors, is one of the two managers. In addition, Mr. Baur’s children are three of the four members. Mr. Baur is also a director of Marshall & Ilsley Corporation, which is a ten percent participant in the Company’s credit facility with Fleet Retail Finance, Inc. The Company intends to use approximately $2.7 million of the net proceeds from the offering to open 15 new stores, all in the Company’s new format, in fiscal year 2004, and $3.6 million of the net proceeds to remodel 27 stores, including 17 in the new format, in fiscal year 2004. The Company expects to use the remaining net proceeds for working capital requirements and other general corporate purposes, including the purchase of inventory in the ordinary course of business. Pending use of the proceeds, the Company may invest in short-term, investment-grade interest bearing instruments. The Company projects its capital expenditure needs in fiscal year 2004 to be approximately $6.0 million to $7.0 million. Reasonable estimates for the amounts have been provided instead of the actual amounts. Except as set forth above, none of proceeds were paid to directors, officers, ten percent shareholders or affiliates of the issuer.

The information set forth under the caption “Equity Compensation Plan Information” in Item 12 hereof is incorporated herein by reference.

The following tables summarize certain selected financial data for each of the fiscal years in the five year period ended January 3, 2004. The income statement data for the fiscal years ended December 31, 1999, December 30, 2000, January 5, 2002, January 4, 2003, and January 3, 2004 and the selected balance sheet data as of those dates have been derived from our audited financial statements. Our audited financial statements for the three fiscal years ended January 3, 2004, are included elsewhere in this annual report on Form 10-K. The information contained in these tables should be read in conjunction with our financial statements and the Notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this annual report.


(1)	On June 22, 1999, we acquired the assets of 198 Bakers stores for approximately $9.0 million. Consequently, the results of operations for those stores are included in our financial statements since the acquisition date.

(2)	Effective December 30, 2000, we changed our fiscal year from the calendar year ending December 31 to a 52/53 week period. The fiscal year ended January 5, 2002 is a 53-week period. For more information regarding our fiscal year, please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Fiscal Year.”

(3)	Represents the cumulative effect of adopting SFAS No. 142, Goodwill and Other Intangible Assets, and recognizing as income from the unamortized deferred credit related to the excess of fair value over cost arising from the acquisition of Bakers.

(4)	Through January 3, 2004, we elected S corporation status for Federal and state income tax purposes. Accordingly, no provision has been made for Federal or certain state income taxes. Pro forma net income has been computed as if we had been fully subject to Federal, state and city taxes. Effective January 4, 2004, we terminated our S election and will be taxed as a C corporation. For a reconciliation of our historical income (loss) before cumulative effect of change in accounting to pro forma income (loss) before cumulative effect of change in accounting and income taxes, please see Note 12 in the financial


	statements. As an S corporation, we paid distributions to our shareholders in amounts sufficient to allow them to pay income taxes related to an allocable share of our taxable income and did not pay traditional cash dividends per share. Such distributions are not comparable to dividends that would be paid by a C corporation. The Company currently has no plans to pay dividends. See the information under the caption “Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters — Dividends” which is incorporated herein by reference.

(5)	Reflects approximately $1.7 million in initial public offering costs charged in fiscal year 2002 as a result of a delay in the initial public offering process. In the first quarter of fiscal year 2002, we completed the acquisition of 33 former Sam & Libby store locations for approximately $1.8 million in cash.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in “Item 1. Business — Cautionary Statements Regarding Forward-Looking Statements” and elsewhere in this annual report. The following section is qualified in its entirety by this more detailed information and our Financial Statements and the related Notes thereto, included elsewhere in this annual report on Form 10-K.

We are a national, mall-based, specialty retailer of distinctive footwear and accessories targeting young women who demand quality fashion products. As of January 3, 2004, in addition to our 185 Bakers stores, we operate the 30 store Wild Pair chain that targets men and women between the ages of 17 and 24 who desire edgier, fashion forward footwear.

In the first quarter of fiscal year 2002, we completed the acquisition of 33 store locations (formerly operated as Sam & Libby) in 15 states for $1.8 million in cash from SLJ Retail LLC. We also acquired the non-inventory personal property, leasehold improvements, furniture, fixtures and equipment related to the stores. We began operating 17 of these stores as Wild Pair stores and 16 as Bakers stores in April 2002. Due to the similarity of the design of the purchased stores to our stores, we did not need to spend a material amount of money on remodeling these stores. As a result of the Sam & Libby acquisition, our results of operations for fiscal years 2001, 2002 and 2003 are not comparable in some significant respects.

For comparison purposes, we classify our stores as comparable or non-comparable. A new store’s sales are not included in comparable store sales until the thirteenth month of operation. Sales from remodeled stores are excluded from comparable store sales during the period of remodeling.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions about future events and their impact on amounts reported in our financial statements and related Notes. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from our estimates. These differences could be material to the financial statements. For more information, please see Note 1 in the Notes to the Financial Statements.

We believe that our application of accounting policies, and the estimates that are inherently required by these policies, are reasonable. We believe that the following significant accounting policies may involve a higher degree of judgment and complexity.

Merchandise inventories are valued at the lower of cost or market using the first-in first-out retail inventory method. Permanent markdowns are recorded to reflect expected adjustments to retail prices in

accordance with the retail inventory method. The process of determining our expected adjustments to retail prices requires significant judgment by management. Among other factors, management utilizes performance metrics to evaluate the quality and freshness of inventory, including the number of weeks of supply on hand, sell-through percentages and aging categories of inventory by selling season, to make its best estimate of the appropriate inventory markdowns. If market conditions are less favorable than those projected by management, additional inventory markdowns may be required.

At the beginning of fiscal year 2002, we adopted SFAS No. 144, Accounting for the Disposal of Long-Lived Assets. Based on the criteria in SFAS No. 144, long-lived assets to be “held and used” are reviewed for impairment when events or circumstances exist that indicate the carrying amount of those assets may not be recoverable. We regularly analyze the operating results of our stores and assess the viability of under-performing stores to determine whether they should be closed or whether their associated assets, including furniture, fixtures, equipment, and leasehold improvements, have been impaired. Asset impairment tests are performed at least annually, on a store-by-store basis. After allowing for an appropriate start-up period, unusual nonrecurring events, and favorable trends, fixed assets of stores indicated to be impaired are written down to fair value. During the years ended January 5, 2002, January 4, 2003 and January 3, 2004, we recorded $4,540, $120,114, and $127,133, respectively, in noncash charges to earnings related to the impairment of furniture, fixtures, and equipment, leasehold improvements and goodwill.

Through January 3, 2004, we were an S corporation under Subchapter S of the Internal Revenue Code and comparable state tax laws, and consequently were not subject to income taxes on our earnings in those jurisdictions, other than state franchise and net worth taxes. However, we were subject to income taxes in some states in which we conduct business which do not recognize S corporation status. Our S corporation status was terminated effective January 4, 2004, and for future periods we will be treated for Federal and state income tax purposes as a corporation under Subchapter C of the Internal Revenue Code and, as a result, will be subject to Federal and state income taxes.

Our accounting period is based upon a traditional retail calendar, which ends on the Saturday nearest January 31. Our fiscal year ends four weeks prior to the retail calendar, as a result of our Subchapter S tax status. Fiscal years ended January 4, 2003 and January 3, 2004 were 52-week periods. The fiscal year ended January 5, 2002 was a 53-week period. The difference in the number of weeks for our fiscal years can affect yearly comparisons. We refer to the fiscal year ended January 5, 2002 as “fiscal year 2001,” to the fiscal year ended January 4, 2003 as “fiscal year 2002,” and to the fiscal year ended January 3, 2004 as “fiscal year 2003.”

The following table sets forth our operating results, expressed as a percentage of sales, for the periods indicated.

The following table sets forth our number of stores at the beginning and end of each period indicated and the number of stores opened, acquired and closed during each period indicated.

Fiscal Year Ended January 3, 2004 Compared to Fiscal Year Ended January 4, 2003

Net sales. Net sales decreased to $148.2 million in fiscal year 2003 from $151.1 million in fiscal year 2002, a decrease of $2.9 million. Net sales were negatively impacted by a weak retail environment during the first quarter of 2003 related to consumer concerns regarding the war in Iraq and the closure of 19 stores. In the second and third quarters of 2003, sales were negatively impacted by teenage customer demand for low priced flip-flops. Net sales were positively impacted by the inclusion of sales from the 33 former Sam & Libby stores for the full year in 2003 compared to only three quarters of 2002 and the reemergence of fashion trends during the fourth quarter of 2003. Our comparable store sales for fiscal year 2003 decreased by 3.2% compared to fiscal year 2002. Comparable store sales for the fourth quarter of fiscal year 2003 increased by 4.0% compared to the fourth quarter of fiscal year 2002.

Gross profit. Gross profit was $45.1 million in both fiscal year 2003 and fiscal year 2002. Gross profit for the first three quarters of 2003 decreased $1.9 million compared to the first three quarters of 2002, primarily due to increases in occupancy and buying expenses. Gross profit in the fourth quarter of fiscal year 2003 increased $1.9 million over the fourth quarter of fiscal year 2002, reflecting improved markdown experience

Selling expense. Selling expense decreased to $29.5 million in fiscal year 2003 from $30.8 million in fiscal year 2002, a decrease of $1.3 million. This decrease was primarily attributable to more effective store payroll management in fiscal year 2003, partially offset by a $500,000 increase in depreciation and amortization expense related to store fixtures and leaseholds.

General and administrative expense. General and administrative expense increased to $11.9 million in fiscal year 2003 from $11.4 million in fiscal year 2002, an increase of $500,000. The increase was due to increased incentive compensation resulting from the Company’s improved profitability in 2003.

Income (loss) before cumulative effect of change in accounting. Our income before cumulative effect of change in accounting increased to $1.7 million for fiscal year 2003 from a loss of $500,000 in fiscal year 2002, an improvement of $2.2 million. The change was primarily related to the nonrecurring write off of deferred initial public offering costs of $1.7 million in fiscal year 2002.

Net income. We had net income of $1.7 million in fiscal year 2003 down from net income of $2.3 million in fiscal year 2002. Net income for 2002 reflects $2.8 million of income related to the cumulative effect of change in accounting for goodwill. If we had been taxed as a C corporation, our net income for fiscal year 2003 would have been $1.1 million and our net income for fiscal year 2002 would have been $1.3 million. For more information regarding pro forma income taxes, please see Note 12 of the Financial Statements.

Fiscal Year Ended January 4, 2003 Compared to Fiscal Year Ended January 5, 2002

Net sales. Net sales increased to $151.1 million in fiscal year 2002 from $140.8 million in fiscal year 2001, an increase of $10.3 million. Net sales were positively impacted by the additional store locations acquired. An increase in sales of national branded products, which have higher average prices than our private label products, was more than offset by a significant decline in boot and bootie sales in the second half of the year.

During fiscal year 2002, we opened 41 new stores and closed 10 stores compared to fiscal year 2001, in which we opened 14 new stores and closed 21 stores. Of the new stores that we opened in fiscal year 2002, 33 were acquired from SLJ Retail LLC. The other eight stores were new locations. Our comparable store sales for the 52-week fiscal year 2002 decreased by 4.4% compared to the 53-week fiscal year 2001.

Gross profit. Gross profit increased to $45.1 million in fiscal year 2002 from $42.6 million in fiscal year 2001, an increase of $2.5 million. As a percentage of net sales, gross profit decreased to 29.9% in fiscal year 2002 from 30.2% in fiscal year 2001. The decline in gross profit as a percentage of net sales was attributable to a continued increase in the national branded component of our merchandise mix, which has a lower gross margin percentage, but a higher average selling price, than our private label products, and to an increase in occupancy costs due to a decrease in same store sales.

Selling expense. Selling expense increased $3.7 million to $30.8 million in fiscal year 2002 from $27.1 million in fiscal year 2001. The increase in selling expense resulted from the costs of operating an increased number of stores in fiscal year 2002 compared to fiscal year 2001.

General and administrative expense. General and administrative expense increased to $11.4 million in fiscal year 2002 from $10.1 million in fiscal year 2001, an increase of $1.3 million, primarily as a result of an increase in depreciation expense for new information systems and new and remodeled stores, partially offset by reductions in management bonuses in fiscal year 2002.

Write-off of expenses related to initial public offering. As a result of a delay in our initial public offering, we took a charge of $1.7 million in initial public offering costs in fiscal year 2002.

Interest expense. Interest expense increased to $1.6 million in fiscal year 2002 from $1.1 million in fiscal year 2001, an increase of $500,000, primarily due to interest on the $4.9 million of subordinated convertible

Cumulative effect of change in accounting. As a result of our adoption of SFAS No. 142 “Goodwill and Other Intangible Assets” in fiscal year 2002, the approximately $2.8 million balance of the excess of acquired net assets over cost related to the Bakers acquisition was recognized in income as a cumulative effect of an accounting change in the fiscal year 2002.

Net income. Net income decreased to $2.3 million in fiscal year 2002 from $5.0 million in fiscal year 2001, a decrease of $2.7 million. If we had been taxed as a C corporation, our net income for fiscal years 2002 and 2001 would have been $1.3 million and $3.3 million, respectively. For more information regarding pro forma income taxes, please see Note 12 in the Notes to the Financial Statements.

The following table sets forth our summary operating results for the quarterly periods indicated.

Our operating results are subject to significant seasonal variations. Our quarterly results of operations have fluctuated, and are expected to continue to fluctuate in the future, as a result of these seasonal variances, in particular our principal selling seasons. We have five principal selling seasons: transition (post-holiday), Easter, back-to-school, fall and holiday. Sales and net income in our second and fourth quarters are typically much stronger than in our first and third quarters.

In addition to our normal seasonal fluctuation, some events, in particular the Easter holiday, shift between fiscal quarters in some years due to the nature of our fiscal year. This shift will influence our quarterly comparable results. For example, Easter occurred during the first quarter of fiscal year 2002, while in most years, including fiscal years 2001 and 2003, Easter occurred during the second quarter.

Quarterly comparisons may also be affected by the timing of sales and costs associated with opening of new stores, including acquisitions.

Our cash requirements are primarily for working capital, capital expenditures and principal payments on our debt and capital lease obligations. In connection with our prior S corporation status, we have also made

cash distributions to our shareholders to cover their taxes. Historically, these needs for cash have been met by cash flows from operations, borrowings under our revolving credit facility and sales of our subordinated debt. At January 3, 2004, we had negative working capital of $771,000 and $5.6 million of unused borrowing capacity under our revolving credit facility based upon our borrowing base calculation.

On February 10, 2004, we consummated our initial public offering with the sale of 2,160,000 shares of common stock. On March 12, 2004, we sold an additional 324,000 shares in satisfaction of the underwriters’ over-allotment option. We received net proceeds of approximately $15.5 million in the offering. See “— Initial Public Offering” below for more information. We anticipate that our cash flows from operations, borrowings under our revolving credit facility, and proceeds from our initial public offering will be sufficient for our operating cash requirements for at least the next 12 months and will allow us to further execute our business plan, including our planned expansion.

For fiscal year 2003, our net cash provided by operations was $8.8 million compared to net cash used by operations of $500,000 in fiscal year 2002, an increase of $9.3 million. The primary causes of this increase were increased operating income in 2003 and a $1.5 million reduction in inventories in 2003 compared to a $3.0 million increase in inventories in 2002. The year-to-year inventory changes relate primarily to changes in the number of stores open at the end of each year.

We are committed under noncancelable operating leases for all store and office spaces, expiring at various dates through 2018. These leases generally provide minimum rent plus payments for real estate taxes and operating expenses, subject to escalations. Some of our leases also require us to pay contingent rent based on sales. As of January 3, 2004, our lease payment obligations under these leases totaled $15.8 million for fiscal year 2004, and an aggregate of $91.6 million through 2018.

In fiscal year 2003, our cash used in investing activities amounted to $2.3 million compared to $6.6 million for fiscal year 2002. During each year, cash used in investing activities consisted of capital expenditures for furniture, fixtures and leasehold improvements for both new and remodeled stores, and new information systems. In addition to these cash expenditures, we entered into capital lease arrangements valued at $1.0 million in 2003 and $0.7 million in 2002 related to our point of sale system.

Our future capital expenditures will depend primarily on the number of new stores we open, the number of existing stores we remodel and the timing of these expenditures. We plan to open approximately 15 new stores in fiscal year 2004 and 30 to 35 new stores in fiscal year 2005. Net capital expenditures for a new store are expected to average approximately $200,000, including point of sale equipment. The average inventory investment, net of payables, for a new store is expected to range from approximately $45,000 to $75,000, depending on the size and sales expectation of the store and the timing of the new store opening. Pre-opening expenses, such as marketing, salaries, supplies and utilities are expensed as incurred. Remodeling the average existing store into the new format typically costs approximately $200,000. For stores that do not warrant this level of investment, the costs to remodel are approximately $40,000.

In connection with store openings and remodelings, we have projected our capital expenditure needs in fiscal year 2004 to be approximately $6.0 million to $7.0 million.

In fiscal year 2003, our net cash used by financing activities was $5.9 million compared to net cash provided by financing activities of $6.6 million in fiscal year 2002. In fiscal year 2003, we used cash to reduce the balance on our revolving notes payable by $4.9 million and make principal payments on our capital lease and debt obligations. In fiscal year 2002, we made net borrowings on our revolving note payable of $4.4 million and issued $4.9 million in subordinated debt and we used cash to make principal payments on our capital lease

As of January 3, 2004, the aggregate payments remaining on our capital lease obligations were approximately $3.2 million through 2008, including $1.4 million due in fiscal year 2004.

We have a $25.0 million secured revolving credit facility with Fleet Retail Finance, Inc. Amounts borrowed under the facility bear interest at a rate equal to the base rate (as defined in the agreement) plus 0.75% per annum, which was equal to 4.75% per annum at January 3. 2004. If contingencies identified in the agreement occur, the interest rate may be increased by an additional two percentage points. The revolving credit agreement also allows us to apply an interest rate of LIBOR (as defined in the agreement) plus 3.00% per annum to a designated portion of the outstanding balance for a minimum of 30 days by entering into a basis swap. The aggregate amount that we may borrow under the agreement at any time is established by a formula, which is based on our inventory level but cannot be greater than $25.0 million. The agreement is secured by substantially all of our assets. In connection with the administration of the agreement, we are required to pay a facility fee of $3,000 per month, to a maximum aggregate facility fee of $180,000. In addition, we must pay 0.25% per annum of the remaining unborrowed loan capacity under the agreement. If contingencies related to early termination of the credit facility were to occur, or if we were to request and receive an accommodation from the lender in connection with the facility, we may be required to pay additional fees. At January 3, 2004, we had $2.2 million outstanding under the revolving credit facility, at a 4.28% effective interest rate per annum, and approximately $5.6 million of unused borrowing capacity available under the revolving credit facility, based upon our borrowing base calculations.

In the first quarter of fiscal year 2003, we entered into an amendment to our revolving credit agreement to provide a sublimit facility of up to an additional $2.0 million, subject to reductions over time and to borrowing base restrictions as defined in the agreement. The sublimit facility is payable in full at maturity on February 20, 2004. The sublimit facility also provides for a minimum EBITDA covenant (as defined in the agreement), a minimum required availability covenant, and a limitation on capital expenditures for fiscal year 2003. There were no amounts outstanding under the sublimit facility at January 3, 2004.

Our credit facility includes financial and other covenants relating to, among other things, our level of capital expenditures, compliance with our business plan, prohibiting a change of control, including any person or group acquiring beneficial ownership of 30% or more of our common stock or our combined voting power (as defined in the credit facility), maintaining a minimum availability, maintaining a minimum net worth, prohibiting new debt, and restricting dividends and the repurchase of our stock. In the event that we were to violate any of these covenants, or violate the provisions of any of our other lending arrangements or of more than 10% of our leases, the lender would have the right to accelerate repayment of all amounts outstanding under the agreement, or to commence foreclosure proceedings on our assets. The credit facility’s maturity date is January 5, 2005. We repaid the outstanding balance on the credit facility during the first quarter of 2004 from the proceeds of our IPO.

We have two other long-term debt commitments outstanding at January 3, 2004, both of which are subordinate to our credit facility. One is a subordinated note, which requires quarterly principal and interest payments of up to $50,000 over the term of the loan through January 2008. This note is secured by a security agreement and a $393,000 standby letter of credit. The balance on this loan was approximately $360,000 at January 3, 2004. The other long-term commitment consists of a $500,000 secured subordinated note payable to a venture capital institution, which is due at maturity on March 1, 2004 and a related warrant to purchase 76,907 shares of our common stock, which is redeemable for $850,000 on March 1, 2004. All of these obligations were repaid during the first quarter of 2004 from the proceeds from our IPO.

We sold $4.9 million of our subordinated convertible debentures due 2007 in a private offering during the first quarter of fiscal year 2002. We used the net proceeds from the sale of the debentures to finance the Sam & Libby acquisition, to repay a portion of the amounts borrowed under our credit facility and to provide capital for future store openings. On January 2, 2004, we exchanged all of our subordinated convertible debentures for new subordinated convertible debentures in the same aggregate principal amount. The new subordinated convertible debentures bear interest at 9%, increasing over time to 11.0% per annum. The new

subordinated convertible debentures mature, if not earlier converted, on April 4, 2007. The new subordinated convertible debentures automatically converted into an aggregate of 653,331 shares of our common stock at a fixed exercise price of $7.50 upon our IPO. We have registered the common stock issued in connection with the conversion of the subordinated convertible debentures. The holders of these shares have agreed not to sell these shares until June 30, 2004 without the consent of Ryan Beck & Co., Inc.

On February 10, 2004, we consummated our initial public offering with the sale of 2,160,000 shares of common stock. On March 12, 2004, we sold an additional 324,000 shares of common stock in connection with the exercise, by the underwriters, of the full over-allotment option. All of the shares of common stock sold to the public were sold at a price of $7.75 per share. The aggregate gross proceeds from the initial public offering were approximately $19.3 million. The net proceeds to us from the offering were approximately $15.5 million. We have used the net proceeds received from the initial public offering to repay $4.9 million on our revolving credit agreement, $0.9 million to redeem outstanding warrants, and $0.9 million to repay subordinated debt. We intend to use approximately $2.7 million of the net proceeds from the offering to open 15 new stores, all in our new format, in fiscal year 2004, and $3.6 million of the net proceeds to remodel 27 stores, including 17 in the new format, in fiscal year 2004. We expect to use the remaining net proceeds for working capital requirements and other general corporate purposes, including the purchase of inventory in the ordinary course of business. Pending use of the proceeds, we may invest in short-term, investment-grade interest bearing instruments.

In connection with the closing of our initial public offering, we sold to the representatives of the underwriters and their designees warrants to purchase up to an aggregate of 216,000 shares of common stock at an exercise price equal to $12.7875 per share, subject to antidilution adjustments, for a purchase price of $0.0001 per warrant for the warrants. The warrants are restricted from sale, transfer, assignment, pledge or hypothecation by any person until February 5, 2005, except to some directors, officers, employees and affiliates of the representatives of the underwriters. The warrant holders may exercise the warrants as to all or any lesser number of the underlying shares of common stock at any time during the four-year period commencing on February 5, 2005. In addition, we are required for a five year period, (i) at the request of a majority of the warrant holders, to use our best efforts to file one registration statement, at our expense, covering the sale of the shares of common stock underlying the warrants and (ii) at the request of any holders of warrants, to file additional registration statements covering the shares of common stock underlying the warrants at the expense of those holders. We are required to maintain the effectiveness of any demand registration statement for up to nine consecutive months. Except for the registration rights that we have granted to the prior holders of our subordinated convertible debentures, we agreed not to make any registered offering of our securities, with limited exceptions, or to include any other shares on any such demand registration statement, at any time that we are required to maintain the effectiveness of a demand registration statement, without first obtaining the consent of a majority of the holders of warrants and warrant shares that are not then held by the public or by us or other excepted persons who have a relationship with us and our affiliates. In addition, we are required to include the shares of common stock underlying the warrants in any appropriate registration statement we file during the six years following the consummation of the initial public offering. We have also agreed not to offer, sell or grant any securities convertible or exchangeable for common stock to any of our directors, officers or employees at an exercise price less that $7.75 per share for a period of three years after February 5, 2004, without the prior written consent of the representatives.

We also entered into a financial advisory agreement with Ryan Beck, under which we have agreed to retain Ryan Beck as our financial advisor in connection with any strategic or financial transactions or other identified activities that we may undertake during the two-year term of the agreement. In exchange for these services, we have agreed to pay Ryan Beck a percentage of the total consideration or transaction value calculated as set forth in the agreement, related to such possible future transactions (with some exceptions) and to reimburse Ryan Beck for its reasonable expenses. We are not obligated under the agreement to enter into any transaction, and we have no current plans to do so during the term of the agreement, which Ryan Beck may cancel at any time upon 10 days notice to us.

Our ability to meet our current and anticipated operating requirements will depend on our future performance, which, in turn, will be subject to general economic conditions and financial, business and other factors, including factors beyond our control.

At January 3, 2004 and January 4, 2003, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could otherwise have arisen if we had engaged in such relationships.

The following table summarizes our contractual obligations as of January 3, 2004:


(1)	Includes payment obligations relating to our subordinated debt, our subordinated convertible debentures, and our stock purchase warrants. Subsequent to January 4, 2003, the subordinated convertible debentures converted into shares of our common stock upon our IPO and we repaid the subordinated debt and redeemed the stock purchase warrants with the proceeds from the IPO.

(2)	Includes payment obligations relating to our point of sale hardware and software leases.

(3)	Includes minimum payment obligations relating to our store leases.

(4)	Includes merchandise on order and payment obligations relating to miscellaneous service contracts.

(5)	Includes our obligation to redeem certain shares of stock. This obligation expired upon our IPO.

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 62, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 requires, in most cases, gains and losses on extinguishments of debt to be classified as income or loss from continuing operations, rather than as extraordinary items. The statement is effective for fiscal years beginning after May 15, 2002. Upon adoption of SFAS No. 145, we reclassified previously recognized extraordinary gains and losses from the early extinguishment of debt.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, relating to consolidation of variable interest entities (VIEs). The provisions of FIN 46 became effective immediately for VIEs created after January 31, 2003. The provisions of FIN 46 for VIEs created on or before January 31, 2003 were delayed until December 31, 2003 by FASB Staff Position No. FIN 46-6, Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities, issued in October 2003. We do not believe FIN 46 will have a material impact on our financial statements.

Our earnings and cash flows are subject to fluctuations due to changes in interest rates. Our financing arrangements include both fixed and variable rate debt in which changes in interest rates will impact the fixed and variable rate debt differently. A change in the interest rate of fixed rate debt will impact the fair value of the debt, whereas a change in the interest rate on the variable rate debt will impact interest expense and cash flows. Management does not believe that the risk associated with changing interest rates would have a material effect on our results of operations or financial condition.

Overall, we do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented. We cannot give assurance, however, that our business will not be affected by inflation in the future.

Our consolidated financial statements together with the report of the independent auditors are set forth beginning on page F-1 and are incorporated herein by this reference.

Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures provided reasonable assurance that the disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

Internal Control Over Financial Reporting: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s fourth fiscal quarter ended January 3, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the Company’s fourth fiscal quarter.

Information set forth in the Company’s 2004 Proxy Statement under the caption “Information Regarding Board of Directors and Committees” is hereby incorporated by reference. No other sections of the 2004 Proxy Statement are incorporated herein by this reference. The following information with respect to the executive officers of the Company on March 31, 2004 is included pursuant to Instruction 3 of Item 401(b) of Regulation S-K.

Certain information concerning the executive officers of Bakers is set forth below:

Peter A. Edison has over 26 years of experience in the fashion and apparel industry. Between 1986 and 1997, Mr. Edison served as director and as an officer in various divisions of Edison Brothers Stores, Inc., including serving as the Director of Corporate Development for Edison Brothers, President of Edison Big & Tall, and as President of Chandlers/ Sacha of London. He also served as Director of Marketing and Merchandise Controller, and in other capacities, for Edison Shoe Division. Mr. Edison received his M.B.A. in 1981 from Harvard Business School, and currently serves chairman of the board of directors of Dave & Busters, Inc. He has served as our Chairman of the Board and Chief Executive Officer since October 1997.

Michele A. Bergerac has over 26 years of experience in the junior and contemporary women’s shoe business including a 17-year career in various divisions of the May Company and five years with Bakers. Ms. Bergerac started at Abraham & Straus as an Assistant Buyer. Her buying and merchandising career with the May Company included positions at G. Fox, May Corporate, May Company California and Foley’s, where she was the Vice President of Footwear, prior to being hired by Edison Brothers as President of Edison Footwear Group in 1998. Ms. Bergerac has served as our President since June 1999.

Mark D. Ianni has over 23 combined years with Edison Brothers and Bakers as an experienced first-cost buyer, having held various positions, including Merchandiser, Associate Buyer, Senior Dress Shoe Buyer, Tailored Shoe Buyer and Divisional Merchandise Manager of Dress Shoes prior to his current position of General Merchandise Manager. Mr. Ianni has served as our Executive Vice President — General Merchandise Manager since June 1999.

Lawrence L. Spanley, Jr. has over 30 years of retail accounting and finance experience. Mr. Spanley spent much of his career at Senack Shoes, a division of Interco. Since 1994, Mr. Spanley has served as either our Chief Financial Officer or our Vice President — Finance, and at various times as our Treasurer and Secretary.

Stanley K. Tusman has over 30 years of financial analysis and business experience. Mr. Tusman served as the Vice President — Director of Planning & Allocation for the 500-store Edison Footwear Group, the Vice President of Retail Systems Integration for the 500-store Genesco Retail, Director of Merchandising, Planning and Logistics for the 180-store Journey’s and the Executive Director of Financial Planning for the 400-store Claire’s Boutiques chains. Mr. Tusman has served as our Executive Vice President — Inventory and Information Management since June 1999.

Joseph R. Vander Pluym is a 29-year veteran of store operations with a track record of building and motivating high energy, high service field organizations. Mr. Vander Pluym spent 20 years at the 700-store Merry Go Round chain, where he served as Executive Vice President of Stores for Merry Go Round and Boogie’s Diner Stores. He served as Vice President of Stores for Edison Footwear Group for two years and as Vice President of Stores for Lucky Brand Apparel Stores for approximately six months prior to joining Bakers. Mr. Vander Pluym has served as either our Vice President — Stores or our Executive Vice President — Stores since June 1999.

Edison Brothers Stores, Inc. filed a petition for reorganization under Chapter 11 of the United States Bankruptcy Code on November 3, 1995. After an unsuccessful reorganization, Edison Brothers refiled for bankruptcy on March 9, 1999 and immediately commenced a liquidation of all its assets.

Each of the executive officers has entered into an employment agreement with the Company. Information with respect to the executive officers set forth in the Company’s 2004 Proxy Statement under the caption “Executive Compensation — Employment Contracts, Termination of Employment and Change-in-Control Arrangements” is incorporated herein by this reference.

Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, set forth in the Company’s 2004 Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by this reference. No other sections of the 2004 Proxy Statement are incorporated by this reference.

The Company has adopted a Code of Business Conduct (the “Code of Ethics”) that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as well as directors, officers and employees of the Company. The Code of Ethics has been filed as Exhibit 14.1 to this Annual Report on Form 10-K. The information set forth under the caption “Information Regarding Board of Directors and Committees — Code of Business Conduct” in the Company’s 2004 Proxy Statement is incorporated herein by this reference. No other sections of the 2004 Proxy Statement are incorporated by this reference.

The information set forth in the Company’s 2004 Proxy Statement under the captions “Information Regarding Board of Directors and Committees — Compensation of Directors,” “Information Regarding Board of Directors and Committees — Compensation Committee Interlocks and Insider Participation” and “Executive Compensation” are hereby incorporated by reference. No other sections of the 2004 Proxy Statement are incorporated herein by this reference.

The information set forth in the Company’s 2004 Proxy Statement under the caption “Stock Ownership of Management and Certain Beneficial Owners” is hereby incorporated by reference. No other sections of the 2004 Proxy Statement are incorporated herein by this reference.

We have only the Baker Footwear Group, Inc. 2003 Stock Option Plan (the “2003 Plan”) under which our equity securities are authorized for issuance to employees or non-employee directors in exchange for goods or services. The 2003 Plan was approved by our shareholders prior to the consummation of our initial public offering.

The following table shows for this plan the number of shares of common stock to be issued upon exercise of options outstanding at March 1, 2004, the weighted average exercise price of those options, and the number of shares of common stock remaining available for future issuance, excluding shares to be issued upon exercise of outstanding options. We do not have any equity compensation plans assumed by us in mergers.

(1)

Prior to our initial public offering, we had a predecessor stock option plan in effect which allowed us to grant nonqualified stock options. Under the 2003 Plan, which was approved by our shareholders as of January 3, 2004, all of the options granted under the predecessor stock option plan are deemed to be covered by the 2003 Plan. All of the option holders under the predecessor plan also agreed to amend their option award agreements to have their options governed by the 2003 Plan on generally the same terms and conditions. At March 1, 2004, under the 2003 Plan, there was a total of 268,992 shares of common stock to be issued upon exercise of outstanding and fully exercisable options at a weighted average exercise price of $0.01 per share. On February 10, 2004, after the consummation of our initial public offering, we granted nonqualified stock options to purchase 304,500 shares of our common stock to certain of our employees and directors at an exercise price of $7.75 per share, the initial public offering price, pursuant to the 2003 Plan. The options vest in five equal annual installments beginning on the first anniversary of the date of grant. As a result, as of March 1, 2004, there were an additional 304,500 shares of common stock to be issued upon exercise of outstanding options granted having a weighted average exercise price of $7.75 per share. As of the same date, 295,500 shares of common stock remain available for future issuance (excluding shares to be issued upon exercise of outstanding options).

The information set forth under the caption “Executive Compensation — 2003 Stock Option Plan” in the Company’s Proxy Statement is incorporated herein by reference. No other sections of the 2004 Proxy Statement are incorporated by this reference.

The information set forth under the caption “Certain Other Information Regarding Management” in the Company’s 2004 Proxy Statement is hereby incorporated by reference. No other sections of the 2004 Proxy Statement are incorporated herein by this reference.

The section of the 2004 Proxy Statement entitled “Principal Accounting Fees and Services” is hereby incorporated by reference. No other sections of the 2004 Proxy Statement are incorporated herein by this reference.


	1. Financial Statements: The financial statements commencing on page F-1. The Index to Financial Statements on page F-1 is incorporated herein by reference.

	2. Financial Statement Schedules: All information schedules have been omitted as the required information is inapplicable, not required, or other information is included in the financial statement notes.

	3. Exhibits: The list of exhibits in the Exhibit Index to this Report is incorporated herein by reference. The following exhibits are management contracts and compensatory plans or arrangements required to be filed as exhibits to this Form 10-K: Exhibits 10.1, 10.2, 10.11, 10.15, 10.16, 10.20 through 10.29 and 10.33 through 10.38. The exhibits will be filed with the SEC but will not be included in the printed version of the Annual Report to Shareholders.

(b) No reports on Form 8-K were filed during the fourth quarter ended January 3, 2004.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

April 1, 2004


	By	/s/ PETER A. EDISON



	Peter A. Edison
	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


*	Peter A. Edison, by signing his name hereto, does sign this document on behalf of the above noted individuals, pursuant to powers of attorney duly executed by such individuals which have been filed as an Exhibit to this Report.

We have audited the accompanying balance sheets of Bakers Footwear Group, Inc. (the Company) as of January 3, 2004 and January 4, 2003 and the related statements of operations, shareholders’ equity (deficit), and cash flows for each of the three years in the period ended January 3, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bakers Footwear Group, Inc. at January 3, 2004 and January 4, 2003 and the results of its operations and its cash flows for each of the three years in the period ended January 3, 2004 in conformity with accounting principles generally accepted in the United States.

As discussed in Note 1 to the financial statements, in 2002 the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

Bakers Footwear Group, Inc., formerly Weiss and Neuman Shoe Co., (the Company) was incorporated in 1926 and is engaged in the sale of shoes and accessories through over 200 retail stores throughout the United States under the Bakers and Wild Pair names. The Company is a national full-service retailer specializing in moderately priced fashion footwear. The Company’s products include private-label and national brand dress, casual, and sport shoes, boots, and sandals.

As discussed in Note 18, on February 10, 2004, the Company completed an initial public offering (IPO).

The Company’s accounting period is based upon a retail calendar, ending on the Saturday nearest January 31. The Company’s fiscal year ends four weeks prior to a retail calendar, as a result of its Subchapter S tax status. The fiscal year ended January 5, 2002 was a 53-week period. The fiscal years ended January 4, 2003 and January 3, 2004 were 52-week periods.

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

Certain reclassifications of prior year presentations have been made to conform to the current year presentation.

The Company considers all highly liquid financial instruments with a maturity of three months or less at the time of purchase to be cash equivalents. Substantially all cash is held in depository accounts where disbursements are restricted to payments on the revolving credit agreement. The Company’s disbursing accounts are funded through draws on the revolving credit agreement.

Merchandise inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out retail inventory method. Consideration received from vendors relating to inventory purchases is recorded as a reduction of cost of merchandise sold, occupancy, and buying expenses. Permanent markdowns are recorded to reflect expected adjustments to retail prices in accordance with the retail inventory method. In determining permanent markdowns, management considers current and recently recorded sales prices, the length of time product is held in inventory, and quantities of various product styles contained in inventory, among other factors. The ultimate amount realized from the sale of certain products could differ materially from management’s estimates.

Property and equipment are stated at cost. Costs related to software developed for internal use, including internal payroll costs, are capitalized in accordance with the American Institute of Certified Public

Accountants’ Statement of Position 98-1, Accounting for the Costs of Computer Software Developed for or Obtained for Internal Use. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives ranging from three years to ten years. Leasehold improvements are amortized over the lesser of the related lease term or the useful life of the assets. Costs of repair and maintenance are charged to expense as incurred.

Periodically, management determines whether any property or equipment or any other assets have been impaired based on the criteria established in Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Based on these criteria, long-lived assets to be “held and used” are reviewed for impairment when events or circumstances exist that indicate the carrying amount of those assets may not be recoverable.

The Company determines the fair value of these assets using the present value of the estimated future cash flows over the remaining store lease period. During the years ended January 5, 2002, January 4, 2003, and January 3, 2004, the Company recorded $4,540, $120,114, and $127,133, respectively, in noncash charges to earnings related to the impairment of furniture, fixtures, and equipment, leasehold improvements, and other assets.

Retail sales are recognized at the point of sale and are recorded net of returns and exclude sales tax. Non-store sales through the Company’s Web site are recognized as revenue at the point when title passes. Title passes to the customer at the time the product is shipped to the customer on an FOB shipping point basis. The Company does not record an allowance for sales returns due to immateriality.

Cost of merchandise sold includes the cost of merchandise, buying costs, and occupancy costs.

The Company leases its store premises and its headquarters facilities under operating leases. Many leases entered into by the Company include options under which the Company may extend the lease term beyond the initial commitment period, subject to terms agreed to at lease inception. Some leases also include early termination options which can be exercised under specific conditions.

For leases that have predetermined fixed escalations of the minimum rentals, the Company recognizes the related rental expense on a straight-line basis and records the difference between the recognized rental expense and amounts payable under the leases as accrued rent, which is reflected as a component of other liabilities on the accompanying balance sheets.

Many of the leases covering retail stores require contingent rentals in addition to the minimum monthly rental charge, based on retail sales volume. The Company records expense for contingent rentals during the period in which the retail sales volume exceeded the respective targets.

The Financial Accounting Standards Board’s (FASB) SFAS No. 123, Accounting for Stock-Based Compensation, establishes the use of the fair value-based method of accounting for all stock-based compensation arrangements. SFAS No. 123 permits companies to use the intrinsic value accounting method specified in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,

and related interpretations to account for stock-based employee compensation arrangements. The Company uses the intrinsic value-based method to account for stock-based employee compensation arrangements and complies with the disclosure provisions of SFAS No. 123.

The Company recorded compensation expense of $69,623, $243,665, and $275,695 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively, which represents the difference between the estimated fair value of the stock on the date of grant compared to the $0.01 exercise price per option. For pro forma purposes, had the compensation expense been determined in accordance with SFAS No. 123, net income and earnings per share for the years ended January 5, 2002, January 4, 2003, and January 3, 2004 would not have been materially different from the amounts reported.

The effect of applying SFAS No. 123 on pro forma net income is not necessarily representative of the effects on reported net income for future periods due to, among other things, the vesting period of the stock options and the fair value of additional stock options in future years.

The Company expenses costs of marketing and advertising, including the cost of newspaper and magazine advertising, promotional materials, in-store displays, and point-of-sale marketing as advertising expense, when incurred. Consideration received from vendors in connection with the promotion of their products is netted against advertising expense. Marketing and advertising expense totaled $791,521, $927,044, and $469,242 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively.

The Company initiated its efforts to file a registration statement with the Securities and Exchange Commission relating to an IPO in April 2002. The Company determined that it would delay the IPO for a period in excess of 90 days and, as a result, during the year ended January 4, 2003, wrote off $1,708,466 of costs initially deferred in connection with the registration process.

At January 3, 2004 the Company had deferred $733,933 of costs incurred to date, included in other assets in the accompanying balance sheet, related to the resumption of the IPO process. See Note 18 for discussion of the completion of the IPO.

Basic earnings per common share are computed using the weighted average number of common shares outstanding during the year. Diluted earnings per common share are computed using the weighted average number of common shares and potential dilutive securities that were outstanding during the period. Potential dilutive securities consist of outstanding stock options, warrants, convertible debentures, and the effect of treating the redeemable Class A and Class B stock as permanent capital (see Note 13).

The Company elected, by the consent of its shareholders, to be taxed under the provisions of Subchapter S of the Internal Revenue Code (the Code). Under the Subchapter S provisions of the Code, the shareholders include the Company’s operating results in their personal income tax returns. Accordingly, through January 3, 2004, the Company was not subject to federal and certain state corporate income tax. However, the Company was subject to income taxes in certain states in which it conducts business.

As discussed in Note 18, in connection with the IPO, effective January 4, 2004, the Company elected, by the consent of its shareholders, to revoke its status as an S corporation and become subject to taxation as a C corporation.

The unaudited pro forma information on the accompanying statements of operations pertaining to income (loss) before cumulative effect of change in accounting and income taxes has been adjusted to reflect a reduction in other income (expense) for these state income tax expenses. The unaudited pro forma information also includes adjustments resulting from applying purchase accounting as a C corporation to the Bakers acquisition (see Note 2), which results in a decrease to the excess of acquired net assets over cost of $2,021,930 as of the acquisition date.

The unaudited pro forma income tax information included in the statements of operations and Note 12 is presented in accordance with SFAS No. 109, Accounting for Income Taxes, as if the Company was a C corporation and thus subject to federal and certain state income taxes.

Through January 3, 2004, the Company was an S Corporation and the shareholders, rather than the Company, were responsible for federal and most state and local income tax liabilities related to the taxable income generated by the Company. The Company’s policy is to make periodic distributions to its shareholders in amounts estimated to be sufficient to allow the shareholders to pay the income taxes on their proportionate share of the Company’s taxable income. In certain states where the Company has operations, the Company makes such shareholder distributions in connection with filing composite income tax returns on behalf of the shareholders. Total distributions to shareholders were $2,167,191, $1,820,172, and $75,949 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively. The distributions for the year ended January 3, 2004 include accrued distributions of $75,000 at January 3, 2004 related to composite state income tax returns that will be filed for the year then ended.

During the year ended January 5, 2002, the Company completed the acquisition of eight store leases through two separate transactions totaling $260,000. The assets purchased consisted of all of the seller’s leasehold interests relating to the eight stores, as well as all furniture, fixtures, and equipment located in the respective stores. Approximately $36,000 of the total consideration paid was allocated to the furniture, fixtures, and equipment acquired, with the remaining $224,000 being allocated to the individual leases acquired. The consideration allocated to these leases is being amortized over the remaining lives of the individual underlying leases acquired.

In March 2002, the Company acquired 33 store leases from SLJ Retail LLC (SLJ) for a purchase price of $1,800,000 (see Note 2).

The Company has a frequent buying program where customers can purchase a frequent buying card entitling them to a 10% discount on all purchases for a 12-month period. The Company ratably recognizes the revenue from the sale of the card over the 12-month life of the card and records the related discounts at the point of sale when the card is used.

The Company recognized income of $32,659, $597,118, and $1,144,210 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively, related to the amortization of deferred income for the frequent buying card program, as a component of net sales. Total discounts given to customers under the frequent buying program were $107,060, $791,114, and $1,489,160 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively.

The Company has one business segment that offers the same principal product and service in various locations throughout the United States.

The Company incurs shipping and handling costs to ship merchandise to its customers primarily related to sales orders received from the Company’s Internet Web site. Shipping and handling costs are recorded as a component of cost of merchandise sold, occupancy, and buying expenses. Amounts paid to the Company by customers are recorded in net sales. Amounts paid to the Company for shipping and handling costs were $7,751, $70,151, and $93,017 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which is effective for fiscal years beginning after December 15, 2001. Upon adoption, the Company recorded as income its unamortized deferred credit related to the excess fair value over cost of $2,774,899 related to the Company’s acquisition of 198 Bakers locations as a cumulative effect of a change in accounting principle during 2002.

Pro forma income before cumulative effect of change in accounting, adjusted to exclude the amortization of excess of acquired net assets over cost and goodwill amortization, is as follows:

On June 22, 1999, the Company acquired the assets, primarily inventory and furniture, fixtures, and equipment, of 198 Bakers locations (including Leeds and Wild Pair stores) located throughout the United States from Edison Brothers Stores, Inc. for $8,977,098 in cash and the assumption of $353,000 in liabilities. The acquisition was accounted for using the purchase method. Accordingly, the assets acquired were adjusted to their fair values as of the acquisition date. Because the fair values of the assets acquired exceeded the consideration paid, including $118,000 in acquisition-related expenses, the value of all noncurrent assets was reduced to zero, and the Company recorded a deferred credit of $5,562,568 representing the excess of fair value of assets acquired over the cost of the acquisition.

The excess of acquired net assets over cost was amortized using the straight-line method over a period of five years until the adoption of SFAS No. 142 in 2002. The Company recorded as income its unamortized deferred credit of $2,774,899 in 2002 as a cumulative effect of a change in accounting principle.

If the Company had been a C corporation at the acquisition date, the Company would have recorded a deferred tax liability and a reduction to the excess of acquired net assets over cost of $2,156,070. As a result, the unaudited pro forma information on the accompanying statements of operations pertaining to income (loss) before cumulative effect of change in accounting and income taxes has been adjusted to reflect a reduction in the amount of amortization of $404,386 for each of the years ended December 30, 2000 and January 5, 2002.

In March 2002, the Company completed the acquisition of 33 store leases from SLJ for a purchase price of $1,800,000. The assets purchased consisted of all of the seller’s leasehold interests relating to the 33 stores, as well as all furniture, fixtures, and equipment located in the respective stores. The total consideration paid was allocated to leasehold improvements and fixtures.

Depreciation and amortization of property and equipment was $1,395,148, $2,533,782, and $2,833,144 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively.

Assets under capital leases totaling $3,060,015 and $4,218,660 at January 4, 2003 and January 3, 2004, respectively relate primarily to equipment obtained to support the Company’s integrated “point of sale” system and are included as a component of property and equipment. Accumulated amortization on assets capitalized under capital leases totals $703,427 and $1,463,335 for the years ended January 4, 2003 and January 3, 2004, respectively.

Obligations under capital leases were $2,117,166 and $2,294,444 at January 4, 2003 and January 3, 2004, respectively.

Future minimum lease payments at January 3, 2004 under capital leases are as follows:

The Company leases property and equipment under noncancelable operating leases expiring at various dates through 2018. Certain leases have scheduled future rent increases, escalation clauses, or renewal options. Future minimum lease payments, excluding executory costs, at January 3, 2004 are as follows:

Rent expense, including occupancy costs, was $18,893,180, $24,797,828, and $25,792,969 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively. Certain leases provide for contingent rent based on sales. Contingent rent was $525,590, $343,716, and $225,964 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively.

The Company has a revolving credit agreement with a commercial bank. This agreement calls for a maximum line of credit of $25,000,000 subject to the calculated borrowing base as defined in the agreement. The revolving credit agreement matures on January 5, 2005 and is secured by substantially all assets of the Company and a $500,000 personal guarantee by the Company’s principal shareholder. Interest is payable

monthly at the bank’s base rate plus 0.75% (4.75% per annum at January 3, 2004). The weighted average interest rate approximated 8.16% in 2001, 5.42% in 2002, and 4.87% in 2003. An unused line fee of 0.25% per annum is payable monthly based on the difference between $25,000,000 and the average loan balance.

The revolving credit agreement also allows the Company to apply the LIBOR (London Interbank Offered Rate) plus 3.00% to a designated portion of the outstanding balance for a minimum of 30 days by entering into a basis swap. The Company periodically enters into such basis swaps to modify the interest payments under the revolving credit agreement from the bank’s base rate plus 0.75% to LIBOR plus 3.00%. Such basis swaps do not meet the criteria for hedge accounting, and accordingly, changes in the fair value of the swaps are included in current results of operations. The basis swaps entered into during 2002 and 2003 did not have a material effect on the financial statements.

The Company received an overadvance of $2,500,000 on its revolving credit agreement during 2002 to provide interim funding for the Company’s acquisition of 33 store leases from SLJ. At January 4, 2003, there were no outstanding borrowings on the overadvance. The overadvance matured in February 2003.

On February 20, 2003, the Company amended its revolving credit agreement to provide a Sublimit Facility up to an additional $2,000,000, subject to certain borrowing base restrictions as defined. The Sublimit Facility is payable in full at maturity on February 20, 2004. Amounts outstanding under the Sublimit Facility cannot exceed $1,500,000 at December 1, 2003, $1,000,000 at January 1, 2004, and $500,000 at February 1, 2004. The Sublimit Facility also provides for a minimum EBITDA covenant, a minimum required availability covenant, and a limitation on capital expenditures for 2003. There were no amounts outstanding under the Sublimit Facility at January 3, 2004.

The agreement contains a restrictive financial covenant limiting capital expenditures and other nonfinancial covenants. At January 3, 2004, the Company has $5,579,468 of unused borrowing available under the revolving credit agreement, including availability under the Company’s Sublimit Facility, based upon the Company’s borrowing base calculation.

The agreement allows up to $10,000,000 of letters of credit to be outstanding, subject to the overall line limits. At January 4, 2003 and January 3, 2004, the Company had no outstanding letters of credit.

The following notes payable are subordinate to the revolving credit agreement and are secured by substantially all assets of the Company:

On April 8, 2003, the Company entered into an amended and restated subordinated note agreement and an amended and restated warrant agreement which extended the maturity date of the subordinated note payable and the Class A stock purchase warrants to March 1, 2004. At January 4, 2003, the subordinated note payable and the Class A stock purchase warrants had balances of $487,553 and $686,860, respectively. The subordinated note payable, with a face amount of $500,000, bears interest at 10% per annum, payable quarterly. The face amount of the note is payable at maturity. The amended and restated warrant agreement provides for an increase in the minimum repurchase amount of $150,000. The warrants are accreted as interest expense, using the effective interest method to the revised minimum repurchase amount of $850,000 over the remaining term of the note. The revised minimum purchase amount of $850,000 is payable at maturity.

As of January 3, 2004, the scheduled maturities of subordinated debt are as follows:

On April 4, 2002, the Company issued $4,900,000 of subordinated convertible debentures. Interest accrues on the unpaid principal amount, beginning January 1, 2003, at 7%, increasing to 9% on January 1, 2004 and 11% on January 1, 2005, and is payable quarterly, in arrears. Principal is due and payable on April 4, 2007 (the maturity date). The debentures convert only upon a qualified IPO, as defined, into an aggregate of 448,302 shares of common stock. In the event of a nonqualifying IPO, as defined, the debentures could be converted into a variable amount of shares at the option of the holder.

Effective January 2, 2004, the Company exchanged its $4,900,000 principal subordinated convertible debentures (existing convertible debentures) for $4,900,000 principal subordinated convertible debentures (new convertible debentures). The new convertible debentures were recorded at fair value, or $4,500,000. In connection with the extinguishment of the existing convertible debentures, the Company wrote off the related unamortized debt issuance costs and recognized an immaterial gain.

The new convertible debentures bear interest at 7%, increasing to 9% on January 1, 2004 and 11% on January 1, 2005. Interest is payable quarterly, in arrears. Principal is due and payable on April 4, 2007 (the maturity date). The debentures automatically convert upon an IPO, into the fixed number of 653,331 shares of common stock. In the event that an IPO is not consummated prior to maturity, principal is due and payable at the maturity date. The new convertible debentures also provide for certain registration rights in the event of an IPO. In addition, the new convertible debentures are mandatorily redeemable upon certain events, such as a merger, reorganization, stock sale, sale of substantially all assets of the Company, or similar transaction. The maturity or mandatory redemption amount shall be the greater of (i) the unpaid principal balance or (ii) the fair value of the shares to which the debenture holder would have been entitled on a converted basis.

The Company’s periodic interest cost is determined using the interest method assuming an April 4, 2007 maturity of the debentures.

The Company established a 401(k) savings plan effective July 1, 2000, which allows full-time employees age 21 or over with at least one year of service to make tax-deferred contributions of 1% of compensation up to a maximum amount allowed under Internal Revenue Service guidelines. The plan provides for Company matching of employee contributions on a discretionary basis. The Company contributed $64,991, $0, and $35,000 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively.

The Company has certain contingent liabilities resulting from litigation and claims incident to the ordinary course of business. Management believes the probable resolution of such contingencies will not materially affect the financial position or results of operations of the Company.

Effective January 4, 2004, the Company revoked its S corporation status and therefore will be subject to corporate federal and state income taxes as a C corporation. Because the Company was an S corporation through the year ended January 3, 2004, deferred taxes have not been reflected in the financial statements. The Company is not responsible for these income taxes until the revocation of the S corporation status. For informational purposes, the statements of operations include a pro forma adjustment for income taxes that would have been recorded if the Company was a C corporation, calculated in accordance with SFAS No. 109, Accounting for Income Taxes.

The differences between pro forma income taxes at the statutory U.S. federal income tax rate of 34% and those reported in the statements of operations relate to the impact of state and local taxes and, in periods prior to the adoption of SFAS No. 142, the amortization of excess of acquired net assets over cost.

The following table reconciles the Company’s historical income (loss) before cumulative effect of change in accounting to pro forma income (loss) before cumulative effect of change in accounting and income taxes.

Significant components of the pro forma provision for (benefit from) income taxes on income (loss) before cumulative effect of change in accounting are as follows:

The differences between the pro forma provision for (benefit from) income taxes at the statutory U.S. federal income tax rate of 34% and those reported in the statements of operations are as follows:

Deferred income taxes arise from temporary differences in the recognition of income and expense for income tax purposes. Pro forma deferred income taxes were computed using the liability method and reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes as if the Company was a C corporation.

Components of the Company’s pro forma deferred tax assets and liabilities are as follows:

As discussed in Note 18, effective February 10, 2004 the Company completed its IPO. In connection with the IPO, all Class A, Class B and Class C common stock was converted into the Company’s new common stock. The following discussion of Class A, Class B and Class C common stock relates to their rights and privileges as of January 3, 2004.

As of January 3, 2004, the Company has three classes of common stock: Class A, Class B, and Class C. All voting rights are vested with the Class A and Class C common stock. The Articles of Incorporation provide that all classes of common stock have equal rights with respect to distributions and liquidation preference.

All Class A shares are subject to a shareholder agreement which limits the shareholder’s ability to sell stock and provides the Company the right to purchase stock from the shareholders at a price based on net book value in certain circumstances defined in the agreement or at a price based on the appraised value of the Company in the event of the death of a Class A shareholder. The shareholder agreement provides for certain registration rights and co-sale rights in connection with an IPO.

During fiscal 1999, the Company sold 605,595 shares of Class A stock for $2,418,116, net of issuance costs. Of the total amount sold, 284,257 shares contained put options, and these shares are classified as a Class A stock redemption obligation in the accompanying balance sheets. These options give the option holders the right to cause the Company to redeem all, but not less than all, shares held by the individuals in June 2004 or June 2005. The purchase price for such redemption is to be equal to the greater of (a) the book value of the shares as defined in the agreement or (b) a variable minimum redemption amount based upon timeframes specified in the agreement. The difference between the minimum redemption amount and the original issue price of the shares holding put options is being accreted over the redemption period.

In January 2001, 17,200 of the Class A shares were sold among shareholders at the original issue price. Under the purchase agreement, put options attached to certain of these shares did not transfer to the new shareholders and were therefore terminated. Accordingly, the original value of $69,906 associated with these shares was transferred from temporary capital into permanent paid-in capital at that time. In addition, this

transaction decreased the minimum redemption amount, which is accounted for as a change in accounting estimate and thus impacts the periodic accretion charges on a prospective basis with no adjustment to prior periods.

The Class A stock redemption obligation is $1,262,696, and $1,389,326 at January 4, 2003, and January 3, 2004, respectively. If the put options are exercised, the Class A stock redemption obligation would be payable in 36 equal monthly installments of principal plus interest at a rate of 8% beginning in the month the options are exercised.

Beginning after October 31, 2007 (ten years from the date of original issuance), the Company has the option to purchase all, but not less than all, of the 271,910 Class B shares held by the respective Class B shareholders, which represents all issued and outstanding shares. In the event the Company fails to exercise its purchase option, the principal Class A shareholder shall then have the option to purchase all, but not less than all, of the outstanding Class B shares. If the Company or the principal Class A shareholder exercises the respective right, the purchase price per share shall be an amount determined by an external appraiser selected by the parties in accordance with the agreement.

Upon the death of a Class B shareholder, the Company and the principal Class A shareholder have generally the same repurchase rights and at the same price as those in place after October 31, 2007.

The Class B shareholders also have the right to cause the Company to redeem all 271,910 Class B shares upon the Company’s final principal payment related to the outstanding subordinated note payable with these shareholders in January 2008 (see Note 8). The Class B shareholders could cause such redemption to occur earlier upon the occurrence of certain events, as defined in the agreement. The purchase price upon the redemption of the Class B shares is based on net book value per share in accordance with the agreement.

Periodic changes in the redemption value are recognized immediately by the Company as they occur. Thus, the carrying value of the Class B shares is adjusted to equal the redemption amount at the end of each reporting period through an offset to retained earnings. The value of the Class B stock redemption obligation was $283,500 and $506,500 as of January 4, 2003 and January 3, 2004, respectively.

The Company has a stock option plan (the Plan) under which non-qualified options to purchase up to 1,500,000 shares of Class C stock are available to be granted to employees at an option price determined by the Board of Directors, which administers the Plan. No option can be for a term of more than 14 years from the date of grant. In general, options vest at 25% per year on each annual anniversary date of the optionee’s employment with the Company. At January 4, 2003, approximately 183,206 options were exercisable. At January 3, 2004, all 268,992 options issued were exercisable. No options have been exercised since the inception of the Plan.

Stock option activity under the Plan during the years ended January 5, 2002, January 4, 2003, and January 3, 2004 is as follows:

The Company has elected to follow APB No. 25 and related interpretations in accounting for its stock options and the disclosure-only provisions of SFAS No. 123. Under APB No. 25, compensation expense is recognized over the vesting period based on the amount by which the fair value of the underlying common stock exceeds the exercise price of stock options at the date of grant. In 2003, the Company issued 24,718 options with an estimated grant-date fair value of $6.00 per share which vested immediately and were included in compensation expense.

Pro forma information regarding results of operations is required by SFAS No. 123 as if the Company had accounted for its stock-based awards under the fair value method. The fair value of the Company’s stock-based awards to employees has been estimated using the minimum value option pricing model, which does not consider stock price volatility. Because the Company does not have actively traded equity securities, volatility is not considered in determining the fair value of the stock-based awards.

For the year ended January 3, 2004, the fair value of the Company’s stock-based awards was estimated using the following weighted average assumptions:

The weighted average remaining contractual life of the stock options outstanding at January 3, 2004 is approximately 10 years.

The Company issued warrants that entitle the note holder to acquire 76,907 shares of Class A common stock at an exercise price of $0.001 per share. The note holder may also put the warrants to the Company on the maturity date of the related subordinated note, which is March 1, 2004. The minimum stated repurchase obligation for the warrants on that date is $850,000 and could be higher based on the Company’s financial results. At the date of issuance in fiscal 1999, the Company determined the fair value of the subordinated note payable and allocated the proceeds received between the note and warrants based on their respective fair values at the time of issuance. The value allocated to the warrants, of $307,551, was recorded as a debt discount to be charged to interest expense over the life of the notes using the effective interest method. Interest expense recorded with respect to the amortization of the debt discount was $86,424, $124,160, and $12,447 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively.

The warrants are being accreted, using the effective interest method, to the minimum repurchase amount of $850,000 over the term of the note as interest expense, which was $111,520, $140,094, and $150,640 for the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively.

The following table sets forth the computation of basic and diluted earnings per share:

The following table sets forth the earnings per share for the unaudited pro forma income tax information on the accompanying statements of operations (see Note 12):


(1)	The diluted earnings per share calculation for the year ended January 3, 2004 excludes incremental shares of 76,897 and interest expense, net of tax, of $93,397 related to the outstanding stock purchase warrants because they are antidilutive.

The carrying values and fair values of the Company’s financial instruments are as follows:

The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. The fair values of long-term debt and capital lease obligations have been estimated based on current rates offered to the Company for debt of the same maturities. The fair value of stock purchase warrants is estimated based upon the minimum repurchase amount discounted based on current rates offered to the Company for debt of the same maturity.

The Company purchases merchandise inventory from a vendor affiliated with the Company through common ownership. Such purchases were approximately $1,200,000, $865,000 and $733,000 during the years ended January 5, 2002, January 4, 2003, and January 3, 2004, respectively. Accounts payable related to such purchases were approximately $102,000 and $85,000 at January 4, 2003 and January 3, 2004, respectively.

Holders of $918,368 of the $4,500,000 outstanding subordinated convertible debentures are related parties, including a relative of the principal shareholder and an entity affiliated with the Company through a common director.

In addition, the Company maintains certain of its cash and cash equivalents with a financial institution also affiliated with the Company through common ownership. A portion of the Company’s credit facility, long-term subordinated debt and Class A stock purchase warrants are payable to this affiliated financial institution. The transactions with this affiliate are executed in the normal course of business.

Effective January 4, 2004, the Company elected, by the consent of its shareholders, to revoke its status as an S corporation and become subject to taxation as a C corporation. As a result of this change in tax status, the Company will recognize deferred tax assets and liabilities for the temporary differences between the book and tax basis of assets and liabilities at the time of conversion, and will be subject to federal, state and local income taxes at the corporate level.

On February 10, 2004, the Company completed its IPO and sold 2,160,000 shares of common stock at $7.75 per share. On March 12, 2004, the Company sold an additional 324,000 shares of common stock at $7.75 per share when the underwriters exercised their over-allotment option. The net proceeds to the Company from the IPO were approximately $15,500,000 after deducting the underwriting discount and other expenses incurred in connection with the IPO.

The Company used the proceeds from the IPO to repay the balance on the revolving credit agreement, described in Note 7, repay approximately $850,000 of subordinated debt, described in Note 8, and repurchase stock warrants, described in Note 13, for $850,000. The Company used the remaining proceeds for working capital purposes, primarily for the purchase of inventory in the ordinary course of business, and investments in short-term, investment-grade, interest bearing instruments.

Effective with the IPO, all shares of the Company’s existing Class A, Class B, and Class C common stock were exchanged for shares of new common stock on a one to one basis and the Company’s related repurchase obligations were terminated.

Effective with the IPO, the Company issued stock purchase warrants covering 216,000 share of common stock with an exercise price of $12.7875 per share, subject to antidilution adjustments, to representatives of the underwriters. The warrants become exercisable on February 5, 2005 and expire on February 5, 2009.

Effective with the IPO, the Company issued 304,500 stock options to its employees at an exercise price of $7.75 per share. These options vest over five years and expire after ten years.

Effective with the IPO, the subordinated convertible debentures were converted into 653,331 shares of common stock at a conversion rate of $7.50 per share. The Company will recognize a beneficial conversion expense of approximately $163,000 for the difference between the $7.75 offering price and the $7.50 conversion price.

F-25 EX-3.1 3 c83898exv3w1.txt RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 RESTATED ARTICLES OF INCORPORATION OF BAKERS FOOTWEAR GROUP, INC. ARTICLE ONE NAME The name of the corporation (the "Corporation") is Bakers Footwear Group, Inc. ARTICLE TWO REGISTERED OFFICE The address of the Corporation's registered office in the State of Missouri is 2815 Scott Avenue, St. Louis, Missouri 63103, and the name of the registered agent at such address is Peter A. Edison. ARTICLE THREE AUTHORIZED SHARES A. Classes and Number of Shares. The aggregate number, class and par value of shares of capital stock which the Corporation shall have authority to issue is Forty Five Million (45,000,000) shares of stock, consisting of: (i) Forty Million (40,000,000) shares of common stock, having a par value of one one-hundredth of a cent ($0.0001) per share ("Common Stock"); and (ii) Five Million (5,000,000) shares of preferred stock, having a par value of one one-hundredth of a cent ($0.0001) per share ("Preferred Stock"). All preemptive rights of shareholders are hereby denied, so that no stock or other security of the Corporation shall carry with it and no holder or owner of any share or shares of stock or other security or securities of the Corporation shall have any preferential or preemptive right to acquire additional shares of stock or of any other security of the Corporation. All cumulative voting rights are hereby denied, so that no stock or other security of the Corporation shall carry with it and no holder or owner of any share or shares of such stock or security shall have any right to cumulative voting in the election of directors or for any other purpose. The foregoing provisions within this paragraph are not intended to modify or prohibit any provisions of any voting trust or agreement between or among holders or owners of shares of stock or other securities of the Corporation. In addition to those general qualifications, limitations and restrictions applicable to each and every class and series of capital stock of the Corporation as a matter of law or as stated in the immediately preceding paragraph, the voting powers, designations, preferences, and relative, participating, optional or other special rights and qualifications, limitations, or restrictions thereof, or terms and conditions of redemption, if any, in respect of the shares of each class are described in Sections B and C of this Article Three. B. Terms of Common Stock. 1. Voting Rights. Except as otherwise provided by the GBCL, each holder of shares of Common Stock shall be entitled to one vote per share of Common Stock held by such holder on all matters to be voted on by the shareholders. 2. Dividend Rights. Subject to the express terms of any outstanding series of Preferred Stock, dividends may be declared and paid upon the Common Stock out of funds of the Corporation legally available therefor, in such amounts and at such times as the Board of Directors may determine. Funds otherwise legally available for the payment of dividends on the Common Stock shall not be restricted or reduced by reason of there being any excess of the aggregate preferential amount of any series of Preferred Stock outstanding over the aggregate par value thereof. C. Terms of Preferred Stock. 1. Subject to the requirements of the GBCL, and to the provisions of these Articles of Incorporation, the Board of Directors is expressly authorized, prior to the issuance of any shares of any series of Preferred Stock, to cause any number of the authorized and undesignated shares of Preferred Stock to be issued at any time and from time to time by adopting a resolution or resolutions providing for the issuance of shares of any particular series of Preferred Stock, to set or change the number of shares to be included in any series of Preferred Stock and to set or change (in any one or more respects) the voting powers, full or limited, or no voting powers, and the designations, preferences, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, or terms and conditions of redemption relating to the shares of each such series and, if and to the extent from time to time required by law, by filing certification thereto with the Secretary of State of Missouri. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, setting or changing the following: (a) the distinctive serial designation of such series and the number of shares constituting such series (provided that the aggregate number of shares constituting all series of Preferred Stock shall not exceed the aggregate number of authorized shares set out in clause (ii) of Section A of this Article Three); (b) the rate or amount per annum, if any, at which the holders of the shares of such series of Preferred Stock shall be entitled to receive dividends, the date on which any such dividends shall be payable, whether and the extent to which such dividends shall be cumulative or non-cumulative, the relative rights of priority, if any, of payment of any dividends, and the time at which, and the terms and conditions on which, any such dividends shall be paid; (c) whether the shares of such series shall be redeemable or purchasable and, if so, the terms and conditions of such redemption or purchase, including the date or dates upon and after which such shares shall be redeemable or purchasable, and the amount per share payable in case of redemption or purchase, with any adjustments, which amount may vary under different conditions and at different redemption or purchase dates and may be in cash, property or rights, including securities of the Corporation or of another business entity; (d) the obligation, if any, of the Corporation to retire shares of such series pursuant to a sinking fund and the terms and conditions of any such sinking fund; (e) whether shares of such series of Preferred Stock shall be convertible into, or exchangeable for, shares of stock of any other series, class or classes, now or hereafter authorized, and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) whether the shares of such series of Preferred Stock shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (g) the rights of the holders of shares of such series of Preferred Stock in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of such holders with respect thereto; and (h) any other relative rights, powers, preferences, qualifications, limitations or restrictions thereof relating to such series of Preferred Stock. ARTICLE FOUR BUSINESS COMBINATIONS The Corporation hereby subjects itself to and accepts the provisions of Section 351.459 of the GBCL, provided that such section shall not apply to any person who was an "interested shareholder" as of April 1, 2002, or any affiliates or associates of such person at such time. ARTICLE FIVE INCORPORATOR The name and place of residence of each incorporator is as follows: Charles H. Weiss, St. Louis, Missouri 25 shares Max W. Kramer, St. Louis, Missouri 25 shares Henry H. Stern, St. Louis, Missouri 25 shares Clyde W. Wagner, St. Louis, Missouri 25 shares --- 100 shares ARTICLE SIX DIRECTORS A. Number and Classification. ------------------------- The current number of directors to constitute the Board of Directors of the Corporation is three. Hereafter, the number of directors shall be fixed by or in the manner provided in the Bylaws of the Corporation. Any changes in the number of directors shall be reported to the Missouri Secretary of State within thirty (30) calendar days of such change. Directors shall be elected to hold office until the next succeeding annual meeting of the shareholders and the election or appointment of the director's successor or the director's earlier resignation or removal. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of stock of the Corporation, other than shares of Common Stock, shall have the right, voting separately by class or series, to elect directors, then the election, term of office, filling of vacancies and other features of such directorship shall be governed by the terms of the Articles of Incorporation of the Corporation or any certificate of designation thereunder applicable thereto. As used in these Articles of Incorporation, the term "entire Board of Directors" or the "entire Board" means the total number fixed by, or in accordance with, these Articles of Incorporation and the Bylaws of the Corporation. B. Removal of Directors. Subject to, and in addition to, the rights, if any, of the holders of any class of capital stock of the Corporation (other than the Common Stock) then outstanding or any limitation imposed by law, (1) any director, or the entire Board of Directors, may be removed from office at any time prior to the expiration of his, her or their term of office only for cause and by the affirmative vote of the holders of record of outstanding shares representing not less than two-thirds of all of the then outstanding shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class at a special meeting of shareholders called expressly for that purpose (such vote being in addition to any required class or other vote); and (2) any director may be removed from office for cause by the affirmative vote of a majority of the entire Board of Directors at any time prior to the expiration of his or her term of office, as provided by law, in the event that the director fails to meet any qualifications stated in the Bylaws for election as a director or in the event that the director is in breach of any agreement between the director and the Corporation relating to the director's service as a director or employee of the Corporation. Notice of any proposed removal pursuant to clause 2 of this Section B shall be given to all directors of the Corporation prior to action thereto. C. Vacancies. Subject to the rights, if any, of the holders of any class of capital stock of the Corporation (other than the Common Stock) then outstanding, any vacancies in the Board of Directors which occur for any reason, including vacancies which occur by reason of an increase in the number of directors or the removal or resignation of a director, shall be filled only by the Board of Directors, acting by the affirmative vote of a majority of the remaining directors then in office (although less than a quorum). Any replacement director so elected shall hold office only until the next election of directors by the shareholders of the Corporation, unless removed prior to the expiration of his or her term, pursuant to Section B the Article Six. ARTICLE SEVEN DURATION The duration of the Corporation is perpetual. ARTICLE EIGHT PURPOSES The Corporation is formed for the purpose of engaging in any lawful act or activity for which a corporation now or hereafter may be organized under the laws of the State of Missouri. ARTICLE NINE BYLAWS Only a majority of the entire Board of Directors may make, amend, alter, change or repeal any provision or provisions of the Bylaws of the Corporation; provided, however, that in no event shall the Bylaws be inconsistent with law or, in substance to a material degree, with any of the terms, conditions or provisions of these Articles of Incorporation. ARTICLE TEN LIMITATION ON LIABILITY The liability of the directors of the Corporation to the Corporation or any of its shareholders for monetary damages for breach of fiduciary duty as a director shall be eliminated to the fullest extent permitted under the GBCL. Any repeal or modification of this Article Ten by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. ARTICLE ELEVEN AMENDMENT OF THE ARTICLES OF INCORPORATION The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on the shareholders, directors, officers, employees or agents of the Corporation are subject to this reserved power; provided, that (in addition to any required class or other vote) the affirmative vote of the holders of record of outstanding shares representing not less than two-thirds of all of the outstanding shares of capital stock of the Corporation then entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, alter, change or repeal, or adopt any provision or provisions inconsistent with, Articles Four, Six, Nine, Ten or this Article Eleven of these Articles of Incorporation, notwithstanding the fact that a lesser percentage may be specified by the laws of Missouri. EX-3.2 4 c83898exv3w2.txt RESTATED BYLAWS EXHIBIT 3.2 RESTATED BYLAWS OF BAKERS FOOTWEAR GROUP, INC. ARTICLE I SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of shareholders shall be held at the principal office of the Corporation, or at such other place either within or without the State of Missouri as the directors may from time to time determine, at 10:00 A.M. on the second Tuesday in June in each year, or such other time as may be determined by the Chairman of the Board, or if said day be a legal holiday then on the next succeeding business day, to elect directors and transact such other business as may properly come before the meeting. SECTION 2. SPECIAL MEETINGS. Special meetings of shareholders or of the holders of any special class of stock of the Corporation, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called only by the Chairman of the Board, the Chief Executive Officer or shareholders holding not less than two-thirds of the voting power or the affirmative vote of a majority of the entire Board of Directors by request for such meeting in writing. Such request shall be delivered to the Secretary and shall state the purpose or purposes of the proposed meeting. Upon such direction or request, subject to any requirements or limitations imposed by the Articles of Incorporation, by these Bylaws or by law, it shall be the duty of the Secretary to call a special meeting of shareholders to be held at such time as is specified in the request; and each such meeting shall be held at such time, and at such place either within or without the State of Missouri, as may be specified in the notice thereof. SECTION 3. NOTICE. Written or printed notice of each meeting of shareholders, stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered or given not less than ten (10) or more than seventy (70) days before the date of the meeting, either personally or by mail, by or at the direction of the Secretary, to each shareholder of record entitled to vote at such meeting. Written notice shall include, but not be limited to, notice by "electronic transmission," which means any process of communication not directly involving the physical transfer of paper that is suitable for the retention, retrieval and reproduction of information by the recipient. Any notice of a meeting of shareholders sent by mail shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the shareholder at such shareholder's address as it appears on the records of the Corporation. SECTION 4. LIST OF SHAREHOLDERS ENTITLED TO VOTE. At least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting shall be prepared and arranged in alphabetical order with the address of each shareholder and the number of shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting, and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in the State of Missouri, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholders. Failure to comply with the above requirements in respect of lists of shareholders shall not affect the validity of any action taken at such meeting. SECTION 5. QUORUM. The holders of a majority of the outstanding shares entitled to vote, present in person or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of shareholders, except as otherwise provided by law, the Articles of Incorporation or these Bylaws. The shareholders present at a meeting at which a quorum is present or represented may continue to transact business until adjournment, notwithstanding the withdrawal of such number of shareholders as to reduce the remaining shareholders to less than a quorum. Whether or not a quorum is present or represented at any meeting of shareholders, the Chairman of the meeting or holders of shares having a majority of the outstanding voting power present and entitled to vote at any meeting may adjourn the meeting from time to time for successive periods of not more than ninety (90) days after such adjournment, without notice other than announcement of the adjournment at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally called. A meeting of shareholders may be successively postponed by resolution of the Board of Directors to a specified date up to a date ninety (90) days after such postponement or to another place, provided notice of the date and place of the postponed meeting, which may be made by public notice, is given to each shareholder of record entitled to vote at the meeting prior to the date previously scheduled for the meeting. As used in these Bylaws, "adjournment" means a delay in the date, which may also be combined with a change in the place, of a meeting after the meeting has been convened; "postponement" means a delay in the date, which may be combined with a change in the place, of the meeting before it has been convened, but after the time and place thereof have been set forth in a notice delivered or given to shareholders; and public notice shall be deemed to have been given if a public announcement is made by press release reported by the Dow Jones, Associated Press, Reuters or comparable national news service or in a publicly available document filed with or furnished to the United States Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (or any successor statute or regulation). In no event shall the public announcement of a postponement or adjournment of a meeting of shareholders commence a new time period for the giving of a shareholder's notice pursuant to Section 7 of this Article I. SECTION 6. VOTING. Each shareholder shall have such voting power as is prescribed by the Articles of Incorporation with respect to the shares registered in such shareholder's name on the books of the Corporation. At any meeting of shareholders, every shareholder having the right to vote shall be entitled to vote in person, by a telephonic voting system established by a proxy solicitation firm, proxy support service organization or like agent, or by proxy appointed by a proper instrument in writing and subscribed by the shareholder or by his or her duly appointed attorney-in-fact; provided that no proxy shall be valid after eleven (11) months from the date of 2 its execution unless otherwise provided in the proxy. A shareholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the shareholder. SECTION 7. ADVANCE NOTICE OF SHAREHOLDER BUSINESS; PROCEDURES FOR NOMINATING DIRECTORS. At any meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting. In addition to any other requirements imposed by or pursuant to law, the Articles of Incorporation or these Bylaws, each item of business to be properly brought before a meeting must (i) be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or the persons calling the meeting pursuant to these Bylaws; (ii) be otherwise properly brought before the meeting by or at the direction of the Board of Directors; or (iii) be otherwise properly brought before the meeting by a shareholder of record both at the time of the giving of notice and at the time of the meeting. For business to be properly brought before a meeting by a shareholder of record, or to nominate a person for election as a director, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received by the Secretary of the Corporation at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the meeting; provided, however, that in the event that less than 100 days' notice or prior public notice of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the 10th day following the day on which such notice of the date of the meeting was mailed or on which such public notice was given. A shareholder's notice to the Secretary shall set forth (A) for nominations, as to each person whom the shareholder proposes to nominate for election or reelection as a director (i) the name, age, business and residential address, and principal occupation or employment of each proposed nominee, (ii) the class and number of shares of capital stock of the Corporation that are beneficially owned by such nominee on the date of such notice, (iii) a description of all arrangements or understandings between the shareholder and each nominee and the name of any other person(s) pursuant to which the nomination(s) are to be made by the shareholder, (iv) all other information relating to such shareholder(s) or any nominee(s) of such shareholder(s) that is required to be disclosed in solicitations of proxies for the election of directors, or is otherwise required, in each case pursuant to Regulation 14A of the General Rules and Regulations under the Exchange Act and (v) a representation that the shareholder(s) intends to appear in person or by proxy at the meeting to nominate the person(s) specified in the notice; and (B) as to each matter of business he or she proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting; (ii) the text of the business (including the text of any resolutions proposed for consideration and in the event that such business includes (to the extent, if any, permitted) a proposal to amend the Articles of Incorporation or these Bylaws, the language of the proposed 3 amendment); (iii) the name and address, as they appear in the Corporation's shareholder records, of the shareholder(s) proposing such business; (iv) the class and number of shares of the Corporation's capital stock which are beneficially owned by the proposing shareholder(s); (v) any material interest of the proposing shareholder(s) in such business; (vi) all other information relating to such shareholder that is required to be disclosed pursuant to Regulation 14A of the General Rules and Regulations under the Exchange Act; and (vii) a representation that the shareholder(s) intends to appear in person or by proxy at the meeting to propose such other business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting of shareholders and no nominations made except in accordance with the procedures set forth in this Article I, Section 7. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting or that a nomination was not properly made, in either case, in accordance with the provisions of this Article I, Section 7, and if he or she should so determine, shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted and any such nomination not properly made before the meeting shall be without effect. The Chairman of the meeting shall have absolute authority to decide questions of compliance with the foregoing procedures, and his or her ruling thereon shall be final and conclusive. The provisions of this Article I, Section 7 shall also govern what controls timely notice for purposes of Rule 14a-4(c) under the Exchange Act. SECTION 8. WRITTEN CONSENT OF SHAREHOLDERS. Unless otherwise prescribed in the Articles of Incorporation, any action which may, if otherwise allowed by law, be taken at any meeting of shareholders, except the annual meeting of shareholders, may be taken without a meeting if consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Such consent may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute but one and the same instrument. SECTION 9. ORGANIZATION. Each meeting of shareholders shall be convened by the Chairman of the Board, Chief Executive Officer, or other officer or person calling the meeting by notice given in accordance with these Bylaws. The Chairman of the Board, or any person appointed by the Chairman of the Board prior to any meeting of shareholders, shall act as Chairman of each such meeting of shareholders. In the absence of the Chairman of the Board, or a person appointed by the Chairman of the Board to act as Chairman of the meeting, the shareholders present at the meeting shall designate a Chairman of the meeting. The Secretary of the Corporation, or a person designated by the Chairman, shall act as Secretary of each meeting of shareholders. Whenever the Secretary shall act as Chairman of the meeting, or shall be absent, the Chairman of the meeting shall appoint a person present to act as Secretary of the meeting. SECTION 10. PLACE OF MEETINGS. All meetings of the shareholders shall be held at such place within or without the State of Missouri as may be, from time to time, fixed or determined by the Board. SECTION 11. WAIVER OF NOTICE. Whenever any notice is required to be given, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. 4 ARTICLE II BOARD OF DIRECTORS SECTION 1. NUMBER; ELECTION; TENURE. The Board of Directors shall initially consist of one member, or such greater number of directors as shall be fixed by a resolution of the Board of Directors adopted from time to time; provided that any change in the number of directors shall be reported to the Secretary of State of the State of Missouri within 30 calendar days of such change if such report is then required by law. Directors shall be elected at each annual meeting of shareholders, to hold office until the expiration of their term or until their respective successors shall be elected and shall qualify. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders by or at the direction of the Board of Directors or any committee thereof designated by the Board of Directors, or by any shareholder of record of the Corporation entitled to vote for the election of directors at the meeting who complies with the procedures for bringing business or nominations before a meeting, which procedures are set forth in Article I of these Bylaws. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he or she should so determine, shall so declare to the meeting, and the defective nomination shall be disregarded. The Chairman of a meeting shall have absolute authority to decide questions of compliance with the procedures for bringing business or nominations before a meeting, and his or her ruling thereon shall be final and conclusive. SECTION 2. POWERS. The property and business of the Corporation shall be controlled and managed by its Board of Directors, which may exercise all powers of the Corporation and do or cause to be done all lawful acts as are not, by law, the Articles of Incorporation or these Bylaws, directed or required to be exercised and done by the shareholders. SECTION 3. CHAIRMAN. The directors shall elect one of their number to be Chairman of the Board. The Chairman shall preside at all meetings of the Board of Directors, unless absent from such meeting, in which case, if there is a quorum, the directors present may elect another director to preside at such meeting. SECTION 4. MEETINGS. Regular meetings of the Board of Directors, or of any committee designated by the Board of Directors, may be held at such places, within or without the State of Missouri, and on such dates and at such times as shall be fixed from time to time by the Chairman of the Board. Special meetings of the Board of Directors, or of any committee designated by the Board of Directors, may be held at any time and place on notice given personally, by mail, by telephone, by facsimile or by written notice by the Chairman of the Board the Chief Executive Officer or, at the request of the Chairman of the Board or Chief Executive Officer, by the Secretary of the Corporation to each director given not less than 24 hours in advance of such meeting; provided however, that any director may, at any time, in writing or by telegram, waive notice of any meeting at which he or she may not be or may not have been present. Attendance of a director at any meeting shall constitute a waiver of notice of the meeting except where a director attends a meeting for the sole and express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. 5 Rules of procedure for such meetings may be adopted by the Board of Directors or any committee thereof. Members of the Board of Directors, or of any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or committee by means of a conference telephone or similar communication equipment whereby all persons participating in the meeting can hear each other, and participation in a meeting in this manner shall constitute presence in person at the meeting. SECTION 5. QUORUM. A majority of members of the Board of Directors in office shall constitute a quorum at all meetings of the Board of Directors, and the act of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors unless a greater number of directors is required by the Articles of Incorporation, the Bylaws or by law. At any meeting of directors, whether or not a quorum is present, the directors present thereat may adjourn the same from time to time without notice other than announcement at the meeting. A director who may be disqualified, by reason of personal interest, from voting on any particular matter, transaction or contract before a meeting of the directors may nevertheless be counted for the purpose of determining the presence of a quorum. SECTION 6. WRITTEN CONSENT OF DIRECTORS. Any action which may be taken at any meeting of directors, or of any committee of the Board of Directors, may be taken without a meeting if consents in writing, setting forth the action so taken, shall be signed by all of the members of the Board of Directors or committee. Such consent may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute but one and the same instrument. SECTION 7. VACANCIES. Vacancies on the Board of Directors and newly created directorships resulting from any increase in the number of directors to constitute the Board of Directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, until the next election of directors by the shareholders of the Corporation. SECTION 8. RESIGNATION; REMOVAL. Any director of the Corporation may resign at any time by giving written notice of such resignation to the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if no time is specified, upon receipt by the Board of Directors or one of the above named officers of such notice; and, unless specified therein, the acceptance of such resignation shall not be necessary to make it effective. By action of a majority of the entire Board of Directors, any director may be removed from office for cause if such director shall at the time of such removal fails to meet the qualifications for election as a director as set forth herein and as determined from time to time by a majority of the entire Board of Directors. Notice of the proposed removal shall be given to all directors of the Corporation prior to action thereon. Directors may otherwise be removed only in the manner prescribed in the Articles of Incorporation. 6 SECTION 9. COMPENSATION OF DIRECTORS. Directors, as such, may receive such compensation and be reimbursed for expenses of attendance at any meeting of the Board of Directors or any committee thereof, as shall be determined by resolution adopted by a majority of the whole Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 10. COMMITTEES OF THE BOARD OF DIRECTORS; GENERAL RULES. The Board of Directors may, by resolution adopted by a majority of the whole Board of Directors, designate two or more directors to constitute a committee. Each committee, to the extent provided in such resolution, shall have and may exercise the authority of the Board of Directors, as so delegated in the resolution, in the management of the Corporation. Each committee of the Board of Directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. Vacancies in the membership of each committee shall be filled by the Board of Directors. At all meetings of a committee, a majority of the committee members then in office shall constitute a quorum for the purpose of transacting business, and the acts of a majority of the committee members present at any meeting at which there is a quorum shall be the acts of the committee. A director who may be disqualified, by reason of personal interest, from voting on any particular matter, transaction or contract before a meeting of a committee may nevertheless be counted for the purpose of determining the presence of a quorum. SECTION 11 QUALIFICATIONS. No person shall be qualified to be elected and to hold office as a director if such person is determined by a majority of the entire Board of Directors to have acted in a manner contrary to the best interests of the Corporation, including, but not limited to, the violation of either Federal or State law, maintenance of interests not properly authorized and in conflict with the interests of the Corporation, or breach of any agreement between that director and the Corporation relating to his or her services as a director, employee or agent of the Corporation. A director need not be a shareholder unless the Articles of Incorporation otherwise provide. ARTICLE III OFFICERS SECTION 1. OFFICERS; ELECTION. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, and a Secretary, and may also include, as the Board of Directors may from time to time designate, one or more Vice Chairmen of the Board, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Group Vice Presidents, one or more Vice Presidents, a Chief Financial Officer, a Treasurer, a Controller, and one or more Assistant Secretaries, Assistant Treasurers and Assistant Controllers. The Board of Directors shall elect all officers of the Corporation, except that Assistant Secretaries, Assistant Treasurers and Assistant Controllers may be appointed by the Chairman of the Board. The Board of Directors may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as the Board of Directors shall from time to time determine. Any two or more offices may be held by the same person except the offices of Chairman of the Board and Secretary. 7 SECTION 2. TERMS; COMPENSATION. All officers of the Corporation shall hold office until their respective successors are elected and qualify. Any vacancy occurring in such office may be filled only by the Board of Directors. The compensation each officer (excluding assistant officers) is to receive from the Corporation shall be determined in such manner as the Board of Directors shall from time to time prescribe. SECTION 3. REMOVAL. Any officer elected by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interest of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the officer so removed. The Chairman of the Board may suspend any officer until the Board of Directors shall next convene. SECTION 4. CHAIRMAN OF THE BOARD. The Chairman shall be the Chief Executive Officer of the Corporation. In addition to his duties as Chairman and Chief Executive Officer, he or she shall be responsible for the general and active management of the business and affairs of the Corporation, subject only to the control of the Board of Directors, shall have full authority in respect to the signing and execution of deeds, bonds, mortgages, contracts and other instruments of the Corporation; and, in the absence or disability of the President, shall exercise all of the powers and discharge all of the duties of the President. Unless otherwise determined by the Board of Directors, he or she shall also be, ex officio, a member of all standing Committees of the Board of Directors, shall preside at all meetings of the shareholders and Directors at which he or she is present and shall perform any other duties prescribed by the Board of Directors or these Bylaws. SECTION 5. PRESIDENT. In the absence of the Chairman of the Board of Directors, the President shall preside at all meetings of the shareholders and directors at which he or she is present. He or she shall perform any duties prescribed by the Chairman or the Board of Directors and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have equal authority with the Chairman of the Board to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. SECTION 6. VICE PRESIDENTS. The Vice Presidents, if any, in the order of their seniority shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, and shall perform any other duties prescribed by the Chairman, the President or the Board of Directors. SECTION 7. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall keep or cause to be kept a record of all meetings of the shareholders and the Board of Directors and record all votes and the minutes of all proceedings in a book to be kept for that purpose. He or she shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform any other duties prescribed by the Board of Directors or the 8 President, under whose supervision he or she shall be. He or she shall keep in safe custody the seal of the Corporation and shall affix the same to any instrument requiring it. The Assistant Secretaries, if any, in order of their seniority shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform any other duties prescribed by the Chairman, the President or the Board of Directors. SECTION 8. TREASURER AND ASSISTANT TREASURERS. The Treasurer, if any, shall have the custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors and shall perform any other duties prescribed by the Chairman, the President or the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and Directors, at the regular meetings of the Board of Directors, or whenever they may require it, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. The Assistant Treasurers, if any, in the order of their seniority shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform any other duties prescribed by the Board of Directors. SECTION 9. CONTROLLER AND ASSISTANT CONTROLLERS. The Controller, if one is elected by the Board of Directors, shall have charge of the accounting records of the Corporation, shall maintain appropriate internal control and auditing of the Corporation, and shall perform such other duties as directed by the Board of Directors, the Chairman of the Board or other senior officers. The Assistant Controllers, if any, in order of their seniority shall, in the absence or disability of the Controller, perform the duties and exercise the powers of the Controller and shall have any other duties prescribed by the Board of Directors. SECTION 10. APPOINTED OFFICERS. In addition to the corporate officers elected by the Board of Directors, the Chairman of the Board may, from time to time, appoint one or more other persons as appointed officers who shall not be deemed to be corporate officers, but may, respectively, be designated with such titles as the Chairman may deem appropriate. The Chairman may prescribe the powers to be exercised and the duties to be performed by each such appointed officer, may designate the term for which each such appointment is made, and may, from time to time, 9 terminate any or all of such appointments with or without cause. Such appointments and termination of appointments shall be reported periodically to the Board of Directors. ARTICLE IV CAPITAL STOCK SECTION 1. STOCK CERTIFICATES. The shares of the Corporation shall be represented by certificates, provided however, that the Board of Directors may provide by resolution that some or all of any classes or series of the Corporation's stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate, in any form approved by the Board of Directors, certifiying the number and class of shares owned by the shareholder in the Corporation, numbered appropriately and signed by the Chairman of the Board or the President or a Vice President and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer of the Corporation, and shall bear the corporate seal of the Corporation. To the extent permitted by law, the signatures of such officers, and the corporate seal, appearing on certificates of stock, may be facsimiles, engraved or printed. In case any such officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on any such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may nevertheless be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. The Corporation shall not issue a certificate for a fractional share; however, the Board of Directors may issue, in lieu of any fractional share, scrip or other evidence of ownership upon such terms and conditions as it may deem advisable. Notwithstanding any other provision of this Article IV, the Board of Directors may by resolution determine to issue certificateless shares, for registration in book entry accounts for shares of stock in such form as the appropriate officers of the Corporation may from time to time prescribe, in addition to or in place of shares of the Corporation represented by certificates, to the extent authorized by applicable law. SECTION 2. RECORD OWNERSHIP. The Corporation shall maintain a record of the name and address of the holder of each certificate, the number of shares represented thereby, and the date of issue and the number thereof. The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof, and accordingly it will not be bound to recognize any equitable or other claim of interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Missouri. SECTION 3. TRANSFERS. Transfers of stock shall be made on the books of the Corporation only by direction of the person named in the certificate, or by such person's duly appointed attorney-in-fact, lawfully constituted in writing, and upon the surrender of the certificate therefor or by appropriate book-entry procedures. In the case of uncertificated shares, transfer shall be 10 made only upon receipt of transfer documentation reasonably acceptable to the Corporation. The Board of Directors shall have the power and authority to make all such rules and regulations as it shall deem expedient concerning the issue, transfer and registration of shares of stock of the Corporation. SECTION 4. TRANSFER AGENTS; REGISTRARS. The Board of Directors may from time to time appoint one or more transfer agents or transfer clerks, and one or more registrars which may be banks, trust companies or other financial institutions located within or without the State of Missouri, to register shares of stock issued by or on behalf of the Corporation. The Board of Directors may adopt such rules as it may deem expedient concerning the issue, transfer and registration of stock certificates, or uncertificated shares, of the Corporation and may change or remove any transfer agent or registrar. SECTION 5. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. The holder of any shares of stock of the Corporation shall immediately notify the Corporation and its transfer agents and registrars, if any, of any loss, theft, destruction or mutilation of the certificates representing the same. The Corporation may issue a new certificate or uncertificated shares in place of any certificate theretofore issued by it which is alleged to have been lost, stolen or destroyed and the Board of Directors may require the owner of the lost, stolen or destroyed certificate or the owner's legal representative to give the Corporation a bond in a sum and in a form approved by the Board of Directors, and with a surety or sureties which the Board of Directors finds satisfactory, to indemnify the Corporation and its transfer agents and registrars, if any, against any claim or liability that may be asserted against or incurred by it or any transfer agent or registrar on account of the alleged loss, theft or destruction of any certificate or the issuance of a new certificate or uncertificated shares. The Board of Directors may, however, in its discretion, refuse to issue any such new certificate or uncertificated shares except pursuant to legal proceedings under the law of the State of Missouri in such case made and provided. A new certificate or uncertificated shares may be issued without requiring any bond when, in the judgment of the Board of Directors, it is proper so to do. The Board of Directors may delegate to any officer(s) of the Corporation any of the powers and authorities contained in this section. SECTION 6. TRANSFER BOOKS; RECORD DATES. The Board of Directors shall have power to close the stock transfer books of the Corporation as permitted by law; provided, however, that in lieu of closing the said books, the Board of Directors may fix in advance a date, not exceeding seventy days preceding the date of any meeting of shareholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares shall go into effect, as a record date for the determination of the shareholders entitled to receive notice of, and to vote at, any such meeting, and any adjournment or postponement thereof, or entitled to receive payment of any such dividend, or to receive any such allotment of rights or to exercise the rights in respect of any such change, conversion or exchange of shares, and in such case such shareholders, and only such shareholders, as shall be shareholders of record on the date of closing the transfer books or on the record date so fixed shall be entitled to receive notice of, and to vote at, such meeting, and any adjournment or postponement thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares 11 on the books of the Corporation after such date of closing of the transfer books or such record date fixed as aforesaid. SECTION 7. DIVIDENDS. Dividends upon the outstanding shares of the Corporation may be declared by the Board of Directors at any regular or special meeting pursuant to law. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE V OFFICES, SEAL, BOOKS, CHECKS, FISCAL YEAR SECTION 1. OFFICES. The principal office of the Corporation shall be located at 2815 Scott Avenue, St. Louis, Missouri 63103. SECTION 2. SEAL. The corporate seal of the Corporation shall be a circular seal; the words "BAKERS FOOTWEAR GROUP, INC." shall be embossed in the outer margin; and the words "Corporate Seal" shall be embossed in the interior; or the seal may be used by changing it on a facsimile thereof, to be impressed, affixed, reproduced or otherwise, within or without the State of Missouri. SECTION 3. PLACE FOR KEEPING BOOKS AND SEAL. The books of the Corporation, and its corporate minutes and corporate seal, shall be kept in the custody of or under the direction of the Secretary at the principal office of the Corporation, or at such other place or places within or without the State of Missouri and in the custody of such other person or persons as the Board of Directors may from time to time determine. SECTION 4. CHECKS. All checks or demands for money and notes of the Corporation shall be signed by or at the direction of such officer or officers, or such other person or persons as the Board of Directors may from time to time designate. SECTION 5. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by a resolution of the Board of Directors from time to time. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS SECTION 1. ACTIONS INVOLVING DIRECTORS. The Corporation shall indemnify each person (other than a party plaintiff suing on his or her own behalf or in the right of the Corporation) who at any time is serving or has served as a director of the Corporation against any claim, liability or expense incurred as a result of such 12 service, or as a result of any other service on behalf of the Corporation, or service at the request of the Corporation (which request need not be in writing) as a director, officer, employee, member or agent of another corporation, partnership, limited liability company, joint venture, trust, trade or industry association, or other enterprise (whether incorporated or unincorporated, for-profit or not-for-profit), to the maximum extent permitted by law. Without limiting the generality of the foregoing, the Corporation shall indemnify any such person (other than a party plaintiff suing on his or her behalf or in the right of the Corporation), who was or is a party or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, but not limited to, an action by or in the right of the Corporation) by reason of such service against expenses (including, without limitation, costs of investigation and attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding. SECTION 2. ACTIONS INVOLVING OFFICERS, EMPLOYEES AND AGENTS. A. Permissive Indemnification. The Corporation may, if it deems appropriate and as may be permitted by this Article Six, indemnify any person (other than a party plaintiff suing on his or her own behalf or in the right of the Corporation) who at any time is serving or has served as an officer, employee or agent of the Corporation against any claim, liability or expense incurred as a result of such service, or as a result of any other service on behalf of the Corporation, or service at the request of the Corporation as a director, officer, employee, member or agent of another corporation, partnership, limited liability company, joint venture, trust, trade or industry association, or other enterprise (whether incorporated or unincorporated, for-profit or not-for-profit), to the maximum extent permitted by law or to such lesser extent as the Corporation, in its discretion, may deem appropriate. Without limiting the generality of the foregoing, the Corporation may indemnify any such person (other than a party plaintiff suing on his or her own behalf or in the right of the Corporation), who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, but not limited to, an action by or in the right of the Corporation) by reason of such service, against expenses (including, without limitation, costs of investigation and attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding. B. Mandatory Indemnification. To the extent that an officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 2.A of this Article Six, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the action, suit or proceeding. SECTION 3. DETERMINATION OF RIGHT TO INDEMNIFICATION IN CERTAIN CIRCUMSTANCES. Any indemnification required under Section 1 of this Article Six or authorized by the Corporation in a specific case pursuant to Section 2 of this Article Six (unless ordered by a court) 13 shall be made by the Corporation unless a determination is made reasonably and promptly that indemnification of the director, officer, employee or agent is not proper under the circumstances because he or she has not met the applicable standard of conduct set forth in or established pursuant to this Article Six. Such determination shall be made (A) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (B) if such a quorum is not obtainable, or even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (C) by majority vote of the shareholders, provided that there shall be no presumption that the Corporation is released from any obligation under Section 1 of this Article Six, unless a written instrument, subscribed by an appropriate officer of the Corporation expressly so provides by making reference to this Subsection 3 of this Article Six. SECTION 4. ADVANCE PAYMENT OF EXPENSES. Expenses incurred by a person who is or was a director, officer or employee of the Corporation in defending a pending or threatened civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of an action, suit or proceeding, and expenses incurred by a person who is or was an agent of the Corporation in defending a pending or threatened civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors, in either case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, without interest, if it shall ultimately be finally determined that he or she is not entitled to be indemnified by the Corporation as authorized in or pursuant to this Article Six. SECTION 5. ARTICLE SIX PROVISIONS NOT EXCLUSIVE RIGHT. The indemnification provided by this Article Six shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled, whether under the Bylaws of the Corporation or any statute, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. SECTION 6. INDEMNIFICATION AGREEMENTS AUTHORIZED. Without limiting the other provisions of this Article Six, the Corporation is authorized from time to time, without further action by the shareholders of the Corporation, to enter into agreements with any director, officer, employee or agent of the Corporation providing such rights of indemnification as the Corporation may deem appropriate, up to the maximum extent permitted by law. Any agreement entered into by the Corporation with a director may be authorized by the other directors, and such authorization shall not be invalid on the basis that different or similar agreements may have been or may thereafter be entered into with other directors. 14 SECTION 7. STANDARD OF CONDUCT. Except as may otherwise be permitted by law, no person shall be indemnified pursuant to this Article Six (including without limitation pursuant to any agreement entered into pursuant to Section 6 of this Article Six) from or on account of such person's conduct which is finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct. The Corporation may (but need not) adopt a more restrictive standard of conduct with respect to the indemnification of any officer, employee or agent of the Corporation. SECTION 8. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or who is or was otherwise serving on behalf or at the request of the Corporation in any capacity against any claim, liability or expense asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article Six. SECTION 9. CERTAIN DEFINITIONS. For the purposes of this Article Six: A. Service in Representative Capacity. Any director, officer or employee of the Corporation who shall serve as a director, officer or employee of any other corporation, partnership, limited liability company, joint venture, trust or other enterprise of which the Corporation, directly or indirectly, is or was the owner of 20% or more of either the outstanding equity interests or the outstanding voting stock (or comparable interests), shall be deemed to be so serving at the request of the Corporation, unless the Board of Directors of the Corporation shall determine otherwise. In all other instances where any person shall serve as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise of which the Corporation is or was a stockholder or creditor, or in which it is or was otherwise interested, if it is not otherwise established that such person is or was serving as a director, officer, employee or agent at the request of the Corporation, the Board of Directors of the Corporation may determine whether such service is or was at the request of the Corporation, and it shall not be necessary to show any actual or prior request for such service. B. Predecessor Corporations. References to a corporation include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of a constituent corporation or is or was serving at the request of a constituent corporation as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article Six with respect to the resulting or surviving corporation as he or she would if he or she had served the resulting or surviving corporation in the same capacity. 15 C. Service for Employee Benefit Plan. The term "other enterprise" shall include, without limitation, employee benefit plans and voting or taking action with respect to stock or other assets therein; the term "serving at the request of the Corporation" shall include, without limitation, any service as a director, officer, employee or agent of a corporation which imposes duties on, or involves services by, a director, officer, employee or agent with respect to any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have satisfied any standard of care required by or pursuant to this Article Six in connection with such plan; the term "fines" shall include, without limitation, any excise taxes assessed on a person with respect to an employee benefit plan and shall also include any damages (including treble damages) and any other civil penalties. SECTION 10. SURVIVAL. Each person who was or is a director, officer or employee of the Corporation is a third party beneficiary to this Article Six and shall be entitled to enforce against the Corporation all indemnification rights provided or contemplated by this Article Six. Such indemnification rights shall continue as to a person who has ceased to be a director, officer or employee, and shall inure to the benefit of the heirs, executors and administrators of such a person. This Article Six may be hereafter amended or repealed; provided however, no such amendment or repeal shall reduce, terminate or otherwise adversely affect the right of any person who was or is a director, officer or employee to obtain indemnification or an advance of expenses with respect to a proceeding that pertains to or arises out of actions or omissions that occurred prior to the Deadline Indemnification Date. For purposes of this Section 10 of this Article Six, the term "Deadline Indemnification Date" shall mean the later of: (a) the effective date of any amendment or repeal of this Article Six which reduces, terminates or otherwise adversely affects the rights hereunder of any person who was or is a director, officer or employee; (b) the expiration of such person's then current term of office with, or service for, the Corporation (provided such person has a stated term of office or service and completes such term); or (c) the effective date such person resigns his or her office or terminates his or her service (provided such person has a stated term of office or service but resigns prior to the expiration of such term). 16 SECTION 11. LIABILITY OF THE DIRECTORS, OFFICERS, AND EMPLOYEES. Notwithstanding the limitation on liability for directors set forth in Article VI of the Corporation's Articles of Incorporation, it is the intention of the Corporation to limit the personal liability of the directors, officers and employees of the Corporation, in their capacity as such, whether to the Corporation, its shareholders or otherwise, to the fullest extent permitted by law. Consequently, should the GBCL or any other applicable law be amended or adopted hereafter so as to permit the elimination or limitation of such liability, the liability of the directors, officers and/or employees of the Corporation shall be so eliminated or limited without the need for amendment of these Bylaws or for further action on the part of the shareholders of the Corporation. ARTICLE VII ALTERATION, AMENDMENT, OR REPEAL OF BYLAWS These Bylaws may be altered, amended or repealed at any regular meeting of the Board of Directors, or at any special meeting of the Board of Directors if a description of the proposed alteration, amendment or repeal is provided in the materials presented at such regular or special meeting, by the affirmative vote of a majority of the Board of Directors, provided that such authority has been delegated to the Board of Directors by the Articles of Incorporation and further provided that in no event shall the Bylaws be inconsistent with law or, in substance to a material degree, with any of the terms, conditions or provisions of the Articles of Incorporation of the Corporation; provided however, that any amendment to Article VI of these Bylaws shall first be adopted by a vote of the shareholders to the extent required by law. ARTICLE VIII CONTROL SHARE ACQUISITIONS Section 351.407 of the General and Business Corporation Law of Missouri, as amended from time to time, (relating to control share acquisitions) shall not apply to control share acquisitions of the capital stock, whether common or preferred, of the Corporation. 17 EX-4.2.2 5 c83898exv4w2w2.txt FORM OF LETTER TO RYAN BECK & CO., INC. Exhibit 4.2.2 January 2, 2004 Ryan Beck & Co., Inc. 380 Madison Avenue New York, New York 10017 Ladies and Gentlemen: The undersigned is exchanging convertible debentures (the "2002 Debentures") of Bakers Footwear Group, Inc., a Missouri corporation (the "Company"), which were originally acquired on April 4, 2002 pursuant to a private placement by the Company, for New Debentures pursuant to a Convertible Debenture Exchange Agreement dated as of the date hereof. The undersigned understands that the Company proposes to engage in an underwritten public offering of newly issued shares of the Company's Common Stock, $.0001 per share (the "Proposed Offering"), pursuant to a registration statement on Form S-1 (File No. 333-86322) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. In connection with the Proposed Offering, the Company will enter into an Underwriting Agreement (the "Underwriting Agreement") among the Company, Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc., as representatives of the several Underwriters to be named in Schedule A thereto (the "Underwriters"), relating to the Proposed Offering. In order to induce the Underwriters to enter into the proposed Underwriting Agreement and to consummate the Proposed Offering, the undersigned hereby agrees not to, without the prior written consent of Ryan Beck & Co. Inc., during the Lock-Up Period (as defined below), directly or indirectly offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any shares of the Company's Common Stock or securities convertible into or exchangeable for shares of the Company's Common Stock, including without limitation the New Debentures, now owned or acquired upon conversion of the New Debentures by the undersigned (collectively, the "Company Securities") or file any registration statement with respect to any of the foregoing, or enter into any swap or other agreement that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of the Company Securities, whether any such swap or transaction is to be settled by delivery of Company Securities, in cash or otherwise, except that the undersigned may (x) transfer Company Securities as a bona fide gift or gifts, provided that the undersigned provides prior written notice of such gift or gifts to Ryan Beck & Co., Inc. and the donee or donees thereof agree(s) to be bound by the restrictions set forth herein, or (y) exercise options to purchase the Company's Common Stock, which options have been issued as of the date hereof. For purposes hereof, the "Lock-Up Period" shall mean the period commencing on the date hereof and ending on the later to occur of (1) the date that is ninety (90) days following the date of the consummation of the Proposed Offering pursuant to the Underwriting Agreement and (2) June 30, 2004. Furthermore, the undersigned hereby agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the transfer of the Company Securities in violation of this agreement. - ----------------------------- [Name] [The lock-up agreement was executed prior to the initial public offering by all the then existing holders of subordinated convertible debentures of the Company, including the following entities and individual: 1. Special Situations Fund III, L.P. 2. Special Situations Cayman Fund, L.P. 3. Special Situations Private Equity Fund, L.P. 4. Julian Edison 5. Crown Investment Partners, LP 6. The Crown Advisors, LLC 7. SWB Holdings, Inc. Copies of each executed lock-up agreement have been omitted. The Company undertakes to furnish supplementally a copy of each such lock-up agreement upon request.] EX-4.3 6 c83898exv4w3.txt REPRESENTATIVES' WARRANT AGREEMENT EXHIBIT 4.3 BAKERS FOOTWEAR GROUP, INC., RYAN BECK & CO., INC. AND BB&T CAPITAL MARKETS REPRESENTATIVES' WARRANT AGREEMENT Dated as of February 10, 2004 REPRESENTATIVES' WARRANT AGREEMENT by and among BAKERS FOOTWEAR GROUP, INC., a Missouri corporation (the "Company"), and RYAN BECK & CO., INC. ("Ryan Beck") and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc. ("BB & T"; Ryan Beck and BB&T are hereinafter collectively referred to variously as the "Holders" or the "Representatives"). WITNESSETH WHEREAS, the Company proposes to issue to the Representatives warrants ("Warrants") to purchase up to an aggregate of 216,000 shares of common stock (the "Shares"), $0.0001 par value per share, of the Company (the "Common Stock"); and WHEREAS, the Representatives have agreed pursuant to the underwriting agreement (the "Underwriting Agreement") dated as of February 4, 2004 by and among the Representatives and the Company, to act as the Representatives of the Underwriters in connection with the Company's proposed public offering of up to 2,484,000 shares of Common Stock at a public offering price of $7.75 per share of Common Stock (the "Public Offering"); and WHEREAS, the Warrants to be issued pursuant to this Agreement will be issued on the Closing Date (as such term is defined in the Underwriting Agreement) by the Company to the Representatives in consideration for, and as part of the Representatives' compensation in connection with, the Representatives acting as the Representatives pursuant to the Underwriting Agreement; NOW, THEREFORE, in consideration of the premises, the payment by the Representatives to the Company of an aggregate of twenty-one and sixty cents ($21.60), the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. GRANT. Each of the Representatives is hereby granted the right to purchase, at any time from February 10, 2005 until 5:30 P.M., New York time, on February 10, 2009, up to that number of shares of Common Stock as is set forth opposite the name of such Representative on Schedule A attached hereto at an initial exercise price (subject to adjustment as provided in Section 8 hereof) of $12.7875 per share of Common Stock subject to the terms and conditions of this Agreement. Except as expressly set forth herein, the shares issuable upon exercise of the Warrants are in all respects identical to the shares of Common Stock being purchased by the Representatives for resale to the public pursuant to the terms and provisions of the Underwriting Agreement. 2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in Exhibit A attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. EXERCISE OF WARRANT. 3.1 Method of Exercise. The Warrants initially are exercisable at an exercise price (subject to adjustment as provided in Section 8 hereof) per share of Common Stock set forth in Section 6 hereof payable by certified or official bank check in New York Clearing House funds. Upon surrender of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the shares of Common Stock purchased at the Company's principal offices in St. Louis, Missouri (presently located at 2815 Scott Avenue, St. Louis, Missouri 63103) the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to fractional shares of the Common Stock underlying the Warrants). In the case of the purchase of less than all the shares of Common Stock purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the shares of Common Stock purchasable thereunder. 3.2 Exercise by Surrender of Warrant. In addition to the method of payment set forth in Section 3.1 hereof and in lieu of any cash payment required thereunder, the Holder(s) of the Warrants shall have the right at any time and from time to time to exercise the Warrants in full or in part by surrendering the Warrant Certificate in the manner specified in Section 3.1 in exchange for the number of shares of Common Stock equal to the product of (x) the number of shares as to which the Warrants are being exercised multiplied by (y) a fraction, the numerator of which is the Market Price (as defined below) of the Common Stock less the Exercise Price, and the denominator of which is such Market Price. Solely for the purposes of this paragraph, Market Price shall be calculated either (i) on the date which the form of election attached hereto is deemed to have been sent to the Company pursuant to Section 13 hereof (the "Notice Date"), or (ii) as the average of the Market Prices for each of the five trading days immediately preceding the Notice Date, whichever of (i) or (ii) is greater. 3.3 Definition of Market Price. As used herein, the phrase "Market Price" at any date shall be deemed to be the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ"), or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted by NASDAQ, the average closing bid price as furnished by the National Association Securities Dealers, Inc. ("NASD") through 2 NASDAQ or similar organization if NASDAQ is no longer reporting such information, or if the Common Stock is not quoted on NASDAQ, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. 4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the issuance of certificates for shares of Common Stock or other securities, properties or rights underlying such Warrants, shall be made forthwith (and in any event within three (3) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the Common Stock (and/or other securities, property or rights issuable upon the exercise of the Warrants) shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company attested to by the manual or facsimile signature of the then present Secretary or Assistant Secretary of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. 5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof; and that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one (1) year from the date hereof, except to directors, officers, employees and affiliates of the Representatives who are capable of evaluating an investment in the Common Stock and who have access to material information of the scope and character available in a registration statement, as contemplated by the Securities Act of 1933, as amended (the "Act"). 6. EXERCISE PRICE. 6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in Section 8 hereof, the initial exercise price of each Warrant shall be $12.7875 per share of Common Stock. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof. 6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. REGISTRATION RIGHTS. 3 7.1 Registration Under the Securities Act of 1933. The Warrants, the Shares and any securities issuable upon exercise of the Warrants have not been registered under the Act. Upon exercise, in part or in whole, of the Warrants, certificates representing the Common Stock underlying the Warrants and any of the other securities issuable upon exercise of the Warrants (collectively, the "Warrant Shares") shall bear the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. 7.2 Piggyback Registration. For a period commencing on the effective date (the "Effective Date") of the Company's registration statement on Form S-1 (Registration No. 333-86332), and ending six (6) years from the Closing Date, if the Company proposes to register any of its securities under the Act (other than any registration statement filed by the Company pursuant to obligations existing on the date of this Agreement or in connection with a transaction registered on Form S-4 or any registration pursuant to Form S-8 or any successor forms) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Representatives and to all other Holders of the Warrants and/or the Warrant Shares of its intention to do so. If the Representatives or other Holders of the Warrants and/or Warrant Shares notify the Company within twenty (20) days after receipt of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford each of the Representatives and such Holders of the Warrants and/or Warrant Shares the opportunity to have any such Warrant Shares registered under such registration statement. Notwithstanding the provisions of this Section 7.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. 7.3 Demand Registration. (a) For a period commencing on the Effective Date, and ending five (5) years from the Closing Date, the Holders of the Warrants and/or Warrant Shares representing a "Majority" (as hereinafter defined) of such securities (assuming the exercise of all of the Warrants) shall have the right (which right is in addition to the registration rights under Section 7.2 hereof), exercisable by written notice to the Company, to have the Company prepare and file with the Securities and Exchange Commission (the "Commission"), on one occasion, a registration statement and such other documents, including a prospectus, as may be necessary in 4 the opinion of both counsel for the Company and counsel for the Representatives and Holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale of their respective Warrant Shares for nine (9) consecutive months by such Holders and any other Holders of the Warrants and/or Warrant Shares who notify the Company within ten (10) days after receiving notice from the Company of such request. (b) The Company covenants and agrees to give written notice of any registration request under this Section 7.3 by any Holder or Holders to all other registered Holders of the Warrants and the Warrant Shares within ten (10) days after the date of the receipt of any such registration request. (c) In addition to the registration rights under Section 7.2 and subsection (a) of this Section 7.3, for a period commencing on the Effective Date, and ending five (5) years from the Closing Date, unless all of the Warrants issued and issuable have been exercised and the Holders of the Warrant shares have received a written opinion of Company counsel, reasonably satisfactory in form and substance to such Holders, to the effect that all of the Warrant Shares are freely resalable pursuant to Rule 144(k) promulgated under the Act, any Holder of Warrants and/or Warrant Shares shall have the right, exercisable by written request to the Company, to have the Company prepare and file, on one occasion, with the Commission a registration statement so as to permit a public offering and sale for nine (9) consecutive months by any such Holder of its Warrant Shares, provided, however, that the provisions of Section 7.4(b) hereof shall not apply to any such registration request and registration and all costs incident thereto shall be at the expense of the Holder or Holders making such request. 7.4 Covenants of the Company With Respect to Registration. In connection with any registration under Sections 7.2 or 7.3 hereof, the Company covenants and agrees as follows: (a) The Company shall use its best efforts to file a registration statement within thirty (30) days of receipt of any demand therefor, shall use its best efforts to have any registration statements declared effective at the earliest possible time, and shall furnish each Holder desiring to sell Warrant Shares such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs, fees and expenses (excluding fees and expenses of Holder(s)' counsel and any underwriting or selling commissions) in connection with all registration statements filed pursuant to Sections 7.2 and 7.3(a) including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses. The Holder(s) requesting registration will pay all costs, fees and expenses in connection with any registration statement filed pursuant to Section 7.3(c). (c) The Company will take all necessary action which may be required in qualifying or registering the Warrant Shares included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Holder(s), provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction. 5 (d) The Company shall indemnify and hold harmless the Holder(s) of the Warrant Shares to be sold pursuant to any registration statement and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), from and against any and all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever including, without limitation, the fees and expenses of legal counsel) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Representatives contained in Section 10 of the Underwriting Agreement. (e) The Holder(s) of the Warrant Shares to be sold pursuant to a registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers, employees and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any and all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished in writing by or on behalf of such Holders, or their successors or assigns, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 10 of the Underwriting Agreement pursuant to which the Representatives have agreed to indemnify the Company. (f) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise their Warrants prior to the initial filing of any registration statement or the effectiveness thereof. (g) Except for the registration of securities pursuant to the exercise of registration rights granted to the holders of the Company's Subordinated Convertible Debentures due 2007, the Company shall not permit the inclusion of any securities other than the Warrant Shares to be included in any registration statement filed pursuant to Section 7.3 hereof, or permit any other registration statement (other than in connection with a transaction registered on Form S-4 or any registration pursuant to Form S-8, or any successor forms) to be or remain effective during the effectiveness of a registration statement filed pursuant to Section 7.3 hereof, without the prior written consent of the Holders of the Warrants and Warrant Shares representing a Majority of such securities. (h) The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of the registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter dated the effective date of the registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of 6 such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (i) The Company shall as soon as practicable after the effective date of the registration statement, and in any event within 15 months thereafter, make "generally available to its security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be audited) complying with Section 11 (a) of the Act and covering a period of at least 12 consecutive months beginning after the effective date. (j) The Company shall deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriters, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and such underwriters to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems or they deem reasonably necessary to comply with applicable securities laws or the rules and regulations of the NASD. Such investigation shall be solely in connection with the preparation of such registration statement and may include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such Holder or underwriter shall reasonably request. (k) The Company shall enter into an underwriting agreement with the underwriters selected for such underwriting by the Holders of a Majority of the Warrant Shares requested to be included in such underwriting, which, subject to applicable NASD rules and regulations, may be Ryan Beck and/or BB&T. Such agreement shall be satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Warrant Shares and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders and their intended methods of distribution or as otherwise required by the registration statement. (l) In addition to the Warrant Shares, upon the written request therefor by any Holder(s), the Company shall include in the registration statement any other securities of the Company held by such Holder(s) as of the date of filing of such registration statement, including without limitation restricted shares of Common Stock, options, warrants or any other securities convertible into shares of Common Stock, subject to customary carve-backs in the discretion of a managing underwriter. (m) For purposes of this Agreement, the term "Majority" in reference to the Holders of Warrants or Warrant Shares, shall mean in excess of fifty percent (50%) of the then 7 outstanding Warrants or Warrant Shares that (i) are not held by the Company, an affiliate, officer, creditor, employee or agent thereof or any of their respective affiliates, members of their family, persons acting as nominees or in conjunction therewith and (ii) have not been resold to the public. 8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES. 8.1 Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 8.2 Stock Dividends and Distributions. In case the Company shall pay a dividend in, or make a distribution of, shares of Common Stock or of the Company's capital stock convertible into Common Stock, the Exercise Price shall forthwith be proportionately decreased. An adjustment made pursuant to this Section 8.2 shall be made as of the record date for the subject stock dividend or distribution. 8.3 Adjustment in Number of Securities. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 8, the number of Securities issuable upon the exercise at the adjusted exercise price of each Warrant shall be adjusted to the nearest whole number by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 8.4 Definition of Common Stock. For the purpose of this Agreement, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Articles of Incorporation of the Company as of the date hereof, as the same may be amended from time to time, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 8.5 Merger or Consolidation. In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by a holder of the number of shares of Common Stock of the Company for which such warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 8. The above provision of this subsection shall similarly apply to successive consolidations or mergers. 8 8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise Price shall be made if the amount of said adjustment shall be less than two cents ($.02) per Warrant Share, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least two cents ($.02) per Warrant Share. 9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be required to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction down to the nearest whole number of shares of Common Stock or other securities, properties or rights and by paying to the Holder of the Warrant in lieu of such fraction, calculated to the nearest one one-hundredth of a share, an amount in cash equal to the then market value of one share of Common Stock, multiplied by such fraction. 11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants to be listed (subject to official notice of issuance) on all securities exchanges on which the Common Stock issued to the public in connection herewith may then be listed and/or quoted. 12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: 9 (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made and sent when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to the registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) If to the Representatives, to Ryan Beck & Co., Inc., 650 Madison Avenue, New York, New York 10022, Attention: Michael Kollender and to BB&T Capital Markets, 909 East Main Street, 7th Floor, Richmond, Virginia 23219, Attention: Jake Savage; or (c) If to the Company, to the address set forth in Section 3 hereof or to such other address as the Company may designate by notice to the Holders with a copy to Bryan Cave LLP, 211 North Broadway, Suite 3600, St. Louis, Missouri 63102, Attention: J. Mark Klamer. 14. SUPPLEMENTS AND AMENDMENTS. The Company and the Representatives may from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates (other than the Representatives) in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Representatives may deem necessary or desirable and which the Company and the Representatives deem shall not adversely affect the interests of the Holders of Warrant Certificates. 10 15. SUCCESSORS. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. 16. TERMINATION. This Agreement shall terminate at the close of business on February 10, 2011. Notwithstanding the foregoing, the indemnification provisions of Section 7 shall survive such termination until the close of business on February 10, 2017. 17. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State without giving effect to its rules governing the conflicts of laws. The Company and the Representatives hereby agree that any action, proceeding or claim against it or them arising out of, or relating in any way to, this Agreement shall be brought and enforced in the courts of the State of New York or of the United States of America for the Southern District of New York, and irrevocably submit to such jurisdiction, which jurisdiction shall be exclusive. The Company and the Representatives hereby irrevocably waive any objection to such exclusive jurisdiction or inconvenient forum. Any such process or summons to be served upon the Company or the Representatives (at the option of the party bringing such action, proceeding or claim) may be served by transmitting a copy thereof, by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address provided for in Section 13 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the party so served in any action, proceeding or claim. The Company and the Representatives agree that the prevailing party(ies) in any such action or proceeding shall be entitled to recover from the other party(ies) all of its/their reasonable legal costs and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. 18. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the Underwriting Agreement to the extent portions thereof are referred to herein) contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 19. SEVERABILITY. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 20. CAPTIONS. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the Representatives and any other registered Holder(s) of the Warrant Certificates or Warrant Shares any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company, the Representatives and the Holder(s) of the Warrant Certificates or Warrant Shares. 11 22. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. BAKERS FOOTWEAR GROUP, INC. By: /s/ PETER A. EDISON ------------------------------------ Name: Peter A. Edison Title: Chairman and Chief Executive Officer RYAN BECK & CO., INC. By: /s/ MICHAEL J. KOLLENDER ------------------------------------ Name: Michael J. Kollender Title: Executive Vice President BB&T CAPITAL MARKETS, a Division of Scott & Stringfellow, Inc. By: /s/ JAMES A. TYLER, JR. ------------------------------------ Name: James A. Tyler, Jr. Title: Senior Vice President and Head of Syndicate 13 SCHEDULE A ----------

A-14 EXHIBIT A THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:30 P.M., NEW YORK TIME, FEBRUARY 10, 2009 No. W-_______ WARRANT CERTIFICATE This Warrant Certificate certifies that ___________________, or registered assigns, is the registered holder of ___________ Warrants, each Warrant entitling the holder to purchase initially, at any time from February 10, 2005 until 5:30 p.m. New York time on February 10, 2009 ("Expiration Date"), one fully-paid and non-assessable share of common stock, $0.0001 par value ("Common Stock") of Bakers Footwear Group, Inc., a Missouri corporation (the "Company"), at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $12.7875 per share of Common Stock upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the Representatives' Warrant Agreement (the "Warrant Agreement") dated as of February 10, 2004 by and among the Company, Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc. Payment of the Exercise Price shall be made by certified or official bank check in New York Clearing House funds payable to the order of the Company or by surrender of this Warrant Certificate. No Warrant may be exercised after 5:30 p.m., New York time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a A-1 description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of February 10, 2004 A-2 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _______________ shares of Common Stock and herewith tenders in payment for such securities a certified or official bank check payable in New York Clearing House Funds to the order of Bakers Footwear Group, Inc. in the amount of $_________, all in accordance with the terms of Section 3.1 of the Representatives' Warrant Agreement, dated as of February 10, 2004, among Bakers Footwear Group, Inc., Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc. The undersigned requests that a certificate for such securities be registered in the name of ________________ whose address is _______________________ and that such Certificate be delivered to ___________________ whose address is _______________. Dated: _______________________ Signature: ___________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ______________________________________ (Insert Social Security or Other Identifying Number of Holder) A-3 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _____________ shares of Common Stock all in accordance with the terms of Section 3.2 of the Representatives' Warrant Agreement, dated as of February 10, 2004, among Bakers Footwear Group, Inc., Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc. The undersigned requests that a certificate for such securities be registered in the name of _________________ whose address is ___________________ and that such Certificate be delivered to __________________ whose address is___________________. Dated: _______________________ Signature: ___________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate. ) ______________________________________ (Insert Social Security or Other Identifying Number of Holder) A-4 (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED, __________________________ hereby sells, assigns and transfers unto _________________________________ (please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________ Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: _______________________ Signature: ___________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ______________________________________ (Insert Social Security or Other Identifying Number of Assignee) A-5 EX-4.5 7 c83898exv4w5.txt FORM OF LETTER TO RYAN BECK & CO., INC. Exhibit 4.5 [Date] Ryan Beck & Co., Inc. BB&T Capital Markets As Representatives of the Several Underwriters c/o Ryan, Beck & Co., LLC 380 Madison Avenue New York, New York 10017 Ladies and Gentlemen: Reference is made to that certain proposed Underwriting Agreement (the "Underwriting Agreement") among Bakers Footwear Group, Inc., a Missouri corporation (the "Company"), Ryan Beck & Co., Inc. ("Ryan Beck") and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc., as representatives of the several Underwriters named in Schedule A thereto, relating to a proposed firm commitment underwritten public offering of shares of the Company's Common Stock (the "Offering"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Underwriting Agreement. In order to induce the Underwriters to enter into the Underwriting Agreement and to consummate the transactions contemplated therein, and for other good and valuable consideration, receipt of which is hereby acknowledged, the undersigned hereby agrees not to, without the prior written consent of Ryan Beck & Co., Inc., during the Lock-Up Period (as defined below), directly or indirectly offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer (collectively, a "Disposition") any shares of the Company's Common Stock or securities convertible into or exchangeable for shares of the Company's Common Stock (collectively, the "Company Securities"), or file any registration statement with respect to any of the foregoing, or enter into any swap or other agreement that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of the Company Securities, whether any such swap or transaction is to be settled by delivery of Company Securities, in cash or otherwise, except that the undersigned may (i) transfer Company Securities as a bona fide gift or gifts, provided that the donee or donees thereof agree(s) to be bound by the restrictions set forth herein, (ii) transfer Company Securities to the undersigned's Family Group ("Family Group" means an individual's spouse, ex-spouse, lineal descendants, father, mother, brother, sister or domestic partner, whether by law or otherwise, or any grandparent, mother- inlaw, father- in-law, daughter- in- law, brother- in- law, stepchild, grandchild, step- grandchild, uncle, niece or nephew, including adoptive relationships, and any family limited partnership, limited liability company or trust or other fiduciary relationship solely for the benefit of such individual and/or any of the foregoing), (iii) transfer Company Securities by will or the laws of descent and distribution upon the death of the undersigned to his/her executors or administrators or legal successors, including without limitation trustee(s), or pursuant to a divorce decree or (iv) exercise options to purchase the Company's Common Stock, which options have been issued before the consummation of the Offering or otherwise as described in the prospectus in the form first used to confirm sales in connection with the Offering. For purposes hereof, the "Lock-Up Period" shall mean the period commencing on the date hereof and ending on the date that is three hundred sixty-five (365) days following the date of the prospectus in the form first used to confirm sales in connection with the Offering. The foregoing restriction has been expressly agreed to preclude the undersigned holder of the Company Securities from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Company Securities during the Lock-Up Period, even if such Company Securities would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Company Securities or with respect to any security (other than a broad-based market basket or index) that included, relates to or derives any significant part of its value from the Company Securities. Furthermore, the undersigned hereby agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the transfer of the Company Securities in violation of this agreement. In addition, the undersigned hereby agrees that for a period of twelve (12) months from the date of the final prospectus in the form used to confirm sales in connection with the Offering, Ryan Beck shall have a right of first refusal to purchase for its account or to sell for the account of the undersigned, within seven (7) business days, any Company Securities sold by the undersigned pursuant to Rule 144 under the Securities Act of 1933, as amended. The undersigned hereby agrees to consult (at no cost to the undersigned or the Company) with Ryan Beck with regard to any such sales and will offer Ryan Beck the exclusive opportunity to purchase or sell such securities on terms (including without limitation the price, commissions, mark-ups or other charges or expenses, and the terms of execution) that are at least as favorable to the undersigned as can be secured elsewhere. If Ryan Beck fails to accept in writing any such offer within three (3) business days after receipt of a notice containing such proposal, then Ryan Beck shall have no claim or right with respect to any such sales contained in the notice. If, thereafter, such proposal is modified in any material respect in a manner that is not adverse to the undersigned, the undersigned shall adopt the same procedure as with respect to the original proposal. - ---------------------------- [Name] [The lock-up agreement was executed prior to the initial public offering by all the then existing shareholders, directors and officers of the Company on December 19, 2003, including the following individuals: 1. Peter A. Edison 2. Bernard A. Edison Revocable Trust Dated 6/18/91 3. Bernard A. Edison, Co-Trustee Beatrice C. Edison Irrevocable Trust F/B/O Bernard A. Edison 4. Robin Haar, Co-Trustee Beatrice C. Edison Irrevocable Trust F/B/O Bernard A. Edison 5. Beatrice C. Edison Trust F/B/O Bernard A. Edison 6. Susan H. Edison 7. David A. Edison Trustee of David A. Edison Revocable Trust 8. Bernard A. Edison Trustee of David A. Edison Revocable Trust 9. Julian Edison 10. Marilyn Sue Edison 11. Joseph Russell 12. Michele Bergerac Trustee of Michele A. Bergerac Revocable Trust 13. Mark Jenkins 14. Andrew N. Baur Trust 15. Stanley K. Tusman, Joint Trustee The Stanley K. Tusman and Gail F. Tusman Declaration of Trust Dated December 1, 1999 16. Gail F. Tusman, Joint Trustee The Stanley K. Tusman and Gail F. Tusman Declaration of Trust Dated December 1. 1999 17. Mark H. Brown 18. Elizabeth Brown 19. Joseph R. Vander Pluym 20. Janice K. Vander Pluym 21. Mark D. Ianni 22. Kathy M. Ianni 23. Lawrence Spanley 24. Linda K. Spanley 25. Sanford W. Weiss, Voting Trustee of the Class B Shareholder Voting Trust Agreement 26. Sanford W. Weiss, as Trustee U/I Sanford W. Weiss 27. Sanford W. Weiss, as Trustee of Richard S. Weiss Marital Trust 28. Sanford W. Weiss, as Trustee U/I/T of Charles H. Weiss 29. Ellen Weiss 30. Rochelle Weiss 31. Stephen Weiss 32. David Weiss 33. Michael Weiss 34. Alyson Weiss 35. Jennifer Weiss 36. Colby Oliver The lock-up agreement was executed by all newly appointed outside directors on March 9, 2004, including the following individuals: 1. Scott C. Schnuck 2. Harry E. Rich 3. Timothy F. Finley. Copies of each executed lock-up agreement have been omitted. The Company undertakes to furnish supplementally a copy of each such lock-up agreement upon request.] EX-4.6 8 c83898exv4w6.txt FORM OF COMMON STOCK CERTIFICATE . . . EXHIBIT 4.6 FORM OF COMMON STOCK CERTIFICATE NUMBER SHARES BF (BAKERS FOOTWEAR GROUP, INC. LOGO) BAKERS FOOTWEAR GROUP, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF MISSOURI SEE REVERSE FOR CERTAIN DEFINITIONS COMMON STOCK CUSIP 057465 10 6 THIS CERTIFIES THAT: IS THE OWNER OF FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.0001 PAR VALUE EACH OF BAKERS FOOTWEAR GROUP, INC. transferable on the books of the Corporation in person or by attorney upon surrender of this certificate duly endorsed or assigned. This certificate and the shares represented hereby are subject to the laws of the State of Missouri, and to the Articles of Incorporation and Bylaws of the Corporation as now or hereafter amended. This certificate is not valid until countersigned by the Transfer Agent. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. COUNTERSIGNED: DATED: CONTINENTAL STOCK TRANSFER & TRUST COMPANY JERSEY CITY, NJ TRANSFER AGENT AND REGISTRAR (BAKERS FOOTWEAR GROUP, INC. SEAL 2001) BY: AUTHORIZED OFFICER /s/ LAWRENCE L SPANLEY JR. /s/ PETER A. EDISON VICE PRESIDENT FINANCE-SECRETARY/TREASURER CHAIRMAN AND CHIEF EXECUTIVE OFFICER

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian _____________ TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants in common Act _____________ (State)
Additional abbreviations may also be used though not in the above list. For Value Received, _____________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [ ] ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ Shares of the stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________ Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ___________________ ________________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR OTHER RECOGNIZED STOCK EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE MEDALLION PROGRAM. ________________________________________________________________________________ STOCK MARKET INFORMATION COLUMBIA FINANCIAL PRINTING CO., www.stockinformation.com P.O. BOX 219, BETHPAGE, NY 11714 EX-4.7 9 c83898exv4w7.txt WARRANTS EXHIBIT 4.7 THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:30 P.M., NEW YORK TIME, FEBRUARY 10, 2009 No. W-_______ WARRANT CERTIFICATE This Warrant Certificate certifies that ___________________, or registered assigns, is the registered holder of ___________ Warrants, each Warrant entitling the holder to purchase initially, at any time from February 10, 2005 until 5:30 p.m. New York time on February 10, 2009 ("Expiration Date"), one fully-paid and non-assessable share of common stock, $0.0001 par value ("Common Stock") of Bakers Footwear Group, Inc., a Missouri corporation (the "Company"), at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $12.7875 per share of Common Stock upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the Representatives' Warrant Agreement (the "Warrant Agreement") dated as of February 10, 2004 by and among the Company, Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc. Payment of the Exercise Price shall be made by certified or official bank check in New York Clearing House funds payable to the order of the Company or by surrender of this Warrant Certificate. No Warrant may be exercised after 5:30 p.m., New York time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of February 10, 2004 BAKERS FOOTWEAR GROUP, INC. By: /s/ Peter A. Edison ------------------------------------------------------ Peter A. Edison Chairman of the Board and Chief Executive Officer [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _______________ shares of Common Stock and herewith tenders in payment for such securities a certified or official bank check payable in New York Clearing House Funds to the order of Bakers Footwear Group, Inc. in the amount of $_________, all in accordance with the terms of Section 3.1 of the Representatives' Warrant Agreement, dated as of February 10, 2004, among Bakers Footwear Group, Inc., Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc. The undersigned requests that a certificate for such securities be registered in the name of __________________ whose address is _______________________ and that such Certificate be delivered to ___________________ whose address is __________________. Dated: ---------------------------------------------- Signature: ------------------------------------------ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) - ---------------------------------------------- (Insert Social Security or Other Identifying Number of Holder) [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _____________ shares of Common Stock all in accordance with the terms of Section 3.2 of the Representatives' Warrant Agreement, dated as of February 10, 2004, among Bakers Footwear Group, Inc., Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc. The undersigned requests that a certificate for such securities be registered in the name of _________________ whose address is ___________________ and that such Certificate be delivered to __________________ whose address is _________________________________________________. Dated: ---------------------------------------------- Signature: ------------------------------------------ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate. ) - -------------------------------------------------- (Insert Social Security or Other Identifying Number of Holder) (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED, __________________________ hereby sells, assigns and transfers unto _________________________________ (please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________ Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: ---------------------------------------------- Signature: ------------------------------------------ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) - ---------------------------------------------- (Insert Social Security or Other Identifying Number of Assignee) [The Company issued warrants to the representatives of the underwriters to the initial public offering, or their designees, as follows: 1. Warrant W-1 to Ryan Beck & Co., Inc. representing 16,200 warrants; 2. Warrant W-2 to Ryan Beck & Co., Inc. representing 64,800 warrants; 3. Warrant W-3 to an affiliate of Ryan Beck & Co., Inc. representing 40,500 warrants; 4. Warrant W-4 to an affiliate of Ryan Beck & Co., Inc. representing 40,500 warrants; and 5. Warrant W-5 to BB&T Capital Markets, a Division of Scott & Stringfellow, Inc. representing 54,000 warrants. Copies of each executed and issued warrant have been omitted. The Registrant undertakes to furnish supplementally a copy of each such issued warrant upon request.] EX-10.18 10 c83898exv10w18.txt TAX INDEMNIFICATION AGREEMENT EXHIBIT 10.18 TAX INDEMNIFICATION AGREEMENT TAX INDEMNIFICATION AGREEMENT, dated as of January 3, 2004 (the "Agreement"), among Bakers Footwear Group, Inc., a Missouri corporation (the "Company"), and the persons listed on SCHEDULE A attached hereto (individually, a "Stockholder" and, collectively, the "Stockholders"). WHEREAS, the Company is and has been an "S corporation" (within the meaning of section 1361(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code")) since January 1, 1984; WHEREAS, the Company contemplates a public offering (the "Offering") of its stock; WHEREAS, the execution of this Agreement by the Company and the Stockholders is a condition to the closing (the "Closing") of the contemplated Offering; WHEREAS, it is anticipated that the Company's election to be an S corporation will terminate as a result of revocation of such status in accordance with section 1362(d)(1) of the Code, the day prior to the day of the Closing; WHEREAS, in connection with the Offering, the Company and Stockholders wish to provide for certain indemnification with respect to the Company's prior status as an S corporation. NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, and intended to be legally bound hereby, the parties hereto agree as follows: ARTICLE I. DEFINITIONS 1.1. Definitions. The following terms as used herein have the following meanings: "Closing Date" means the date on which the Offering closes. "Final Determination" means the final resolution of any income tax liability (including all related interest and penalties) for a taxable period. A Final Determination shall result from the first to occur of: (i) the expiration of the period, if any, during which the taxpayer may file a claim for refund following receipt from the Internal Revenue Service (the "IRS") of a fully executed Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment on IRS Form 870 or a fully executed IRS Form 870-AD that, in either case, determines the tax liability of the taxpayer for the taxable period (the "Waiver") (or any successor form or any comparable form with respect to any comparable agreement under the laws of any other jurisdiction), provided the taxpayer does not file a claim for refund during that period; (ii) a final decision by a court of competent jurisdiction in respect of which all rights to appeal have expired or have been exhausted; (iii) the execution of a closing agreement under section 7121 of the Code that finally determines the tax liability of the taxpayer for the taxable period; (iv) the acceptance by the IRS of an offer to compromise described in Treasury regulation section 301.7122-1(e)(5) that finally determines the tax liability of the taxpayer for the taxable period; (v) the expiration of the applicable statute of limitations for the taxable period; or (vi) any other event that the parties hereto agree is a final determination of the liability at issue. "S Taxable Year" means any taxable year (or portion thereof) of the Company during which the Company was an S corporation. "Tax Liability" means any federal or state income tax liability. For purposes of this Agreement federal income tax liability shall be deemed to be (i) the highest applicable individual federal income tax rate, multiplied by (ii) a Stockholder's allocable portion of the Company's taxable income. For purposes of this Agreement, state income tax liability shall be deemed to be (i) the highest applicable individual state income tax rate of the applicable state, multiplied by (ii) a Stockholder's allocable portion of the Company's taxable income in that state. Tax Liability shall also include any interest and penalties. "Taxing Authority" means the IRS or any comparable state or foreign taxing authority. "Termination Date" means the date on which the S corporation status of the Company will terminate pursuant to section 1362(d) of the Code, which shall be January 4, 2004. ARTICLE II. TERMINATION OF S CORPORATION STATUS AND ALLOCATION OF INCOME 2.1. Termination of S Corporation Status. The Company and the Stockholders shall cause the Company to terminate its S corporation status pursuant to section 1362(d)(1) of the Code no later than one day before the Closing by filing the form attached hereto and marked as EXHIBIT 1 no later than one day before the Closing. The Stockholders shall each consent to the 2 revocation of the S corporation election by providing the Company with the statement of consent, attached hereto and marked as EXHIBIT 2, no later than one day before the Closing. ARTICLE III. OBLIGATIONS 3.1. Company's Indemnification of Stockholders for Tax Liabilities. The Company hereby agrees to indemnify and hold each of the Stockholders harmless from, against and in respect of any Tax Liability incurred by such Stockholder as a result of a Final Determination to the Company's tax returns that increases the Tax Liability of the Stockholder for an S Taxable Year in excess of amounts previously distributed to such Stockholder. With respect to states in which the Company has previously filed composite returns including a Stockholder, the foregoing obligation shall be accomplished by the Company, as necessary, re-filing the composite returns and paying directly any additional amounts owed. 3.2. Gross Up for Additional Tax. In all events and to the extent not otherwise reimbursed, the Company hereby agrees that if any payment pursuant to this Article III is deemed to be taxable income to a Stockholder, the amount of such payment to the Stockholder shall be increased by an amount necessary to equal the Stockholder's additional Tax Liability related to such amount (including, without limitation, any taxes on such additional amounts) so that the net amount payment, after reduction for all Tax Liability associated with its receipt, is equal to the amount of the Tax Liability in respect of which such payment is made. 3.3. Payment. Any payment required to be made pursuant to this Agreement shall be paid within ten days after receipt of written notice from the Stockholder that a payment is due hereunder. ARTICLE IV. CONTESTS/COOPERATION 4.1. Cooperation. The parties shall make available to each other, as reasonably requested, and to any Taxing Authority all information, records or documents relating to any liability for taxes covered by this Agreement and shall preserve such information, records and documents until the expiration of any applicable statute of limitations or extensions thereof. The party requesting such information shall reimburse the other party for all reasonable out-of-pocket costs incurred in producing such information. ARTICLE V. MISCELLANEOUS 5.1. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which counterparts collectively shall constitute a single instrument representing the agreement among the parties hereto. 3 5.2. Construction of Terms. Nothing herein expressed or implied is intended, or shall be construed, to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and permitted assigns, any rights or remedies under or by reason of this Agreement. 5.3. Governing Law. This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the substantive laws of the State of Missouri without regard to any choice of law rules. 5.4. Amendment and Modification. This Agreement may be amended, modified or supplemented only by a writing executed by all the parties hereto. 5.5. Assignment. Except by operation of law or in connection with the sale of all or substantially all the assets of a party, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by the Stockholders without the written consent of the Company or by the Company without written consent of the Stockholders. Any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. The provisions of this Agreement shall be binding upon and inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and permitted assigns. 5.6. Interpretation. The title, article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties, and shall not in any way affect the meaning or interpretation of this Agreement. 5.7. Severability. In the event that any one or more of the provisions of this Agreement shall be held to be illegal, invalid or unenforceable in any respect, the same shall not in any respect affect the validity, legality or enforceability of the remainder of this Agreement, and the parties shall use their best efforts to replace such illegal, invalid or unenforceable provision with an enforceable provision approximating, to the extent possible, the original intent of the parties. 5.8. Entire Agreement. This Agreement embodies the entire agreement and understanding of the parties hereto in respect to the subject matter contained herein. There are no representations, promises, warranties, covenants or undertakings other than those expressly set forth herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter, including without limitation the Tax Indemnification Agreement sent to you in 2002. 5.9. Further Assurances. Subject to the provisions of this Agreement, the parties shall acknowledge such other instruments and documents and take all other actions that may be reasonably required in order to effectuate the purposes of this Agreement. 5.10. Waivers, Etc. No failure or delay on the part of any party in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or discontinuance of steps to enforce such right or power preclude any other or further exercise thereof or the exercise of any 4 other right or power. No waiver of any provision of this Agreement nor consent to any departure by the parties therefrom shall in any event be effective unless it shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given. 5.11. Set-off. All payments to be made by the Company under this Agreement shall be made without set-off, counterclaim or withholding, all of which are expressly waived. 5.12. Change of Law. If, due to any change in applicable law or regulations or the interpretation thereof by any court or other governing body having jurisdiction subsequent to the date of this Agreement, performance of any provision of this Agreement shall be impracticable or impossible, the parties shall use their best efforts to find an alternative means to achieve the same or substantially the same results as are contemplated by such provision. 5.13. Notices. All notices under this Agreement shall be validly given if in writing and delivered personally or sent by registered mail, postage prepaid to the Company at: 2815 Scott Avenue St. Louis, Missouri, 63103 Attention: _____________________ or at such other address as any party may, from time to time, designate in a written notice given in a like manner. Notice given by mail shall be deemed delivered five calendar days after the date mailed. 5.14. Termination of Agreement. This Agreement shall terminate and be void, as if it never had been executed, if the Closing does not occur on or before March 15, 2004. [Remainder of this page is intentionally left blank] 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. BAKERS FOOTWEAR GROUP, INC. By: ----------------------------------------- Peter A. Edison, Chairman of the Board of Directors and Chief Executive Officer STOCKHOLDERS --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- 6 Executed as of January 3, 2004 under the laws of the State of Missouri. /s/ Peter A. Edison -------------------------------------- Peter A. Edison /s/ Bernard A. Edison -------------------------------------- Bernard A. Edison Revocable Trust Dated 6/18/91 /s/ Bernard A. Edison -------------------------------------- Bernard A. Edison, Co-Trustee Beatrice C. Edison Irrevocable Trust F/B/O Bernard A. Edison /s/ Robin Haar -------------------------------------- Robin Haar, Co-Trustee Beatrice C. Edison Irrevocable Trust F/B/O Bernard A. Edison /s/ Bernard A. Edison ----------------------- Beatrice C. Edison Trust F/B/O Bernard A. Edison /s/ Susan H. Edison -------------------------------------- Susan H. Edison /s/ David A. Edison -------------------------------------- David A. Edison Trustee of David A. Edison Revocable Trust /s/ Bernard A. Edison -------------------------------------- Bernard A. Edison Trustee of David A. Edison Revocable Trust /s/ Julian J. Edison -------------------------------------- Julian Edison /s/ Marilyn Sue Edison -------------------------------------- Marilyn Sue Edison /s/ Joseph Russell -------------------------------------- Joseph Russell /s/ Michele Bergerac -------------------------------------- Michele Bergerac Trustee of Michele A. Bergerac Revocable Trust /s/ Mark Jenkins -------------------------------------- Mark Jenkins 7 /s/ Andrew N. Baur, Trustee --------------------------------------------- Andrew N. Baur Trust /s/ Stanley K. Tusman --------------------------------------------- Stanley K. Tusman, Joint Trustee The Stanley K. Tusman and Gail F. Tusman Declaration of Trust Dated December 1. 1999 /s/ Gail F. Tusman --------------------------------------------- Gail F. Tusman, Joint Trustee The Stanley K. Tusman and Gail F. Tusman Declaration of Trust Dated December 1. 1999 /s/ Mark H. Brown --------------------------------------------- Mark H. Brown /s/ Elizabeth Brown --------------------------------------------- Elizabeth Brown /s/ Joseph R. Vander Pluym --------------------------------------------- Joseph R. Vander Pluym /s/ Janice K. Vander Pluym --------------------------------------------- Janice K. Vander Pluym /s/ Mark D. Ianni --------------------------------------------- Mark D. Ianni /s/ Kathy M. Ianni --------------------------------------------- Kathy M. Ianni /s/ Lawrence L. Spanley, Jr. --------------------------------------------- Lawrence Spanley /s/ Linda K. Spanley --------------------------------------------- Linda K. Spanley ALL OF THE CLASS A SHAREHOLDERS /s/ Sanford W. Weiss --------------------------------------------- Sanford W. Weiss, Voting Trustee of the Class B Shareholder Voting Trust Agreement ALL OF THE CLASS B SHAREHOLDERS /s/ Sanford W. Weiss --------------------------------------------- Sanford W. Weiss, as Trustee U/I Sanford W. Weiss 8 /s/ Sanford W. Weiss --------------------------------------------- Sanford W. Weiss, as Trustee of Richard S. Weiss Marital Trust /s/ Sanford W. Weiss --------------------------------------------- Sanford W. Weiss, as Trustee U/I/T of Charles H. Weiss /s/ Ellen Weiss --------------------------------------------- Ellen Weiss /s/ Rochelle Weiss --------------------------------------------- Rochelle Weiss /s/ Stephen Weiss --------------------------------------------- Stephen Weiss /s/ David Weiss --------------------------------------------- David Weiss /s/ Michael Weiss --------------------------------------------- Michael Weiss /s/ Alyson Weiss --------------------------------------------- Alyson Weiss /s/ Jennifer Weiss-Kaslow --------------------------------------------- Jennifer Weiss ALL OF THE BENEFICIARIES OF THE CLASS B SHAREHOLDER VOTING TRUST AGREEMENT BAKERS FOOTWEAR GROUP, INC. By: /s/ Peter A. Edison ---------------------------------------- Name: Peter Edison Title: Chairman and CEO COLBY OLIVER /s/ Colby Oliver --------------------------------------------- Colby Oliver 9 SCHEDULE A LIST OF STOCKHOLDERS 1. Peter A. Edison 2. Bernard A. Edison Revocable Trust Dated 6/18/91 3. Bernard A. Edison, Co-Trustee Beatrice C. Edison Irrevocable Trust F/B/O Bernard A. Edison 4. Robin Haar, Co-Trustee Beatrice C. Edison Irrevocable Trust F/B/O Bernard A. Edison 5. Beatrice C. Edison Trust F/B/O Bernard A. Edison 6. Susan H. Edison 7. David A. Edison Trustee of David A. Edison Revocable Trust 8. Bernard A. Edison Trustee of David A. Edison Revocable Trust 9. Julian Edison 10. Marilyn Sue Edison 11. Joseph Russell 12. Michelle Bergerac Trustee of Michele A. Bergerac Revocable Trust 13. Mark Jenkins 14. Andrew N. Baur Trust 15. Stanley K. Tusman, Joint Trustee The Stanley K. Tusman and Gail F. Tusman Declaration of Trust Dated December 1, 1999 16. Gail F. Tusman, Joint Trustee The Stanley K. Tusman and Gail F. Tusman Declaration of Trust Dated December 1. 1999 17. Mark H. Brown 18. Elizabeth Brown 19. Joseph R. Vander Pluym 20. Janice K. Vander Pluym 21. Mark D. Ianni 22. Kathy M. Ianni 23. Lawrence Spanley 24. Linda K. Spanley 25. Sanford W. Weiss, Voting Trustee of the Class B Shareholder Voting Trust Agreement 26. Sanford W. Weiss, as Trustee U/I Sanford W. Weiss 27. Sanford W. Weiss, as Trustee of Richard S. Weiss Marital Trust 28. Charles H. Weiss, as Trustee U/I/T of Charles H. Weiss 29. Ellen Weiss 30. Rochelle Weiss 31. Stephen Weiss 32. David Weiss 33. Michael Weiss 34. Alyson Weiss 35. Jennifer Weiss 36. Colby Oliver EXHIBIT 1 STATEMENT OF REVOCATION OF ELECTION Internal Revenue Service Center Kansas City, Missouri, [64999] RE: Bakers Footwear Group, Inc., EIN 43-0577980 Revocation of S Corporation Election The S corporation election under Internal Revenue Code section 1362(a) of Bakers Footwear Group, Inc., a Missouri corporation, with its principal office located at 2815 Scott Avenue, St. Louis, Missouri, 63103, is hereby revoked as of January 4, 2004, the first day of the fiscal year. At the time of revocation the number of shares (issued and outstanding) of Bakers Footwear Group, Inc.'s stock, including non-voting stock, is [___________] Attached are the consent to the revocation by shareholders owning more than one-half of the issued and outstanding shares of stock in Bakers Footwear Group, Inc., including non-voting stock. BAKERS FOOTWEAR GROUP, INC. By: ------------------------------------- [Name, Title] [FILE STATEMENT OF REVOCATION WITH SHAREHOLDERS' CONSENTS WITH THE IRS REQUESTING A COPY STAMPED "FILED"] EXHIBIT 2 SHAREHOLDERS' STATEMENT OF CONSENT TO REVOCATION OF ELECTION We, the undersigned, being shareholders of Bakers Footwear Group, Inc. EIN 43-0577980, holding more than one-half of our corporation's issued and outstanding shares (including non-voting stock), do hereby consent to the revocation by our corporation of its S corporation election under Internal Revenue Code section 1362(a). The revocation is to be effective as of January 4, 2004, the first day of our fiscal year. Under penalties of perjury, the undersigned declare that the facts presented in the accompanying statement are, to the best of our knowledge and belief, true, correct and complete.
- ---------------------------------------------------------------------------------------------------------------------- SHAREHOLDER NAME AND SOCIAL SECURITY NUMBER OF SHARES DATE(S) ACQUIRED TAX YEAR END (MONTH ADDRESS NUMBER OWNED, INCLUDING & DAY) NON-VOTING SHARES - ---------------------------------------------------------------------------------------------------------------------- ~~- ----------------------------------------------------------------------------------------------------------------------~~
------------------------------ [Shareholder Signature] ------------------------------ [Shareholder Signature] ------------------------------ [Shareholder Signature] ------------------------------ [Shareholder Signature] [FILE SHAREHOLDERS' CONSENTS WITH THE STATEMENT OF REVOCATION] EX-10.31 11 c83898exv10w31.txt FINANCIAL ADVISOR AGREEMENT EXHIBIT 10.31 February 4, 2004 Bakers Footwear Group, Inc. 2815 Scott Avenue St. Louis, Missouri 63103 Ladies and Gentlemen: This letter, when executed by the parties hereto, will constitute an agreement between Bakers Footwear Group, Inc., a Missouri corporation (the "Company"), and Ryan Beck & Co., Inc. ("RBCO"), pursuant to which the Company agrees to retain RBCO and RBCO agrees to be retained by the Company under the terms and conditions set forth below. 1. The Company hereby retains RBCO to render consulting advice to the Company as an investment banker relating to financial and similar matters. In this regard, subject to the terms and conditions set forth herein, RBCO shall furnish to the Company advice and recommendations with respect to such aspects of the business and affairs of the Company as the Company shall, from time to time, reasonably request upon reasonable notice. 2. This Agreement shall be effective for a period of two (2) years commencing February 3, 2004 (the "Term"). RBCO may terminate this Agreement upon ten (10) days prior written notice to the Company. Paragraphs 5, 6, 8, 9, 11, 13, 14 and 15 shall survive the expiration or termination of this Agreement under all circumstances. 3. During the Term of this Agreement, RBCO will provide the Company with such regular and customary consulting advice as is reasonably requested by the Company, provided that RBCO shall not be required to undertake duties not reasonably within the scope of the consulting advisory service contemplated by this Agreement. In performance of these duties, RBCO shall provide the Company with the benefits of its best judgment and efforts. It is understood and acknowledged by the parties that the value of RBCO's advice is not measurable in any quantitative manner, and that RBCO shall be obligated to render advice, upon the request of the Company, in good faith, but shall not be obligated to spend any specific amount of time in doing so. RBCO shall act in the following capacities in any of the following transactions (each a "Transaction" and, collectively, the "Transactions") entered into or contemplated by the Company throughout the Term hereof: (A) Mergers and Acquisitions: Financial advisor in connection with any purchase or sale of assets or stock, merger, acquisition, business combination, joint venture or other strategic transaction (it is understood that the purchase of the assets constituting 15 stores or store locations or less and less than $2 million in value is not included in the foregoing). (B) Warrant Exercise Programs: Agent in connection with the exercise of warrants or options in the Company. 4. The Company acknowledges that RBCO and its affiliates are in the business of providing financial service and consulting advice (of all types contemplated by this Agreement) to others. Nothing contained in this Agreement shall be construed to limit or restrict the right of RBCO or its affiliates, to be a partner, director, officer, employee, agent or representative of, or to engage in, any other business, whether of a similar nature or not, nor to limit or restrict the right of RBCO to render services or advice of any kind to any other corporation, firm, individual or association. 5. RBCO's compensation for its services hereunder shall be determined by agreement between the Company and RBCO on the basis of compensation customarily paid to financial advisors in similar transactions provided that RBCO's compensation in connection with a transaction described in Section 3(A) (mergers and acquisitions) shall be not less than 2% of the Total Consideration (as defined below) in such transaction. "Total Consideration" shall mean anything of value received (or given, as the case may be) by the Company, its security holders and its employees, including assumption of debt. Non-cash consideration shall be valued as follows: (i) in the case of an exchange of securities in a transaction in which the number of securities of the acquirer to be received will vary in a manner designed to produce a fixed value to be received in exchange for each security of the target company, the number of securities of the target company exchanged in such transaction, shall be multiplied by the value per share specified in the agreement between the target company and the acquirer; (ii) in the case of an exchange of securities in a transaction in which the number of securities of the acquirer to be received in exchange for each security of the acquired company is fixed and the value of such securities may vary, (x) for securities traded on a national securities exchange, the average closing sale price (or, if no closing sale price is reported, the last reported sale price) of the securities for the twenty (20) full trading days ending on the fifth trading day prior to the closing of the transaction, shall be multiplied by the number of securities of the acquirer to be issued upon exchange of the target company's securities in the transaction, and (y) for securities quoted by a national quotation service, the average of the closing bid and ask prices of the securities for a period of twenty (20) full trading days ending on the fifth trading day prior to the closing of the transaction, shall be multiplied by the number of securities of the acquirer to be issued in the transactions; and (iii) for any other securities, the value shall be reasonably determined by RBCO and the Company, provided, that if such securities are promissory notes, the securities shall be valued at face value. 2 6. The Company, upon receipt of appropriate supporting documentation, shall reimburse RBCO for any and all reasonable out-of-pocket expenses incurred by RBCO in connection with services requested by the Company to be rendered by RBCO to the Company pursuant to this Agreement, including, but not limited to, hotel, food and associated expenses, all charges for travel and long-distance telephone calls and all other expenses incurred by RBCO in connection with services requested by the Company to be rendered by RBCO to the Company pursuant to this Agreement. In the event such expenses are incurred by RBCO while RBCO is contemporaneously providing its services to the Company and any other clients(s) of RBCO, such expenses shall be allocated appropriately among RBCO's clients. Expenses payable under this Section 6 shall not include allocable overhead expenses of RBCO, including, but not limited to, attorneys' fees, secretarial charges and rent. 7. In connection with RBCO's activities on behalf of the Company, the Company will furnish RBCO with all financial and other information regarding the Company that RBCO reasonably believes appropriate to its assignment (all such information so furnished by the Company, whether furnished before or after the date of this Agreement, being referred to herein as the "Information"). The Company will provide RBCO with access to the officers, directors, employees, independent accountants, legal counsel and other advisors and consultants for the Company. The Company recognizes and agrees that RBCO: (i) will use and rely primarily on the Information and information available from generally recognized public sources in performing the services contemplated by this Agreement without independently verifying the information or such other information; (ii) does not assume responsibility for the accuracy of the Information or such other information; and (iii) will not make an appraisal of any assets or liabilities owned or controlled by the Company or its market competitors. 8. The Company acknowledges that all advice (written or oral) given by RBCO to the Company is intended solely for the benefit and use of the Company. Other than to the extent required to be reflected in Board and committee meeting minutes, or as required by applicable law (including, without limitation, securities laws) no advice (written or oral) of RBCO hereunder shall be used, reproduced, disseminated, quoted or referred to at any time, in any manner, or for any purpose, nor shall any public references to RBCO be made by the Company (or such persons), without the prior written consent of RBCO. 9. No person or entity, other than the Company or any of its subsidiaries, shall be entitled to make use of or rely upon the advice of RBCO to be given hereunder, and the Company shall not transmit such advice to others (except legal counsel and accountants retained by the Company to evaluate the transaction), or encourage or facilitate the use of or reliance upon such advice by others, without the prior written consent of RBCO. 10. It is understood that RBCO, solely with respect to services rendered under this Agreement, makes no commitment whatsoever to make a market in the securities of the Company or to recommend or advise its clients to purchase the securities of the Company. Research reports or corporate finance reports that may be prepared by RBCO will, when and if prepared, be done solely on the merits or judgment of analysts of RBCO or senior corporate finance personnel of RBCO. 3 11. The use of RBCO's name in any annual report or other report of the Company, or any release or similar document prepared by or on behalf of the Company, must have the prior written approval of RBCO unless the Company is required by law to include RBCO's name in such annual report, other report or release, in which event RBCO will be furnished with a copy of such annual report, other report or release using RBCO's name in advance of publication by or on behalf of the Company. 12. Should any purchases of securities be requested to be effected through RBCO by the Company, its officers, directors, employees or other affiliates, or by any person on behalf of any profit sharing, pension or similar plan of the Company, for the account of the Company or the individuals or entities involved, such orders shall be taken by a registered account executive of RBCO, shall not be subject to the terms of this Agreement, and the normal brokerage commission as charged by RBCO will apply in conformity with all rules and regulations of the New York Stock Exchange, the National Association of Securities Dealers, Inc. or such other regulatory bodies as shall have jurisdiction with respect to such transactions. Where no regulatory body sets the fee, the normal established fee as used by RBCO shall apply. 13. RBCO will hold in confidence any confidential information which the Company provides or has provided to RBCO pursuant to this Agreement or otherwise in connection with the Offering which is designated as being confidential. Notwithstanding the foregoing, RBCO shall not be required to maintain confidentiality with respect to information: (i) which is or becomes part of the public domain not due to the breach of this agreement by RBCO; (ii) of which it had independent knowledge prior to disclosure; (iii) which comes into the possession of RBCO in the normal and routine course of its own business from and through independent non-confidential sources; or (iv) which is required to be disclosed by RBCO by governmental requirements. 14. Nothing in this Agreement shall be construed to limit the ability of RBCO or its affiliates to pursue, investigate, analyze, invest in, or engage in investment banking, financial advisory or any other business relationships with, entities other than the Company, notwithstanding that such entities may be engaged in a business which is similar to or competitive with the business of the Company, and notwithstanding that such entities may have actual or potential operations, products, services, plans, ideas, customers or supplies similar or identical to the Company's, or may have been identified by the Company as potential merger or acquisition targets or potential candidates for some other business combination, cooperation or relationship. The Company expressly acknowledges and agrees that it does not claim any proprietary interest in the identity of any other entity in its industry or otherwise, and that the identity of any such entity is not confidential information. 15. The Company agrees to indemnify RBCO and its controlling persons, representatives and agents in accordance with the indemnification provisions set forth in Appendix I, and agrees to the other provisions of Appendix I, which is incorporated herein by this reference, regardless of whether a Transaction consummated. 16. The Company acknowledges and agrees that it is a sophisticated business enterprise and that RBCO has been retained pursuant to this Agreement 4 to act as financial advisor to the Company solely with respect to the matters set forth herein. In such capacity, RBCO shall act as an independent contractor, and any duties of RBCO arising out of its engagement pursuant to this Agreement shall be contractual in nature and shall be owed solely to the Company. Each party disclaims any intention to impose any fiduciary duty on the other. 17. This Agreement does not and will not constitute any agreement, commitment or undertaking, express or implied on the part of RBCO or any affiliate to purchase or to sell any securities or to provide any financing and does not ensure the successful arrangement or completion of any Transaction. 18. Every provision of this Agreement is intended to be severable. If any term or provision hereof is deemed unlawful or invalid for any reason whatsoever, such unlawfulness or invalidity shall not affect the validity of the remainder of this Agreement. 19. Any notice or other communication between the parties hereto shall be sent by certified or registered mail, postage prepaid, if to the Company, addressed to it at Attention: Peter A. Edison, 2815 Scott Avenue, St. Louis, Missouri 63103, Chief Executive Officer, with a copy to Bryan Cave LLP, One Metropolitan Square, 211 North Broadway, Suite 3600, St. Louis, Missouri 63102, Attention: J. Mark Klamer, Esq. or, if to RBCO, addressed to it at 650 Madison Avenue, New York, NY 10022, Attention: Michael J. Kollender, Executive Vice President, with a copy to Greenberg Traurig, P.A., 1221 Brickell Avenue, Miami, Florida 33131, Attention: Fern S. Watts, Esq., or to such address as may hereafter be designated in writing by one party to the other. Such notice or other communication shall be deemed to be given on the date of receipt. 20. If, during the term hereof, RBCO shall cease to do business, the provisions hereof relating to the duties of RBCO and compensation by the Company as it applies to RBCO shall thereupon cease to be in effect, except for the Company's obligation of payment for services rendered prior thereto. This Agreement shall survive any merger of, acquisition of, or acquisition by RBCO and, after any such merger or acquisition, shall be binding upon the Company and the corporation surviving such merger or acquisition. 21. This Agreement together with the Underwriting Agreement, dated as of the date hereof, embodies the entire agreement and understanding between the Company and RBCO and supersedes any and all negotiations, prior discussions and preliminary and prior agreements and understandings related to the central subject matter hereof. 22. This Agreement has been duly authorized, executed and delivered by and on behalf of the Company and RBCO. 23. This Agreement shall be construed and interpreted in accordance with laws of the State of New York applicable to contracts executed and to be wholly performed therein without giving effect to conflict of laws, rules or principles. Any dispute hereunder shall be brought in a court in the State of New York. 5 24. This Agreement and the rights hereunder may not be assigned by either party (except by operation of law) and shall be binding upon and inure to the benefit of the parties and their respective successors, assigns and legal representatives. 25. This Agreement may be modified or amended, or its provisions waived, only by an instrument in writing signed by the person or persons against whom enforcement of this modification, amendment or waiver is sought. 26. It is understood and agreed that failure or delay by either the Company or RBCO in exercising any right, power or privilege hereunder shall not operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power, or privilege hereunder. 27. EACH OF RBCO AND THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS AGREEMENT. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. BAKERS FOOTWEAR GROUP, INC. By: /s/ PETER A. EDISON ---------------------------------------- Name: Peter A. Edison Title: Chairman and Chief Executive Officer RYAN BECK & CO., INC By: /s/ MICHAEL J. KOLLENDER ---------------------------------------- Name: Michael J. Kollender Title: Executive Vice President 6 APPENDIX I The Company agrees to indemnify and hold harmless RBCO, its officers and employees, each of its directors, its affiliates (as defined in Rule 405 under Securities Act of 1933, as amended (the "Securities Act")) and each person, if any, who controls RBCO within the meaning of the Securities Act (RBCO and each such person being an "Indemnified Party") from and against any loss, claim, damage or liability, joint or several (or any actions, including shareholder actions, in respect thereof), to which such Indemnified Party may become subject under the Securities Act or any applicable federal or state law, or otherwise, which are related to or result from the performance by RBCO of the services contemplated by or the engagement of RBCO pursuant to, this Agreement and will promptly reimburse any Indemnified Party for all reasonable expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense arising from any threatened or pending claim, whether or not such Indemnified Party is a party and whether or not such claim, action or proceeding is initiated or brought by the Company. The Company will not be liable to any Indemnified Party under the foregoing indemnification and reimbursement provisions, (i) for any settlement by an Indemnified Party effected without its prior written consent (not to be unreasonably withheld); or (ii) to the extent that any loss, claim, damage or liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted primarily from RBCO's willful misconduct or gross negligence. The Company also agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company or its security holders or creditors related to or arising out of the engagement of RBCO pursuant to, or the performance by RBCO of the services contemplated by, this Agreement except to the extent that any loss, claim, damage or liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted primarily from RBCO's willful misconduct or gross negligence. Promptly after receipt by an Indemnified Party of notice of any intention or threat to commence an action, suit or proceeding or notice of the commencement of any action, suit or proceeding, such Indemnified Party will, if a claim in respect thereof is to be made against the Company pursuant hereto, promptly notify the Company in writing of the same. In case any such action is brought against any Indemnified Party and such Indemnified Party notifies the Company of the commencement thereof, the Company shall be entitled to participate therein and, to the extent that it wishes, to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Party, and an Indemnified Party may employ counsel to participate in the defense of any such action provided, that the employment of such counsel shall be at the Indemnified Party's own expense, unless (i) the employment of such counsel has been authorized in writing by the Company, (ii) the Indemnified Party has reasonably concluded (based upon advise of counsel to the Indemnified Party) that there may be legal defenses available to it or other Indemnified Parties that are different from or in addition to those available to the Company, or that a conflict or potential conflict exists (based upon advise of counsel to the Indemnified Party) between the Indemnified Party and the Company that makes it impossible or inadvisable for counsel to the Indemnifying Party to conduct the defense of both the Company and the Indemnified Party (in which case the Company will not have the right to direct the defense of such action on behalf of the 7 Indemnified Party), or (iii) the Company has not in fact employed counsel reasonably satisfactory to the Indemnified Party to assume the defense of such action within a reasonable time after receiving notice of the action, suit or proceeding, in each of which cases the reasonable fees, disbursements and other charges of such counsel will be at the expense of the Company; provided, further, that in no event shall the Company required to pay fees and expenses for more than one firm of attorneys representing Indemnified Parties unless the defense of the one Indemnified Party is unique or separate from that of another Indemnified Party subject to the same claim or action. Any failure or delay by an Indemnified Party to give the notice referred to in this paragraph shall not affect such Indemnified Party's right to be indemnified hereunder, except to the extent that such failure or delay causes actual harm to the Company, or prejudices its ability to defend such action, suit or proceeding on behalf of such Indemnified Party. If the indemnification provided for in this Agreement is for any reason held unenforceable by an Indemnified Party, the Company agrees to contribute to the losses, claims, damages and liabilities for which such indemnification is held unenforceable (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and RBCO on the other hand, of the Transactions as contemplated whether or not the Transactions are consummated or, (ii) if (but only if) the allocation provided for in clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and RBCO, on the other hand, as well as any other relevant equitable considerations. The Company agrees that for the purposes of this paragraph the relative benefits received by the Company, on the one hand, and RBCO, on the other, of the Transactions as contemplated shall be deemed to be in the same proportion as the total value received or contemplated to be received by the Company or its shareholders, as the case may be, as a result of or in connection with the Transactions bear to the fees paid or to be paid to RBCO under this Agreement. Notwithstanding the foregoing, the Company expressly agrees that RBCO shall not be required to contribute any amount in excess of the amount by which fees paid RBCO hereunder (excluding reimbursable expenses), exceeds the amount of any damages which RBCO has otherwise been required to pay. The Company agrees that without RBCO's prior written consent, which shall not be unreasonably withheld, it will not settle, compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification could be sought under the indemnification provisions of this Agreement (in which RBCO or any other Indemnified Party is an actual or potential party to such claim, action, suit or proceeding), unless such settlement, compromise, consent or judgment includes an unconditional release of each Indemnified Party from all liability arising out of such claim, action, suit or proceeding. In the event that an Indemnified Party is requested or required to appear as a witness in any action brought by or on behalf of or against the Company in which such Indemnified Party is not named as a defendant, the Company agrees to promptly reimburse RBCO on a monthly basis for all expenses incurred by it in connection with such Indemnified Party's appearing and preparing to 8 appear as such a witness, including, without limitation, the reasonable fees and disbursements of its legal counsel. In addition to any reimbursed fees, expenses or costs outlined hereunder, RBCO shall also receive from the Company cash compensation of $2,000.00 per person, per day, plus reasonable out-of-pocket expenses and costs should RBCO be required to provide testimony in any formal or informal proceeding regarding the Company in which RBCO is not named as a defendant. If multiple claims are brought with respect to at least one of which indemnification is permitted under applicable law and provided for under this Agreement, the Company agrees that any judgment award shall be conclusively deemed to be based on claims as to which indemnification is permitted and provided for, except to the extent the judgment award expressly states that it, or any portion thereof, is based solely on a claim as to which indemnification is not available. 9 EX-10.32 12 c83898exv10w32.txt UNDERWRITING AGREEMENT EXHIBIT 10.32 2,484,000 SHARES BAKERS FOOTWEAR GROUP, INC. COMMON STOCK UNDERWRITING AGREEMENT February 4, 2004 Ryan Beck & Co., Inc. BB&T Capital Markets as Representatives of the Underwriters c/o Ryan Beck & Co., Inc. 650 Madison Avenue New York, New York 10022 Dear Sirs: Bakers Footwear Group, Inc., a Missouri corporation (the "Company"), proposes to issue and sell to the Underwriters named in Schedule A hereto (the "Underwriters"), for whom Ryan Beck & Co., Inc. ("Ryan Beck") and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc. ("BB&T") are acting as representatives (Ryan Beck and BB&T are, collectively, the "Representatives"), an aggregate of 2,160,000 shares (the "Firm Shares") of the Common Stock, par value $.0001 per share (the "Common Stock"), of the Company. In addition, for the sole purpose of covering over-allotments in connection with the sale of the Firm Shares, the Company proposes to issue and sell to the Underwriters, at the Underwriters' option, up to an additional 324,000 shares of Common Stock (the "Option Shares") as set forth herein. The term "Shares" as used herein, unless otherwise indicated, shall mean the Firm Shares and the Option Shares. The Company also proposes to issue and sell to the Representatives warrants (the "Warrants") pursuant to the Representatives' Warrant Agreement among the Company and the Representatives (the "Warrant Agreement") for the purchase of an additional aggregate 216,000 shares of Common Stock. The shares of Common Stock issuable upon exercise of the Warrants are hereinafter referred to as the "Representatives' Shares." The Firm Shares, the Option Shares, the Warrants and the Representatives' Shares (collectively, the "Securities") are more fully described in the Registration Statement and the Prospectus referred to below. SECTION 1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The Company represents and warrants to, and agrees with, each of the Underwriters as of the date hereof, and as of the First Closing Date (as defined in Section 3(a) below) and the Option Closing Date (as defined in Section 3(b) below), if any, as follows: (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-86332) including any related preliminary prospectus (the "Preliminary Prospectus") for the registration of the Securities under the Securities Act of 1933, as amended (the "Securities Act"), which registration statement and amendment or amendments thereto have been prepared by the Company in conformity with the requirements of the Securities Act and the rules and regulations (the "Rules and Regulations") of the Commission under the Securities Act. Copies of such registration statement and each of the amendments thereto have been delivered by the Company to the Underwriters. As used in this Agreement, "Effective Time" means the date and the time as of which such registration statement, or the most recent post-effective amendment thereto, if any, was declared effective by the Commission; "Effective Date" means the date of the Effective Time; "Preliminary Prospectus" means each prospectus included in such registration statement, or amendments thereof, before it became effective under the Securities Act and any prospectus filed with the Commission by the Company with the consent of the Underwriters pursuant to Rule 424(a) of the Rules and Regulations; "Registration Statement" means such registration statement, as amended at the Effective Time, including all information contained in the Prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations and deemed to be a part of the Registration Statement as of the Effective Time pursuant to Rule 430A of the Rules and Regulations; and "Prospectus" means the prospectus in the form first used to confirm sales of Shares. If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"), then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement. Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus or the Registration Statement or any part of any thereof and no proceedings for a stop order suspending the effectiveness of the Registration Statement or any of the Company's securities have been instituted or are pending or to the Company's knowledge, threatened. (b) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will, when they become effective or are filed with the Commission, as the case may be, conform to the requirements of the Securities Act and the Rules and Regulations and do not and will not, as of the applicable effective date (as to the Registration Statement and any amendment thereto) and as of the applicable filing date (as to the Prospectus and any amendment or supplement thereto) contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Registration Statement or the Prospectus in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Underwriters specifically for inclusion therein as set forth in Section 9(f) of this Agreement. (c) The Company (i) has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, (ii) is duly 2 qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of property or conduct of business requires such qualification and (iii) has all power and authority necessary to own, lease or hold its properties and to conduct the business in which it is engaged. (d) On the Closing Date, the Company will have a duly authorized, issued and outstanding capitalization as set forth in the Prospectus, under "Capitalization" and "Description of Capital Stock" and will have the adjusted capitalization set forth therein on the Closing Date and the Option Closing Date, if any, based upon the assumptions set forth therein, and the Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the Warrant Agreement and as described in the Prospectus. The Securities and all other securities issued and outstanding or issuable by the Company conform or, when issued and paid for in accordance with and pursuant to this Agreement, will conform to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable and the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The Securities are not and will not be subject to any preemptive or other similar rights of any shareholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof (or, with respect to the Warrants and the Representatives' Shares, the terms of the Warrant Agreement), will be validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely by reason of being such holders; all corporate action required to be taken for the authorization, issue and sale of the Securities has been duly and validly taken; and the certificates representing the Securities, if any, will be in due and proper form. Upon the issuance and delivery pursuant to the terms hereof of the Securities hereunder (or, with respect to the Warrants and the Representatives' Shares, the terms of the Warrant Agreement), the Underwriters will acquire good and marketable title to such Securities free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever. (e) This Agreement and the Warrant Agreement have been duly authorized, executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law), and except insofar as the indemnification and contribution provisions hereof may be limited by considerations of public policy. (f) The Company has all requisite power and authority to execute, deliver and perform its obligations under this Agreement, the Warrant Agreement and the Warrants. 3 (g) The execution, delivery and performance of this Agreement, the Warrant Agreement and the Warrants by the Company and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject (except as disclosed in or contemplated by the Prospectus), nor will such actions result in any violation of the provisions of (i) the articles of incorporation (or other equivalent organizational document) or by-laws (or other equivalent organizational document) of the Company as in effect on the Closing Date or (ii) any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties or assets. Except for the registration of the Securities under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and applicable state or foreign securities laws or by the National Association of Securities Dealers, Inc. (the "NASD") in connection with the purchase and distribution of the Shares by the Underwriters, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement or the Warrant Agreement by the Company and the consummation of the transactions contemplated hereby and thereby. (h) The Company does not have any direct or indirect ownership interest by stock ownership or otherwise in any other corporation, limited liability company, partnership, joint venture, firm, association or business enterprise. (i) Except as set forth in or as otherwise contemplated by the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right (other than rights which have been waived or satisfied) to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act. (j) Except as set forth in the Registration Statement, the Company has not sold or issued any securities during the six-month period preceding the date of the Prospectus, including any sales pursuant to Rule 144A under, or Regulations D or S of, the Securities Act other than securities issued pursuant to employee benefit plans, stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants. (k) Except for the persons set forth on Schedule B hereto, the Company has caused each officer, director and holder of shares of Common Stock and securities exchangeable or exercisable for or convertible into shares of Common Stock of the Company, to execute legally binding and enforceable agreements substantially in the form of Exhibit A hereto (such executed agreements being referred to as the "Lock-Up Agreements"). 4 (l) The Company has not sustained, since the date of the latest audited financial statements included in the Prospectus, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since such date, there has not been any material change in the capital stock or long-term debt of the Company or any material adverse change, or any development involving a prospective material adverse change, in or affecting the management, financial position, shareholders' equity, results of operations, business or prospects of the Company, otherwise than as set forth or contemplated in the Prospectus. (m) The financial statements (including the related notes and supporting schedules) filed as part of the Registration Statement or included in the Prospectus present fairly the financial condition and results of operations of the Company, at the dates and for the periods indicated, and, except as disclosed in the Prospectus, have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. The other financial information and data filed as part of the Registration Statement or included in the Prospectus, including, without limitation, the financial information and data presented in the sections titled "Recent Developments," "Summary," and "Selected Historical Financial Information," is fairly presented and prepared on a basis consistent with such financial statements and the books and records of the Company. (n) Ernst & Young, LLP, who have certified certain financial statements of the Company, whose report is included in the Prospectus and who have delivered the initial letter referred to in Section 7(e) hereof, are independent public accountants as required by the Securities Act and the Rules and Regulations. (o) Stone Carlie & Company, LLC, who have delivered the initial letter referred to in Section 7(e) hereof, are independent public accountants as required by the Securities Act and the Rules and Regulations. (p) The Company has good and marketable title in fee simple to, or valid and enforceable leasehold estates in, all items of real and personal property owned or leased by it, in each case free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, except such as are described in or contemplated by the Prospectus. (q) The Company carries, or is covered by, insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties and as is customary for companies engaged in similar businesses in similar industries. (r) Except as disclosed in the Prospectus, the Company owns or possesses adequate rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights and licenses necessary for the conduct of its business as presently conducted (the "Intellectual Property") and has no reason to believe that the conduct of its business will conflict with, and has not received any notice of any claim of conflict with, any such rights of others, in each case except as could not reasonably be expected to have a 5 material adverse effect on the general affairs, management, condition (financial or otherwise), shareholders' equity, results of operations, business or prospects of the Company (a "Material Adverse Effect"). (s) The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of its Intellectual Property and other proprietary information in all respects. (t) Except as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company is a party or of which any property or assets of the Company is the subject which, if determined adversely to the Company would reasonably be expected to have a Material Adverse Effect; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (u) There are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Securities Act or by the Rules and Regulations which have not been described in the Prospectus or filed as exhibits to the Registration Statement. (v) No relationship, direct or indirect, exists between or among the Company on the one hand, and the directors, officers, shareholders, customers or suppliers of the Company on the other hand, which is required to be described in the Prospectus which is not so described. (w) No labor disturbance by the employees of the Company exists or, to the knowledge of the Company, is imminent. (x) The Company is in compliance with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any material liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (y) The Company has filed all federal, state and local income and franchise tax returns required to be filed through the date hereof, has paid all taxes due thereon and has established adequate reserves for such taxes which are not yet due and payable, and does not have any tax deficiency or claims outstanding, proposed or assessed against it. (z) Since the date as of which information is given in the Prospectus through the date hereof, and except as may otherwise be disclosed in or contemplated by the Prospectus, the 6 Company has not (i) issued or granted any securities, (ii) incurred any material liability or obligation, direct or contingent, other than liabilities and obligations which were incurred in the ordinary course of business, (iii) entered into any transaction not in the ordinary course of business or (iv) declared or paid any dividend on its capital stock. (aa) The Company (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals. (bb) The Company (i) is not in violation of its articles of incorporation (or other equivalent organizational document) or by-laws (or other equivalent organizational document) as in effect on the Closing Date, (ii) is not in default in any respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other material agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject (except as disclosed in or contemplated by the Prospectus) or (iii) is not in violation in any respect of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject or has not failed to obtain any license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business in each case except as could not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the general affairs, management, condition (financial or otherwise), shareholders' equity, results of operations, business or prospects of the Company. (cc) The minute books of the Company have been made available to the Underwriters and contain a complete summary of all meetings and other actions of the directors and shareholders of the Company in all material respects since the time of its incorporation, and reflect all transactions referred to in such minutes accurately in all respects. (dd) The Company has as of the effective date of the Registration Statement (i) entered into an employment agreement with each of Peter Edison, Michele Bergerac, Stanley K. Tusman, Joe Vander Pluym and Mark Ianni, in the forms filed as Exhibits 10.15, 10.16, 10.20, 10.21 and 10.22, respectively, to such Registration Statement, and (ii) purchased key-man insurance on the life of Peter Edison in the amount of $5 million, which names the Company as the sole beneficiary thereof. (ee) Neither the Company nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign 7 Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (ff) There has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company (or, to the knowledge of the Company, any of its predecessors in interest) at, upon or from any of the property now or previously owned or leased by the Company in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit; and there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by the Company or with respect to which the Company has knowledge. The terms "hazardous wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection. (gg) The Company is not an "investment company" or an entity "controlled" by an "investment company," as defined in the Investment Company Act of 1940, as amended. (hh) The Common Stock has been designated for inclusion in the Nasdaq National Market. (ii) None of the Company nor its officers, directors, shareholders, nor any of their respective affiliates (within the meaning of the Rules and Regulations) has taken or will take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation, under the Exchange Act or otherwise, of the price of the Common Stock to facilitate the sale or the resale of the Common Stock hereby. (jj) The Company does not conduct business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075 of the Florida Statutes, and all rules and regulations thereunder, relating to issuers doing business in Cuba and the Company agrees to comply with such statute if prior to the completion of the distribution of the Securities, the Company commences doing such business. (kk) The Company has not distributed, nor will it distribute prior to the First Closing Date any offering material in connection with the offering and sale of the Securities other than the Preliminary Prospectus, the Prospectus, the Registration Statement or any other materials permitted by the Securities Act, if any. (ll) Except as described in the Prospectus under "Underwriting," there are no claims, payments, issuances, arrangements or understandings, whether oral or written, for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or any other arrangements, agreements, understandings, payments or issuance with respect to the 8 Company or any of its officers, directors, shareholders, partners, employees or affiliates that may affect the Underwriters' compensation, as determined by the NASD. SECTION 2. PURCHASE OF THE SHARES BY THE UNDERWRITERS. (a) On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement and the Warrant Agreement, the Company agrees to issue and sell to the several Underwriters and each such Underwriter agrees, severally and not jointly, to buy from the Company at $7.2075 per Share, at the place and time hereinafter specified, the respective number of Firm Shares set forth opposite the names of the Underwriters in Schedule A attached hereto plus any additional Shares which such Underwriters may become obligated to purchase pursuant to the provisions of Section 8 hereof. (b) In addition, subject to the terms and conditions of this Agreement, and upon the basis of the representations, warranties and agreements herein contained, the Company hereby grants an option to the several Underwriters to purchase all or any part of the Option Shares at the same price per Share as the Underwriters shall pay for the Firm Shares being sold pursuant to the provisions of subsection (a) of this Section 2. This option may be exercised within 45 days after the effective date of the Registration Statement upon notice by the Representatives to the Company advising as to the amount of Option Shares as to which the option is being exercised, the names and denominations in which the certificates for such Option Shares are to be registered and the time and date when such certificates are to be delivered. The number of Option Shares to be purchased by each Underwriter, if any, shall bear the same percentage to the total number of Option Shares being purchased by the several Underwriters pursuant to this subsection (b) as the number of Firm Shares such Underwriter is purchasing bears to the total number of the Firm Shares being purchased pursuant to subsection (a) of this Section 2, as adjusted, in each case, by the Underwriters in such manner as the Underwriters may deem appropriate. The option granted hereunder may be exercised only to cover over-allotments in the sale by the Underwriters of Firm Shares referred to in subsection (a) above. In the event the Company declares or pays a dividend or distribution on its Common Stock, whether in the form of cash, shares of Common Stock or any other consideration, following the First Closing Date and prior to the Option Closing Date, such dividend or distribution shall also be paid on the Option Shares on the Option Closing Date. SECTION 3. DELIVERY AND PAYMENT. (a) Delivery of the Firm Shares against payment therefor shall take place at the offices of Ryan Beck (or at such other place as may be designated by agreement between the Representatives and the Company) at 10:00 a.m. New York time, on the third full business day after the Effective Date, or at such other time not earlier than three nor more than ten full business days thereafter as the Representatives and the Company shall determine. Such time and date of payment and delivery for the Firm Shares being herein called the "First Closing Date." (b) In addition, in the event the Underwriters exercise the option to purchase from the Company all or any portion of the Option Shares pursuant to the provisions of Section 2(b), then delivery of the Option Shares against payment therefor shall take place at the offices of 9 Ryan Beck (or at such other place as may be designated by agreement between the Representatives and the Company) at such time and date as shall be determined by the Representatives but shall not be earlier than four nor later than ten full business days after the exercise of said option, nor in any event prior to the First Closing Date. Such time and date is referred to herein as the "Option Closing Date." (c) Unless the Representatives elect to take delivery of the Shares by credit through full FAST transfer to the accounts at The Depository Trust Company designated by the Representatives, certificates for the Shares shall be delivered to the Representatives in definitive form registered in such names and in such denominations as the Representatives shall specify in writing at least two full business days prior to the applicable Closing Date First Closing Date or the Option Closing Date, as the case may be (which are collectively referred to herein as the "Closing Dates"). For the purpose of expediting the checking of the certificates for the Firm Shares or the Option Shares, as the case may be, by the Representatives, the Company agrees to make such certificates available to the Representatives for such purpose at least one full business day preceding the applicable Closing Date. Time shall be of the essence and delivery at the time and place specified in this Agreement is a further condition to the obligations of each Underwriter. (d) Payment for the Shares shall be made to or upon the order of the Company by certified or bank cashier's checks payable in New York Clearing House funds at the time and date of delivery of such Shares as required by the provisions of subsections (a) and (b) above or by wire transfer in immediately available funds to a bank account designated by the Company at least two business days prior to the First Closing Date or the Option Closing Date, as the case may be, against receipt of the definitive certificates in negotiable form for such Shares by the Representatives for the respective accounts of the Underwriters registered in such names and in such denominations as the Representatives may request. (e) It is understood that either of you, individually and not as Representatives of the several Underwriters, may (but shall not be obligated to) make any and all payments required pursuant to this Section 3 on behalf of any Underwriter whose check or checks shall not have been received by the Representatives at the time of delivery of the Shares to be purchased by such Underwriter or Underwriters. Any such payment by you shall not relieve any such Underwriter or Underwriters of any of its or their obligations hereunder. (f) On the First Closing Date, the Company shall issue and sell to the Representatives, one or more Warrants at a purchase price of $.0001 per warrant, which warrants shall entitle the holders thereof to purchase an aggregate of 216,000 shares of Common Stock. The Warrants shall be exercisable for a period of four years commencing one year after the First Closing Date at a price equaling one hundred and sixty-five percent (165%) of the public offering price of the Firm Shares. The Warrant Agreement and form of Warrant Certificate shall be substantially in the form filed as Exhibit 4.3 to the Registration Statement. Payment for the Warrants shall be made by the Representatives to or upon the order of the Company on the Closing Date. 10 SECTION 4. OFFERING OF SHARES BY THE UNDERWRITERS. It is understood that the Underwriters propose to make a public offering of the Shares at the price and upon the other terms set forth in the Prospectus. The Underwriters may, at their own expense, enter into one or more agreements, in their sole discretion, as they deem advisable, with one or more broker-dealers who shall act as dealers in connection with such public offering. The Underwriters may from time to time change the public offering price after the closing of the public offering and increase or decrease the concessions and discounts to dealers as they may determine. SECTION 5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees: (a) To prepare the Prospectus in a form approved by the Underwriters and to file such Prospectus pursuant to Rule 424(b) under the Securities Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Securities Act; to make no further amendment or any supplement to the Registration Statement or to the Prospectus except as permitted herein; to advise the Underwriters, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish the Underwriters with copies thereof; to advise the Underwriters, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or suspending any such qualification, to use promptly its best efforts to obtain its withdrawal; (b) To furnish promptly to the Underwriters and to counsel for the Underwriters a signed copy of the Registration Statement as originally filed with the Commission, and each amendment thereto filed with the Commission, including all consents and exhibits filed therewith; (c) To deliver promptly to the Underwriters such number of the following documents as each Underwriter shall reasonably request: (i) conformed copies of the Registration Statement as originally filed with the Commission and each amendment thereto (in each case excluding exhibits) and (ii) each Preliminary Prospectus, the Prospectus and any amended or supplemented Prospectus; and, if the delivery of a prospectus is required at any time after the Effective Time in connection with the offering or sale of the Shares or any other securities relating thereto and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary to amend or supplement the Prospectus in order to comply with the Securities Act, to notify the Underwriters and, upon their request, to prepare and furnish without 11 charge to the Underwriters and to any dealer in securities as many copies as the Underwriters may from time to time reasonably request of an amended or supplemented Prospectus which will correct such statement or omission or effect such compliance; (d) To file promptly with the Commission any amendment to the Registration Statement or the Prospectus or any supplement to the Prospectus that may, in the reasonable judgment of the Company or the Underwriters, be required by the Securities Act or requested by the Commission; (e) Prior to filing with the Commission any amendment to the Registration Statement or supplement to the Prospectus or any Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a copy thereof to the Underwriters and counsel for the Underwriters and obtain the consent of the Underwriters to the filing, which consent shall not be unreasonably delayed or withheld; (f) As soon as practicable after the Effective Date, to make generally available to the Company's security holders and to deliver to the Underwriters an earnings statement of the Company (which need not be audited) complying with Section 1l(a) of the Securities Act and the Rules and Regulations (including, at the option of the Company, Rule 158); (g) Upon the request of the Underwriters, for a period of five (5) years following the Effective Date, to furnish to the Underwriters copies of all materials furnished by the Company to its shareholders generally and all public reports and all reports and financial statements furnished by the Company to the principal national securities exchange or market system upon which the Common Stock may be listed or included pursuant to requirements of or agreements with such exchange or market system or to the Commission pursuant to the Exchange Act or any rule or regulation of the Commission thereunder; (h) Promptly from time to time to take such action as the Underwriters may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as the Underwriters may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares; provided that in connection therewith, the Company shall not be required to qualify as a foreign corporation, to submit to general taxation or to file a general consent to service of process in any jurisdiction; (i) Except for the registration of securities pursuant to the exercise of registration rights granted to the holders of the Company's Subordinated Convertible Debentures due 2007, for a period of 365 days from the date of the Prospectus, not to, directly or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of Common Stock or securities convertible into or exchangeable for Common Stock (other than (x) the Securities, or (y) shares of Common Stock issued pursuant to employee benefit plans, stock option plans or other employee compensation plans existing on the date hereof or pursuant to currently outstanding options, warrants or rights or upon conversion of shares of Common Stock), or substantially similar securities, or sell or grant options, rights or 12 warrants with respect to any shares of Common Stock or securities convertible into or exchangeable for Common Stock or substantially similar securities (other than the grant of options pursuant to benefit plans existing on the date hereof), or (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of such shares of Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise, in each case without the prior written consent of Ryan Beck; (j) To take such steps as shall be necessary to ensure that the Company shall not become an "investment company" as defined in the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder; (k) During the period of 365 days from the date of the Prospectus, to obtain an executed letter substantially in the form of Exhibit A hereto from each new officer and director who has not previously executed such a letter; (l) The Company will apply the net proceeds from the sale of the Shares for the purposes set forth under "Use of Proceeds" in the Prospectus; (m) Prior to the First Closing Date, the Company will make all filings required to obtain the designation for inclusion of the Shares in the Nasdaq National Market and will effect and maintain such inclusion (or a listing on a national exchange registered under the Exchange Act) for at least five years from the date of this Agreement, including without limitation, compliance with all applicable corporate governance requirements thereof; provided, however, that nothing herein shall affect the Company's ability to sell assets or stock, merge, consolidate or be acquired by any person, and, if as a result of any such sale, merger, consolidation, acquisition or similar transaction, the Company's Common Stock ceases to be publicly traded, this Section 5(m) shall terminate and cease to have further force or effect; (n) The Company will maintain a transfer agent and, if necessary under the jurisdiction of the incorporation of the Company, a registrar (which may be the same entity as the transfer agent) for its Common Stock; (o) The Company shall timely file all such reports, forms or other documents as may be required from time to time, under the Securities Act, the Exchange Act, and the Rules and Regulations, and all such reports, forms and documents filed will comply as to form and substance with the applicable requirements under the Securities Act, the Exchange Act, and the Rules and Regulations; (p) For a period of five (5) years from the Closing Date, the Company shall furnish to the Underwriters at the Underwriters' request and at the Company's sole expense, (i) daily consolidated transfer sheets relating to the Common Stock, (ii) the list of holders of all of the Company's securities and (iii) a Blue Sky "Trading Survey" for secondary sales of the Company's securities prepared by counsel to the Company; and 13 (q) Until the completion of the distribution of the Shares, and for 25 days thereafter, the Company shall not without the prior written consent of the Underwriters and counsel for the Underwriters, issue, directly or indirectly, any press release or other communication or hold any press conference with respect to the Company or its activities or the offering contemplated hereby. (r) For a period of five (5) years from the effective date of the Registration Statement, the Company shall nominate one individual selected by Ryan Beck for election to the Board of Directors of the Company (the "Board"), if requested by Ryan Beck, and shall solicit proxies in support of such nomination. If Ryan Beck shall not have designated such an individual at the time of any meeting of the Board or such person shall not have been elected or shall be unavailable to serve, the Company shall notify Ryan Beck of each such meeting. If an individual selected by Ryan Beck is not serving on the Board, an individual selected by Ryan Beck shall be permitted to attend all meetings of the Board and to receive all notices and other correspondence and communications sent by the Company to members of the Board. The Company further agrees to provide its outside directors with compensation as deemed appropriate by the Board and as customary for similar companies. The Company shall reimburse the designee to the Board of Ryan Beck for his or her out-of-pocket expenses reasonably incurred in connection with his or her attendance at Board meetings. (s) For a period of three (3) years from the effective date of the Registration Statement, the Company shall not directly or indirectly offer, sell, contract to sell, sell any option, grant any option, right or warrant for shares of the Company's Common Stock or securities exchangeable or exercisable for or convertible into shares of the Company's Common Stock to any of the Company's directors, officers or employees at a price less than the price per Share set forth in Section 2(a) without the prior written consent of Ryan Beck. (t) For a period of three (3) years from the effective date of the Registration Statement, the Company shall not effect a change in its accounting firm without the prior written consent of the Representatives, except that no consent is required if the new accounting firm is a "big four" accounting firm. (u) The Company will comply with all applicable securities and other applicable laws, rules and regulations, including, without limitation, the Sarbanes-Oxley Act of 2002, and will use its best efforts to cause the Company's trustees and officers, in their capacities as such, to comply with such laws, rules and regulations, including, without limitation, the provisions of the Sarbanes-Oxley Act of 2002. SECTION 6. EXPENSES. (a) The Company has paid approximately $325,000 of the Underwriters' expenses and fees, including the expenses and fees of counsel to the Underwriters. The Company agrees to pay: (i) the costs incident to the sale and delivery of the Securities and any taxes payable in that connection; (ii) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement and any amendments and exhibits thereto; (iii) the costs of distributing the Registration Statement as originally filed and each amendment thereto and any 14 post-effective amendments thereof (including, in each case, exhibits), any Preliminary Prospectus, the Prospectus and any amendment or supplement to the Prospectus, all as provided in this Agreement; (iv) the costs of reproducing and distributing this Agreement, the Warrant Agreement and any other related documents in connection with the offering, purchase, sale and delivery of the Securities; (v) the filing fees and expenses incident to securing the review by the NASD of the terms of sale of the Securities (including related fees and expenses of counsel to the Underwriters, which obligation shall be in addition to the obligation referred to in subparagraph (i) above); (vi) any applicable listing or other fees; (vii) the fees and expenses of qualifying the Shares under the securities laws of the several jurisdictions as provided in Section 5(h) and of preparing and distributing a Blue Sky Memorandum (including related fees and expenses of counsel to the Underwriters, which obligation shall be in addition to the obligation referred to in subparagraph (i) above); (viii) costs and expenses related to "Tombstone" advertisements; (ix) the costs and expenses related to the production of five bound volumes of the completed Registration Statement for each of the Representatives; and (x) the costs and expenses relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering of the Shares including, without limitation, expenses associated with the production of road show slides and graphics, printing and advertising fees and expenses, fees and expenses of any consultants engaged in connection with the road show presentations, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and all other costs and expenses incident to the performance of the obligations of the Company under this Agreement and the Warrant Agreement, including all accounting and counsel fees and expenses incurred by the Company in connection with the offering of the Shares hereunder. The fees and expenses referred to in subparagraphs (v) and (vii) above shall not exceed $20,000 in the aggregate. In addition, at the Closing Date or the Option Closing Date, as the case may be, the Representatives will deduct from the payment for the Shares two and six-tenths percent (2.6%) of the gross proceeds of the offering, in payment of the Representative's non-accountable expense allowance relating to the transactions contemplated hereby. (b) No person is entitled either directly or indirectly to compensation from the Company, from the Underwriters or from any other person for services as a finder in connection with the proposed offering, and the Company agrees to indemnify and hold harmless the Underwriters, against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement and the Warrant Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees), to which the Underwriters may become subject insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the claim of any person (other than an employee of the party claiming indemnity) or entity that he or it is entitled to a finder's fee in connection with the proposed offering by reason of such person's or entity's influence or prior contact with the Company. SECTION 7. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the several Underwriters to purchase and pay for the Shares which they have respectively agreed to purchase hereunder on the Closing Dates are subject (x) to the accuracy when made and as of the 15 applicable Closing Date, of the representations and warranties of the Company contained herein (provided that, in the case of this clause (x), the obligations of the Underwriters hereunder shall be subject to the accuracy in all material respects of those representations and warranties that are not qualified as to materiality), (y) to the performance by the Company of its obligations hereunder and (z) to each of the following additional terms and conditions: (a) The Prospectus shall have been timely filed with the Commission in accordance with Section 5(a); no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in the Registration Statement or the Prospectus or otherwise shall have been complied with. (b) The Underwriters shall not have discovered and disclosed to the Company on or prior to either of the Closing Dates that the Registration Statement or the Prospectus or any amendment or supplement thereto contains an untrue statement of fact which, in the opinion of Greenberg Traurig, P.A., counsel for the Underwriters, is material or omits to state a fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (c) Bryan Cave LLP shall have furnished to the Underwriters its written opinion, as counsel to the Company, addressed to the Underwriters and dated the First Closing Date, in substantially the form attached hereto as Exhibit B. (d) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Warrant Agreement, the Warrants, the Shares, the Registration Statement, the Prospectus and all other matters related to this Agreement, the Warrant Agreement, the Warrants, the Shares, the Registration Statement, the Prospectus and the transactions contemplated hereby and thereby shall be reasonably satisfactory to or approved by Greenberg Traurig, P.A., counsel for the Underwriters, and the Representatives shall have received from such counsel a signed opinion, dated as of the First Closing Date, together with copies thereof for each of the other Underwriters, in form and substance satisfactory to the Underwriters. The Company shall have furnished to counsel for the Underwriters such documents and information as they may reasonably request for the purpose of enabling it to render such opinion. (e) At the time of execution of this Agreement, the Underwriters shall have received from each of Ernst & Young, LLP and Stone Carlie & Company, LLC a letter, in form and substance satisfactory to the Underwriters, addressed to the Underwriters and dated the date hereof (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission and (ii) stating, as of the date hereof (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date hereof), the conclusions and findings of 16 such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to underwriters in connection with registered public offerings. (f) With respect to the letters of each of Ernst & Young LLP and Stone Carlie & Company, LLC referred to in the preceding paragraph and delivered to the Underwriters concurrently with the execution of this Agreement (each, an "initial letter"), the Company shall have furnished to the Underwriters a letter (the "bring-down letter") of each of such accountants, addressed to the Underwriters and dated the First Closing Date (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming the conclusions and findings set forth in the initial letter. (g) The Company shall have furnished to the Representatives on behalf of the Underwriters a certificate, dated the First Closing Date, of its Chief Executive Officer and its Chief Financial Officer stating that: (i) The representations, warranties and agreements of the Company in Section 1 are true and correct as of the First Closing Date (provided that such representations, warranties and agreements that are not qualified as to materiality shall be true in all material respects); the Company has complied with all its agreements contained herein; and the conditions set forth in this Section 7 have been fulfilled; and (ii) They have carefully examined the Registration Statement and the Prospectus and, in their opinion (A) as of the Effective Date, the Registration Statement and the Prospectus did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (B) since the Effective Date no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement or the Prospectus which was not so set forth therein. (h) The Company shall have not sustained since the date of the latest audited financial statements included in the Prospectus (i) any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus or (ii) since such date there shall not have been any change in the capital stock or long-term debt of the Company or any adverse change, or any development involving a prospective adverse change, in or affecting the general affairs, management, financial position, shareholders' equity or results of operations of the Company, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of the Representatives, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares 17 being delivered on the respective Closing Date on the terms and in the manner contemplated in the Prospectus. (i) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or in the over-the-counter market, or trading in any securities of the Company on any exchange or in the over-the-counter market, shall have been suspended or minimum prices shall have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by Federal or state authorities, (iii) the United States shall have become engaged in hostilities other than existing hostilities, there shall have been a material escalation in existing hostilities or acts of terrorism involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) as to make it, in the judgment of the Representatives, impracticable or inadvisable to proceed with the public offering or delivery of the Shares being delivered on the respective Closing Date on the terms and in the manner contemplated in the Prospectus. (j) The Shares shall be designated for inclusion in the Nasdaq National Market. (k) No action shall have been taken by the Commission or the NASD, the effect of which would make it improper, at any time prior to the respective Closing Date, for members of the NASD to execute transactions (as principal or agent) in the Shares and no proceedings for the taking of such action shall have been instituted or shall be pending, or, to the knowledge of the Underwriters or the Company, shall be contemplated by the Commission or the NASD. The Company represents that at the date hereof it has no knowledge that any such action is in fact contemplated by the Commission or the NASD. The Company shall have advised the Underwriters of any NASD affiliation of any of its officers, directors, shareholders or their affiliates. (l) Upon exercise of the option provided for in Section 2(b) hereof, the obligations of the several Underwriters to purchase and pay for the Option Shares referred to therein will be subject (as of the date hereof and as of the Option Closing Date) to the following additional conditions: (i) The Registration Statement shall remain effective at the Option Closing Date, and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending, or, to the knowledge of the Representatives or the Company, shall be contemplated by the Commission, and any reasonable request on the part of the Commission for additional information shall have been complied with to the satisfaction of counsel to the several Underwriters. 18 (ii) At the Option Closing Date, Bryan Cave LLP shall have furnished to the Underwriters its written opinion as counsel to the Company addressed to the Underwriters, which opinion shall be dated the Option Closing Date and shall be substantially the same in scope and substance as the opinion furnished to the Underwriters at the First Closing Date pursuant to Section 7(c) hereof, except that such opinion, where appropriate, shall cover the Option Shares. (iii) At the Option Closing Date, there shall have been delivered to the Underwriters a letter in form and substance satisfactory to the Underwriters from each of Ernst & Young, LLP and Stone Carlie & Company, LLC dated the Option Closing Date and addressed to the Underwriters confirming the information in their letter referred to in Section 7(e) hereof and stating that nothing has come to their attention during the period from the ending date of their review referred to in said letters to a date not more than five business days prior to the Option Closing Date, which would require any change in said letter if it were required to be dated the Option Closing Date. (iv) At the Option Closing Date, the Company shall have furnished to the Representatives of the Underwriters a certificate, dated the Option Closing Date, of its Chief Executive Officer and the Chief Financial Officer, in form and substance satisfactory to counsel for the Underwriters substantially the same in scope and substance as the certificates furnished to you at the First Closing Date pursuant to Section 7(g) hereof. (v) All proceedings taken at or prior to the Option Closing Date in connection with the sale and issuance of the Option Shares shall be satisfactory in form and substance to the Representatives and Greenberg Traurig, P.A., counsel to the several Underwriters, shall have been furnished with all such documents, certificates, and opinions as the Representatives may reasonably request in connection with this transaction in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company or its compliance with any of the covenants or conditions herein. (m) On or before the First Closing Date, the Company shall have executed and delivered to the Representatives, (i) the Warrant Agreement substantially in the form filed as Exhibit 4.3 to the Registration Statement in final form and substance satisfactory to the Underwriters, and (ii) the Warrants in such denominations and to such designees as shall have been provided to the Company. (n) On or before the First Closing Date, there shall have been delivered to the Representatives all of the Lock-up Agreements, in form and substance satisfactory to Greenberg Traurig, P.A., counsel to the several Underwriters. (o) At the time of execution of this Agreement, the Company shall have executed and delivered to Ryan Beck the financial advisory agreement, substantially in the form filed as an exhibit to the Registration Statement (the "Financial Advisory Agreement"). 19 All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance satisfactory to counsel for the Underwriters. SECTION 8. SUBSTITUTION OF UNDERWRITERS. If any of the Underwriters shall for any reason not permitted hereunder cancel their obligations to purchase the Firm Shares hereunder, or shall fail to take up and pay for the number of Firm Shares set forth opposite their respective names in Schedule A hereto upon tender of such Firm Shares in accordance with the terms hereof, then: (a) If the aggregate number of Firm Shares which such Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of Firm Shares, the other Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Firm Shares which such defaulting Underwriter or Underwriters agreed but failed to purchase. (b) If any Underwriter or Underwriters so default and the agreed number of Firm Shares with respect to which such default or defaults occurs is more than 10% of the total number of Firm Shares, the remaining Underwriters shall have the right to take up and pay for (in such proportion as may be agreed upon among them) the Firm Shares which the defaulting Underwriter or Underwriters agreed but failed to purchase. If such remaining Underwriters do not, at the First Closing Date, take up and pay for the Firm Shares which the defaulting Underwriter or Underwriters agreed but failed to purchase, the time for delivery of the Firm Shares shall be extended to the next business day to allow the remaining Underwriters the privilege of substituting within twenty-four hours (including nonbusiness hours) another underwriter or underwriters reasonably satisfactory to the Company. If no such underwriter or underwriters shall have been substituted as aforesaid, within such twenty-four hour period, the time of delivery of the Firm Shares may, at the option of the Company, be again extended to the next following business day, if necessary, to allow the Company the privilege of finding within thirty-six hours (including nonbusiness hours) another underwriter or underwriters to purchase the Firm Shares which the defaulting Underwriter or Underwriters agreed but failed to purchase. If it shall be arranged for the remaining Underwriters or substituted Underwriters to take up the Firm Shares of the defaulting Underwriter or Underwriters as provided in this Section 8, (i) the Company or the other Underwriters shall have the right to postpone the time of delivery for a period of not more than seven business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees promptly to file any amendments to the Registration Statement or supplements to the Prospectus which may thereby be made necessary, and (ii) the respective numbers of Firm Shares to be purchased by the remaining Underwriters or substituted Underwriters shall be taken as the basis of the underwriting obligation for all purposes of this Agreement. If a default by one or more Underwriters shall occur and the remaining Underwriters shall not take up and pay for all the Firm Shares agreed to be purchased by the defaulting Underwriters or substitute another underwriter or underwriters as aforesaid, and the Company 20 shall not find or shall not elect to seek another underwriter or underwriters for such Firm Shares as aforesaid, then this Agreement shall terminate. If, following exercise of the option provided in Section 2(b) hereof, any Underwriter or Underwriters shall for any reason not permitted hereunder cancel their obligations to purchase Option Shares at the Option Closing Date, or shall fail to take up and pay for the number of Option Shares, which they become obligated to purchase at the Option Closing Date upon tender of such Option Shares in accordance with the terms hereof, then the remaining Underwriters or substituted Underwriters may take up and pay for the Option Shares of the defaulting Underwriters in the manner provided in this Section 8(b). If the remaining Underwriters or substituted Underwriters shall not take up and pay for all such Option Shares, the Underwriters shall be entitled to purchase the number of Option Shares for which there is no default or, at their election, the option shall terminate, and the exercise thereof shall be of no effect. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section 8. In the event of termination, there shall be no liability on the part of any nondefaulting Underwriter to the Company, provided that the provisions of this Section 8 shall not in any event affect the liability of any defaulting Underwriter to the Company arising out of such default. SECTION 9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Underwriter, its officers and employees, each of its directors, its affiliates, as defined in Rule 405 under the Securities Act, and each person, if any, who controls any Underwriter within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Shares), to which such Underwriter, director, officer, employee, affiliate, or controlling person may become subject, under the Securities Act or any applicable federal or state law, or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or supplement thereto, (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any amendment or supplement thereto, any material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any act or failure to act or any alleged act or failure to act by such Underwriter in connection with, or relating in any manner to, the Shares or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (i) or (ii) above (provided that the Company shall not be liable under this clause (iii) to the extent that it is determined in a final, non-appealable judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Underwriter through its gross negligence or willful misconduct), and shall reimburse such Underwriter and each such director, officer, employee, affiliate or controlling person promptly upon demand for any legal or other expenses reasonably 21 incurred by such Underwriter, director, officer, employee, affiliate, or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any such amendment or supplement, in reliance upon and in conformity with written information concerning such Underwriter furnished to the Company by or on behalf of such Underwriter specifically for inclusion therein, which information consists solely of the information specified in Section 9(f), and provided further that as to any Preliminary Prospectus, this indemnity agreement shall not inure to the benefit of such Underwriter, its directors, officers, affiliates or employees, or any person controlling the Underwriter, on account of any loss, claim, damage, liability or action arising from the sale of the Shares to any person by such Underwriter if such Underwriter failed to send or give a copy of the Prospectus, as the same may be amended or supplemented, to that person within the time required by the Securities Act, and the untrue statement or alleged untrue statement of any material fact or omission or alleged omission to state a material fact in such Preliminary Prospectus was corrected in the Prospectus, unless such failure resulted from non-compliance by the Company with Section 5(c). The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to such Underwriter or to any officer, director, affiliate, employee or controlling person of such Underwriter. In the event that an Underwriter is required or requested to appear as a witness in any action brought by or on behalf of or against the Company in which such Underwriter is not named as a defendant, the Company agrees to promptly reimburse such Underwriter on a monthly basis for all expenses incurred by it in connection with such Underwriter's appearing and preparing to appear as such a witness, including, without limitation, the reasonable fees and disbursements of its legal counsel. In addition to any reimbursed fees, expenses or costs hereunder, such Underwriter shall also receive from the Company cash compensation of $2,000 per person, per day, plus reasonable out-of-pocket expenses and costs should the Underwriter be required to provide testimony in any formal or informal proceeding regarding the Company in which such Underwriter is not named as a defendant. (b) Each Underwriter, severally, but not jointly, shall indemnify and hold harmless the Company, its officers and employees, each of its directors, its affiliates, and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any such director, officer or controlling person may become subject, under the Securities Act or any applicable federal or state law, or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or supplement thereto, or (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement, the Prospectus, or in any amendment or supplement thereto, any material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the 22 extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Underwriter furnished to the Company by or on behalf of such Underwriter specifically for inclusion therein, which information consists solely of the information specified in Section 9(f), and shall reimburse the Company and any such director, officer, affiliate or controlling person for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which such Underwriter may otherwise have to the Company or any such director, officer, employee or controlling person. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of any intention or threat to commence an action, suit or proceeding or notice of the commencement of any action, suit or proceeding, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, promptly notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 9 except to the extent it has been materially prejudiced by such failure and, provided further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 9. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 9 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment thereof has been specifically authorized by the indemnifying party in writing, (ii) such indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party and in the reasonable judgment of such counsel it is advisable for such indemnified party to employ separate counsel or (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties, which firm shall be designated in writing by the Underwriters, if the indemnified parties under this Section 9 consist of the Underwriters or 23 the Underwriters' officers, employees or controlling persons, or by the Company, if the indemnified parties under this Section 9 consist of the Company or any of the Company's directors, officers, employees or controlling persons. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise, consent or judgment includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with the consent of the indemnifying party or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 9 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 9(a) or 9(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds (before deducting expenses) from the offering of the Shares purchased under this Agreement received by the Company on the one hand, and the total underwriting discounts and commissions received by the Underwriters with respect to the Shares purchased under this Agreement on the other hand bear to the total gross proceeds from the offering of the Shares under this Agreement, in each case as described on the cover page of the Prospectus. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 9 were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 9 shall be deemed to include, for purposes of this Section 9(d), any legal or other 24 expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9(d), the Company agrees that no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public was offered to the public exceeds the amount of any damages which such Underwriter has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) If multiple claims are brought with respect to at least one of which indemnification is permitted under applicable law and provided for under this Agreement, the indemnifying party agrees that any judgment award shall be conclusively deemed to be based on claims as to which indemnification is permitted and provided for, except to the extent the judgment award expressly states that it, or any portion thereof, is based solely on a claim as to which indemnification is not available. (f) The Underwriters confirm and the Company acknowledges that the statements with respect to the public offering of the Shares by the Underwriters set forth under the caption "Underwriting" in the Prospectus are correct and constitute the only information concerning the Underwriters furnished in writing to the Company by or on behalf of the Underwriters specifically for inclusion in the Registration Statement and the Prospectus. SECTION 10. TERMINATION. (a) The obligations of the Underwriters hereunder may be terminated by the Underwriters by notice given to and received by the Company prior to delivery of and payment for the Shares if, prior to the First Closing Date or the Option Closing Date, any of the events described in Sections 7(h) or 7(i), shall have occurred or if the Underwriters shall decline to purchase the Shares because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof. (b) Termination of this Agreement under this Section 10 or Section 7 after the Shares have been purchased by the Underwriters hereunder shall be applicable only to the Option Shares. Termination of this Agreement shall be without liability of any party to any other party other than as provided in Sections 6, 9 and 12 hereof. Notwithstanding any such termination, the provisions of Sections 6, 9 and 12 hereof shall remain in effect. SECTION 11. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing Date or at any Option Closing Date, as applicable, to sell and deliver the number of Shares which it is obligated to sell hereunder on such date, then this Agreement shall terminate (or, if such default shall occur with respect to any Option Shares to be purchased on an Option Closing Date, the Underwriters may at the Underwriters' option, by notice from the Underwriters to the Company, terminate the Underwriters' obligation to purchase Option Shares from the Company on such date) without any liability on the part of any non-defaulting party other than pursuant to 25 Section 6, Section 9 and Section 10 hereof. No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default. SECTION 12. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the Company shall fail to tender the Shares for delivery to the Underwriters by reason of any failure, refusal or inability on the part of the Company to perform any agreement on its part to be performed, or because any other condition of the Underwriters' obligations hereunder required to be fulfilled by the Company is not fulfilled, the Company will reimburse the Underwriters for all reasonable out-of-pocket expenses (including reasonable fees and disbursements of counsel) incurred by the Underwriters in connection with this Agreement and the proposed purchase of the Shares (less the amounts paid to the Underwriters through such date as set forth in Section 6(a)), and upon demand, the Company shall pay the full amount thereof to the Underwriters. If this Agreement is terminated pursuant to Section 10 by reason of the default of the Underwriters, the Company shall not be obligated to reimburse the Underwriters on account of any such expenses. SECTION 13. NOTICES, ETC. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Underwriters, shall be delivered or sent by mail, telex or facsimile transmission to Ryan Beck & Co., Inc., 650 Madison Avenue, New York, New York 10022, Attention: Michael Kollender (Fax: 212-407-0898) and to BB&T Capital Markets, 909 East Main Street, PO Box 1575, Richmond, Virginia 23218, Attention: James A. Tyler, Jr. (Fax: 804-643-9327), with a copy to Gary Epstein, Esq., Greenberg Traurig, P.A., 1221 Brickell Avenue, Miami, Florida 33131 (Fax: 305-579-0717) or (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Peter Edison, with a copy to J. Mark Klamer, Esq., Bryan Cave LLP, 211 North Broadway, Suite 3600, St. Louis, Missouri 63102 (Fax: 314-259-2020). Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. SECTION 14. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company and their respective representatives and successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (A) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of directors, officers and employees of any Underwriter, and the person or persons, if any, who control any Underwriter within the meaning of Section 15 of the Securities Act and (B) the indemnity agreement of the Underwriters contained in Section 10(b) of this Agreement shall be deemed to be for the benefit of directors, officers and employees of the Company, and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 14 any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. SECTION 15. SURVIVAL. The respective indemnities, representations, warranties and agreements of the Company and the Underwriters contained in this Agreement or made by or on 26 behalf on them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any one controlling any of them. SECTION 16. DEFINITION OF THE TERMS "BUSINESS DAY". For purposes of this Agreement, "business day" means each Monday, Tuesday, Wednesday, Thursday or Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. SECTION 17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of New York. SECTION 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. SECTION 19. HEADINGS. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. SECTION 20. ENTIRE AGREEMENT; MODIFICATION. This Agreement (together with the Warrant Agreement and the Financial Advisory Agreement) contains the entire understanding between the parties hereto with respect to the subject matter hereof and replaces any prior written agreement between the parties hereto with respect to the subject matter hereof. This Agreement may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 27 If the foregoing correctly sets forth the agreement among the Company and the Underwriters, please indicate your acceptance in the space provided for that purpose below. Very truly yours, BAKERS FOOTWEAR GROUP, INC. By: /s/ PETER A. EDISON ------------------------------------ Name: Peter A. Edison Title: Chairman and Chief Executive Officer Accepted as Representatives of the Several Underwriters: RYAN BECK & CO., INC. By: /s/ MICHAEL J. KOLLENDER ------------------------------------ Name: Michael J. Kollender Title: Executive Vice President BB&T Capital Markets, a Division of Scott & Stringfellow, Inc. By: /s/ JAMES A. TYLER, JR. ------------------------------------ Name: James A. Tyler, Jr. Title: Senior Vice President and Head of Syndicate 28 SCHEDULE A
Name of Underwriter Number of Firm Shares - ------------------- --------------------- ~~Ryan Beck & Co., Inc. 1,080,000 BB&T Capital Markets 1,080,000~~
29 SCHEDULE B Mississippi Valley Capital, LLC Harry E. Rich Timothy F. Finley Scott C. Schnuck 30 EXHIBIT A LOCK-UP AGREEMENTS December 19, 2003 Ryan Beck & Co., Inc. BB&T Capital Markets As Representatives of the Several Underwriters c/o Ryan, Beck & Co., LLC 380 Madison Avenue New York, New York 10017 Ladies and Gentlemen: Reference is made to that certain proposed Underwriting Agreement (the "Underwriting Agreement") among Bakers Footwear Group, Inc., a Missouri corporation (the "Company"), Ryan Beck & Co., Inc. ("Ryan Beck") and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc., as representatives of the several Underwriters named in Schedule A thereto, relating to a proposed firm commitment underwritten public offering of shares of the Company's Common Stock (the "Offering"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Underwriting Agreement. In order to induce the Underwriters to enter into the Underwriting Agreement and to consummate the transactions contemplated therein, and for other good and valuable consideration, receipt of which is hereby acknowledged, the undersigned hereby agrees not to, without the prior written consent of Ryan Beck & Co., Inc., during the Lock-Up Period (as defined below), directly or indirectly offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer (collectively, a "Disposition") any shares of the Company's Common Stock or securities convertible into or exchangeable for shares of the Company's Common Stock (collectively, the "Company Securities"), or file any registration statement with respect to any of the foregoing, or enter into any swap or other agreement that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of the Company Securities, whether any such swap or transaction is to be settled by delivery of Company Securities, in cash or otherwise, except that the undersigned may (i) transfer Company Securities as a bona fide gift or gifts, provided that the donee or donees thereof agree(s) to be bound by the restrictions set forth herein, (ii) transfer Company Securities to the undersigned's Family Group ("Family Group" means an individual's spouse, ex-spouse, lineal descendants, father, mother, brother, sister or domestic partner, whether by law or otherwise, or any grandparent, mother- inlaw, father- in-law, daughter- in- law, brother- in- law, stepchild, grandchild, step- grandchild, uncle, niece or nephew, including adoptive relationships, and any family limited partnership, limited liability company or trust or other fiduciary relationship solely for the benefit of such individual and/or any of the foregoing), (iii) transfer Company Securities by will or the laws of descent and distribution upon the death of the undersigned to his/her executors or administrators or legal successors, including without limitation trustee(s), or pursuant to a divorce decree or (iv) exercise options to purchase the Company's Common Stock, which options have been issued before the consummation of the Offering or otherwise as described in the prospectus in the form first used to confirm sales in connection with the Offering. For purposes hereof, the "Lock-Up Period" shall mean the period commencing on the date hereof and ending on the date that is three hundred sixty-five (365) days following the date of the prospectus in the form first used to confirm sales in connection with the Offering. The foregoing restriction has been expressly agreed to preclude the undersigned holder of the Company Securities from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Company Securities during the Lock-Up Period, even if such Company Securities would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Company Securities or with respect to any security (other than a broad-based market basket or index) that included, relates to or derives any significant part of its value from the Company Securities. Furthermore, the undersigned hereby agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the transfer of the Company Securities in violation of this agreement. In addition, the undersigned hereby agrees that for a period of twelve (12) months from the date of the final prospectus in the form used to confirm sales in connection with the Offering, Ryan Beck shall have a right of first refusal to purchase for its account or to sell for the account of the undersigned, within seven (7) business days, any Company Securities sold by the undersigned pursuant to Rule 144 under the Securities Act of 1933, as amended. The undersigned hereby agrees to consult (at no cost to the undersigned or the Company) with Ryan Beck with regard to any such sales and will offer Ryan Beck the exclusive opportunity to purchase or sell such securities on terms (including without limitation the price, commissions, mark-ups or other charges or expenses, and the terms of execution) that are at least as favorable to the undersigned as can be secured elsewhere. If Ryan Beck fails to accept in writing any such offer within three (3) business days after receipt of a notice containing such proposal, then Ryan Beck shall have no claim or right with respect to any such sales contained in the notice. If, thereafter, such proposal is modified in any material respect in a manner that is not adverse to the undersigned, the undersigned shall adopt the same procedure as with respect to the original proposal. January ___, 2004 Ryan Beck & Co., Inc. 380 Madison Avenue New York, New York 10017 Ladies and Gentlemen: The undersigned is exchanging convertible debentures (the "2002 Debentures") of Bakers Footwear Group, Inc., a Missouri corporation (the "Company"), which were originally acquired on April 4, 2002 pursuant to a private placement by the Company, for New Debentures pursuant to a Convertible Debenture Exchange Agreement dated as of the date hereof. The undersigned understands that the Company proposes to engage in an underwritten public offering of newly issued shares of the Company's Common Stock, $.0001 per share (the "Proposed Offering"), pursuant to a registration statement on Form S-1 (File No. 333-86322) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. In connection with the Proposed Offering, the Company will enter into an Underwriting Agreement (the "Underwriting Agreement") among the Company, Ryan Beck & Co., Inc. and BB&T Capital Markets, a Division of Scott & Stringfellow, Inc., as representatives of the several Underwriters to be named in Schedule A thereto (the "Underwriters"), relating to the Proposed Offering. In order to induce the Underwriters to enter into the proposed Underwriting Agreement and to consummate the Proposed Offering, the undersigned hereby agrees not to, without the prior written consent of Ryan Beck & Co. Inc., during the Lock-Up Period (as defined below), directly or indirectly offer, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any shares of the Company's Common Stock or securities convertible into or exchangeable for shares of the Company's Common Stock, including without limitation the New Debentures, now owned or acquired upon conversion of the New Debentures by the undersigned (collectively, the "Company Securities") or file any registration statement with respect to any of the foregoing, or enter into any swap or other agreement that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of the Company Securities, whether any such swap or transaction is to be settled by delivery of Company Securities, in cash or otherwise, except that the undersigned may (x) transfer Company Securities as a bona fide gift or gifts, provided that the undersigned provides prior written notice of such gift or gifts to Ryan Beck & Co., Inc. and the donee or donees thereof agree(s) to be bound by the restrictions set forth herein, or (y) exercise options to purchase the Company's Common Stock, which options have been issued as of the date hereof. For purposes hereof, the "Lock-Up Period" shall mean the period commencing on the date hereof and ending on the later to occur of (1) the date that is ninety (90) days following the date of the consummation of the Proposed Offering pursuant to the Underwriting Agreement and (2) June 30, 2004. Furthermore, the undersigned hereby agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the transfer of the Company Securities in violation of this agreement. EXHIBIT B FORM OF OPINION OF BRYAN CAVE LLP (a) Based solely on a recently dated good standing certificate from the Secretary of State of the State of Missouri, the Company is validly existing as a corporation, in good standing under the laws of the State of Missouri. The Company has all requisite corporate power to own, lease and operate its properties and assets and conduct its business as now being conducted and set forth in or contemplated by the Prospectus. (b) Based solely on recently dated good standing certificates from the Secretaries of State of the applicable jurisdictions, the Company is duly qualified or admitted to transact business and is in good standing as a foreign corporation in the jurisdictions set forth on Exhibit __ attached hereto. (c) The execution and delivery by the Company of the Underwriting Agreement, the Warrant Agreement and the Warrants and the consummation by the Company of its obligations thereunder are within the Company's corporate power and have been duly authorized by all necessary corporate action on the part of the Company. (d) The Registration Statement and the Prospectus (other than the financial statements and related notes and schedules and the other financial, statistical and accounting data included therein, or omitted therefrom, as to which we express no opinion), as of the Effective Date appear on their face to comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. The Registration Statement, its execution and the filing thereof with the Securities and Exchange Commission have been duly authorized by all necessary corporate action on the part of the Company, and the Registration Statement has been duly executed pursuant to such authorization by and on behalf of the Company. (e) We have been advised by the staff of the Securities and Exchange Commission that the Registration Statement is effective under the Securities Act of 1933, as amended (the "Securities Act"), and, to our knowledge, based solely upon an oral acknowledgment by the staff of the Securities and Exchange Commission, no stop order suspending the effectiveness of the Registration Statement has been issued under the Securities Act or proceedings therefor initiated or threatened by the Securities and Exchange Commission. (f) The Company has an authorized capitalization as set forth in the Prospectus under the caption "Description of Capital Stock." To our knowledge, there are __________ shares of the Company's Common Stock outstanding. For purposes of this paragraph ___, our opinion with respect to the outstanding shares of Common Stock is based solely on our review of the stock records provided to us by the Company and a certificate of the Company's Chief Executive Officer. (g) The statements in the Prospectus under the caption "Description of Capital Stock," insofar as such statements constitute summaries of the terms and provisions of the documents or matters of law referred to therein, fairly summarize such terms and provisions in all material respects (except for the financial statements and related notes and schedules and other financial, statistical and accounting data included therein or omitted therefrom, as to which we express no opinion). (h) All of the outstanding shares of the Company's capital stock have been duly issued and are fully paid and nonassessable, and none of them have been issued in violation of any statutory preemptive right, or to our knowledge, any similar contractual preemptive right of any shareholder of the Company contained in the Company's Restated Articles of Incorporation or any agreement filed as an exhibit to the Registration Statement. To our knowledge, there are no outstanding securities of the Company convertible into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company, there are no outstanding or authorized options, warrants, calls, subscriptions, rights, commitments or any other agreements of any character obligating the Company to issue any shares of its capital stock or any securities convertible into or evidencing the right to purchase or subscribe for any shares of such stock, and there are no agreements or understandings with respect to the voting, sale or transfer of any shares of capital stock of the Company to which the Company is a party, except as set forth in or contemplated by the Prospectus. For purposes of this paragraph __, our opinion with respect to the issued and outstanding shares of capital stock is based solely on our review of the stock record books of the Company and a certificate of the Company's Chief Executive Officer. (i) The Firm Shares and the Represenatives' Shares are not subject to any statutory preemptive right, or to our knowledge, any similar contractual preemptive right of any shareholder of the Company contained in the Company's Restated Articles of Incorporation or any agreement filed as an exhibit to the Registration Statement. (j) Upon issuance in accordance with the terms of the Underwriting Agreement, and receipt by the Company of all consideration therefor set forth in the Underwriting Agreement, the Shares will be validly issued, fully paid and nonassessable. (k) Upon issuance in accordance with the terms of the Warrant Agreement, and receipt by the Company of all consideration therefor set forth in the Warrant Agreement, the Warrants will be validly issued, fully paid and nonassessable. Upon issuance in accordance with the terms of the Warrant Agreement, and receipt by the Company of the exercise price therefor set forth in the Warrant Agreement and the Warrant, the Representatives' Shares issuable upon exercise of the Warrants, will be validly issued, fully paid and nonassessable. (l) The Underwriting Agreement, the Warrant Agreement and the Warrants have been duly executed and delivered by the Company and constitute the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. (m) Except for the registration of the Securities under the Securities Act, the execution and delivery by the Company of the Underwriting Agreement, the Warrant Agreement and the Warrants and the consummation by the Company of its obligations thereunder do not result in (a) any violation by the Company of (i) any provision of applicable law that we, based on our experience, reasonably recognize as applicable to the Company in a transaction of this type (other than state securities or blue sky laws, or the rules of the National Association of Securities Dealers, Inc., as to which we express no opinion), or (ii) any order, writ, judgment or decree known to us of any court or governmental authority or regulatory body that names the Company or is specifically directed to the Company or any of its material properties or assets, or (b) a breach or default or require the creation or imposition of any security interest or lien upon any of the Company's properties pursuant to any material agreement, contract or instrument known to us to which the Company is a party or by which it is bound. For purposes of the foregoing, we have assumed that the only material agreements, contracts or instruments to which the Company is a party or by which it is bound are those included as exhibits to the Registration Statement. (n) The application by the Company of the net proceeds of the sale of the Shares as described in the Registration Statement under "Use of Proceeds" would not result in a breach or default or require the creation or imposition of any security interest or lien upon any of the Company's properties pursuant to any material agreement, contract or instrument known to us to which the Company is a party or by which it is bound. For purposes of the foregoing, we have assumed that the only material agreements, contracts or instruments to which the Company is a party or by which it is bound are those included as exhibits to the Registration Statement. (o) No consent, approval, authorization or order of, and no notice to or filing with, any federal or Missouri governmental authority or regulatory body is required for the due execution, delivery and consummation by the Company of its obligations under the Underwriting Agreement or the Warrant Agreement or the performance by the Company of its obligations under the Underwriting Agreement, except for the registration of the Shares under the Securities Act and such consents, approvals, authorizations, registrations or qualifications or other actions which have been obtained or made, or as may be required under state securities or blue sky laws, or the rules of the National Association of Securities Dealers, Inc. in connection with the purchase of the Securities and the distribution of the Shares by you, as to which we express no opinion. (m) To our knowledge, there are no contracts, agreements or understandings between the Company and any person granting such person the right (other than rights which have been waived or satisfied) to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any other registration statement filed by the Company under the Securities Act. (n) Except as set forth in or as contemplated by the Prospectus, we hereby confirm to you that, to our knowledge, no action or proceeding against the Company is pending or overtly threatened by written communication before any court, governmental authority or arbitrator that calls into question the validity or enforceability of the Underwriting Agreement or which is required to be disclosed in the Prospectus. (o) The Company is not, nor will it be upon the issuance of the Shares and the application of the proceeds therefrom as set forth under the caption "Use of Proceeds" in the Prospectus, an "investment company" or an entity "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. (p) All descriptions in the Prospectus of agreements, contracts and instruments to which the Company is a party, insofar as such statements constitute summaries of the terms and provisions of the agreements, contracts or instruments referred to therein, are accurate in all material respects (except for the financial statements and related notes and schedules and other financial, statistical and accounting data included therein or omitted therefrom, as to which we express no opinion). For purposes of the foregoing, we have assumed that the only agreements, contracts or instruments to which the Company is a party or by which it is bound are those included as exhibits to the Registration Statement. We hereby confirm to you that we are unaware of any material agreements, which we believe are required to be filed as exhibits to the Registration Statement that have not been so filed, provided that our judgment as to the materiality of the amount or significance of any such agreement is based upon the views of officers and other representatives of the Company. (q) To the best of our knowledge, based solely on verbal assurances from representatives of the National Association of Dealers Regulation, Inc., the Common Stock has been designated for inclusion in the Nasdaq National Market, subject to official notice of issuance of the Shares. (r) The form of certificate used to evidence the Shares complies with applicable statutory requirements, with any applicable requirements of the Articles and Bylaws and the requirements of the Nasdaq National Market. (s) The statements made in the Registration Statement under Item 14, insofar as they purport to constitute summaries of the terms of the General and Business Corporation Law of the State of Missouri, constitute accurate summaries of the terms of such statutes in all material respects. During the preparation of the Registration Statement and the Prospectus, we have participated in conferences with officers and other representatives of the Company, representatives of the independent accountants for the Company and you and your representatives and counsel, at which conferences the contents of the Prospectus, the Registration Statement and related matters were discussed, reviewed and revised. Although we are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of such contents, and have not made any independent investigation thereof, on the basis of the information which was developed in the course thereof, considered in light of our understanding of applicable law and the experience we have gained through our practice thereunder, this is to advise you that nothing has come to our attention which causes us to believe that, at the time the Registration Statement became effective, the Registration Statement or the Prospectus, as of its date (except as to the financial statements and related notes and schedules and other financial, statistical and accounting data included therein or omitted therefrom, as to which we express no belief), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein (and with respect to the Prospectus, in light of the circumstances under which they were made), not misleading, or at the date hereof, the Registration Statement or Prospectus (except as aforesaid) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein (and with respect to the Prospectus, in light of the circumstances under which they were made), not misleading. EX-10.33 13 c83898exv10w33.txt LETTER OUTLINING 2004 BONUS LEVELS EXHIBIT 10.33 [LOGO] March 1, 2004 Peter Edison Dear Peter: The full year 2003 results ended with a pre-tax profit of $5,769,150. This allows the company to pay the 50% bonus level which was the $5,500,000 pre-tax level. Enclosed is a check representing your bonus for 2003. We are thrilled to be able to share the success of the company's recent performance with you in this way. The bonus plan for 2004 has been adjusted to reflect the goals for the company now that we have raised additional capital and become a public entity. Your bonus will be based on the profit after-tax using a standard corporate tax rate. 10% of your cumulative salary if the company achieves an after-tax profit of $1,066,000 20% of your cumulative salary if the company achieves an after-tax profit of $1,566,000 30% of your cumulative salary if the company achieves an after-tax profit of $2,066,000 40% of your cumulative salary if the company achieves an after-tax profit of $2,566,000 50% of your cumulative salary if the company achieves an after-tax profit of $3,066,000 71.4% of your cumulative salary if the company achieves an after-tax profit of $3,766,000 92.7% of your cumulative salary if the company achieves an after-tax profit of $4,666,000 114.3% of your cumulative salary if the company achieves an after-tax profit of $5,666,000

The bonus period will be the fiscal months of January 2004 through December 2004. You must be an active employee of Bakers Footwear Group at the time bonuses are paid to be eligible to receive your bonus. We are excited about the challenges and prospects in the coming year. We hope it's profitable for all of us and our shareholders. Sincerely, /s/ Peter Edison Peter Edison 2815 SCOTT AVENUE-SAINT LOUIS, MISSOURI 63103-(314) 621-0699 -FAX (314) 621-0708 EX-10.34 14 c83898exv10w34.txt LETTER OUTLINING 2004 BONUS LEVELS EXHIBIT 10.34 [LOGO] March 1, 2004 Michele Bergerac Dear Michele: The full year 2003 results ended with a pre-tax profit of $5,769,150. This allows the company to pay the 50% bonus level which was the $5,500,000 pre-tax level. Enclosed is a check representing your bonus for 2003. We are thrilled to be able to share the success of the company's recent performance with you in this way. The bonus plan for 2004 has been adjusted to reflect the goals for the company now that we have raised additional capital and become a public entity. Your bonus will be based on the profit after-tax using a standard corporate tax rate. 10% of your cumulative salary if the company achieves an after-tax profit of $1,066,000 20% of your cumulative salary if the company achieves an after-tax profit of $1,566,000 30% of your cumulative salary if the company achieves an after-tax profit of $2,066,000 40% of your cumulative salary if the company achieves an after-tax profit of $2,566,000 50% of your cumulative salary if the company achieves an after-tax profit of $3,066,000 71.4% of your cumulative salary if the company achieves an after-tax profit of $3,766,000 92.7% of your cumulative salary if the company achieves an after-tax profit of $4,666,000 114.3% of your cumulative salary if the company achieves an after-tax profit of $5,666,000

The bonus period will be the fiscal months of January 2004 through December 2004. You must be an active employee of Bakers Footwear Group at the time bonuses are paid to be eligible to receive your bonus. We are excited about the challenges and prospects in the coming year. We hope it's profitable for all of us and our shareholders. Sincerely, /s/Peter Edison ---------------- Peter Edison ss 2815 SCOTT AVENUE - SAINT LOUIS, MISSOURI 63103 - (314)621-0699 - FAX(314)621-0708 EX-10.35 15 c83898exv10w35.txt LETTER OUTLINING 2004 BONUS LEVELS EXHIBIT 10.35 [LOGO] March 1, 2004 Mark Ianni Dear Mark: The full year 2003 results ended with a pre-tax profit of $5,769,150. This allows the company to pay the 50% bonus level which was the $5,500,000 pre-tax level. Enclosed is a check representing your bonus for 2003. We are thrilled to be able to share the success of the company's recent performance with you in this way. The bonus plan for 2004 has been adjusted to reflect the goals for the company now that we have raised additional capital and become a public entity. Your bonus will be based on the profit after-tax using a standard corporate tax rate. 10% of your cumulative salary if the company achieves an after-tax profit of $1,066,000 20% of your cumulative salary if the company achieves an after-tax profit of $1,566,000 30% of your cumulative salary if the company achieves an after-tax profit of $2,066,000 40% of your cumulative salary if the company achieves an after-tax profit of $2,566,000 50% of your cumulative salary if the company achieves an after-tax profit of $3,066,000 66.7% of your cumulative salary if the company achieves an after-tax profit of $3,766,000 83.3% of your cumulative salary if the company achieves an after-tax profit of $4,666,000 100% of your cumulative salary if the company achieves an after-tax profit of $5,666,000

The bonus period will be the fiscal months of January 2004 through December 2004. You must be an active employee of Bakers Footwear Group at the time bonuses are paid to be eligible to receive your bonus. We are excited about the challenges and prospects in the coming year. We hope it's profitable for all of us and our shareholders. Sincerely, /s/ Peter Edison Peter Edison ss 2815 SCOTT AVENUE - SAINT LOUIS, MISSOURI 63103 - (314) 621-0699 - FAX (314) 621-0708 EX-10.36 16 c83898exv10w36.txt LETTER OUTLINING 2004 BONUS LEVELS EXHIBIT 10.36 [LOGO] March 1, 2004 Stan Tusman Dear Stan: The full year 2003 results ended with a pre-tax profit of $5,769,150. This allows the company to pay the 50% bonus level which was the $5,500,000 pre-tax level. Enclosed is a check representing your bonus for 2003. We are thrilled to be able to share the success of the company's recent performance with you in this way. The bonus plan for 2004 has been adjusted to reflect the goals for the company now that we have raised additional capital and become a public entity. Your bonus will be based on the profit after-tax using a standard corporate tax rate. 10% of your cumulative salary if the company achieves an after-tax profit of $1,066,000 20% of your cumulative salary if the company achieves an after-tax profit of $1,566,000 30% of your cumulative salary if the company achieves an after-tax profit of $2,066,000 40% of your cumulative salary if the company achieves an after-tax profit of $2,566,000 50% of your cumulative salary if the company achieves an after-tax profit of $3,066,000 66.7% of your cumulative salary if the company achieves an after-tax profit of $3,766,000 83.3% of your cumulative salary if the company achieves an after-tax profit of $4,666,000 100% of your cumulative salary if the company achieves an after-tax profit of $5,666,000

The bonus period will be the fiscal months of January 2004 through December 2004. You must be an active employee of Bakers Footwear Group at the time bonuses are paid to be eligible to receive your bonus. We are excited about the challenges and prospects in the coming year. We hope it's profitable for all of us and our shareholders. Sincerely, /s/ Peter Edison Peter Edison ss 2815 SCOTT AVENUE - SAINT LOUIS, MISSOURI 63103 - (314) 621-0699 - FAX (314) 621-0708 EX-10.37 17 c83898exv10w37.txt LETTER OUTLINING 2004 BONUS LEVELS Exhibit 10.37 [LOGO] March 1, 2004 Joe Vander Pluym Dear Joe: The full year 2003 results ended with a pre-tax profit of $5,769,150. This allows the company to pay the 25% bonus level which was the $5,500,000 pre-tax level. Enclosed is a check representing your bonus for 2003. We are thrilled to be able to share the success of the company's recent performance with you in this way. The bonus plan for 2004 has been adjusted to reflect the goals for the company now that we have raised additional capital and become a public entity. Your bonus will be based on the profit after-tax using a standard corporate tax rate. 5% of your cumulative salary if the company achieves an after-tax profit of $1,066,000 10% of your cumulative salary if the company achieves an after-tax profit of $1,566,000 15% of your cumulative salary if the company achieves an after-tax profit of $2,066,000 20% of your cumulative salary if the company achieves an after-tax profit of $2,566,000 25% of your cumulative salary if the company achieves an after-tax profit of $3,066,000 33.3% of your cumulative salary if the company achieves an after-tax profit of $3,766,000 41.7% of your cumulative salary if the company achieves an after-tax profit of $4,666,000 50% of your cumulative salary if the company achieves an after-tax profit of $5,666,000

The bonus period will be the fiscal months of January 2004 through December 2004. You must be an active employee of Bakers Footwear Group at the time bonuses are paid to be eligible to receive your bonus. We are excited about the challenges and prospects in the coming year. We hope it's profitable for all of us and our shareholders. Sincerely, /s/ Peter Edison Peter Edison 2815 Scott Avenue-Saint Louis, Missouri 63103-(314)621-0699-Fax (314)621-0708 EX-10.38 18 c83898exv10w38.txt LETTER OUTLINING 2004 BONUS LEVELS Exhibit 10.38 [LOGO] March 1, 2004 Larry Spanley Dear Larry: The full year 2003 results ended with a pre-tax profit of $5,769,150. This allows the company to pay the 25% bonus level which was the $5,500,000 pre-tax level. Enclosed is a check representing your bonus for 2003. We are thrilled to be able to share the success of the company's recent performance with you in this way. The bonus plan for 2004 has been adjusted to reflect the goals for the company now that we have raised additional capital and become a public entity. Your bonus will be based on the profit after-tax using a standard corporate tax rate. 5% of your cumulative salary if the company achieves an after-tax profit of $1,066,000 10% of your cumulative salary if the company achieves an after-tax profit of $1,566,000 15% of your cumulative salary if the company achieves an after-tax profit of $2,066,000 20% of your cumulative salary if the company achieves an after-tax profit of $2,566,000 25% of your cumulative salary if the company achieves an after-tax profit of $3,066,000 33.3% of your cumulative salary if the company achieves an after-tax profit of $3,766,000 41.7% of your cumulative salary if the company achieves an after-tax profit of $4,666,000 50% of your cumulative salary if the company achieves an after-tax profit of $5,666,000

The bonus period will be the fiscal months of January 2004 through December 2004. You must be an active employee of Bakers Footwear Group at the time bonuses are paid to be eligible to receive your bonus. We are excited about the challenges and prospects in the coming year. We hope it's profitable for all of us and our shareholders. Sincerely, /s/ Peter Edison Peter Edison 2815 Scott Avenue-Saint Louis, Missouri 63103-(314)621-0699-Fax (314)621-0708 EX-14.1 19 c83898exv14w1.txt CODE OF BUSINESS CONDUCT EXHIBIT 14.1 BAKERS FOOTWEAR GROUP, INC. CODE OF BUSINESS CONDUCT In addition to emphasizing Bakers Footwear Group, Inc.'s shared values, this Code of Business Conduct is designed to define individual and corporate responsibility. Every employee must understand that he or she is responsible for his or her own conduct, and the observance of this Code is necessary in order for the Company to remain a responsible member of the various communities in which it does business. As you know, the stakes in today's business environment are high, and while skepticism of corporate activities persists, it is especially important that we adhere to ethical business principles and meet and exceed expectations of corporate integrity. Although this Code covers a wide range of business practices, it does not cover every issue that may arise. As a result, this Code should be used together with your common sense and good judgment. If in doubt, please obtain guidance from your manager or supervisor or the Company's ombudsmen. Remember, always ask first and act later. Legal difficulties can often be avoided or minimized if counsel is obtained early on. Please do not hesitate to contact the ombudsmen, which I shall designate from time to time, if you have a specific business question or need clarification of any part of the Code. Peter A. Edison Chairman of the Board and Chief Executive Officer CODE OF BUSINESS CONDUCT I. GUIDING PRINCIPLES This Code defines broad corporate values that shape the Company's business practices and applies to all officers, directors, and employees(1): LEGAL/COMPLIANCE OBLIGATIONS - The Company strives to comply with all applicable laws and regulations in all of its operations. This means all employees must follow the letter of the law and take the right ethical action even when the law is not specific. INTEGRITY - Long-term business relationships are built by being open, honest and fair. All employees are expected to uphold the highest professional standards. RESPECT FOR PEOPLE - Outstanding employees are key to the Company's success. Everyone is part of the corporate team and its success, and each of us deserves to be treated with dignity and respect. The Company is committed to conducting its business in accordance with the highest ethical standards. This Code provides firm, uncompromising standards for each employee of the Company with respect to dealing with customers, suppliers, government agencies, the public, competitors, other employees and others. The standards set forth below shall be met by all employees. These standards help to ensure that the Company complies fully with its ethical and legal responsibilities in its business activities. However, these standards are not necessarily all of the obligations that apply to employees. In general, all employees shall take care to avoid any conduct that could reasonably appear to be improper or might injure the Company's reputation for honesty and integrity in its activities. Adherence to this Code is the responsibility of each employee and is a condition of continued employment. Even well-intentioned actions that violate the law or this Code may result in corrective and/or disciplinary action, which may include dismissal. II. CONFLICT OF INTEREST Employees are prohibited from engaging in activities or holding or trading assets that involve, or even appear to involve, a conflict between their personal interests and the interests of the Company. Such circumstances could compromise or appear to compromise the employee's ability to make impartial business decisions. Disclosures of personal interests or other circumstances which might constitute a conflict of interest must be reported promptly to the Company's ombudsmen as appointed by the Chief Executive Officer from time to time, who will - ---------- (1) The provisions of the Code are applicable to all Officers and Directors even though the term "employee" is used throughout the Code. 2 arrange for appropriate resolution. Conflicts of interest are prohibited as a matter of Company policy, unless they are approved by the Company. Some examples of situations in which a conflict of interest may occur are: - when an employee, directly or indirectly, receives gifts having more than token or nominal value (generally less than $25) from a current or potential competitor, supplier or customer; - consulting with or working in any capacity for a competitor, supplier or customer of the Company; - owning a material financial interest in a competitor's, customer's or supplier's business clearly represents a potential conflict of interest. The Board of Directors in their sole judgment and discretion shall determine if a financial interest is material. However, the best policy is to avoid any direct or indirect business connection with a competitor, customer or supplier; and - the employment of family members as contractors or suppliers. III. COMPETITION AND FAIR DEALING The Company seeks to outperform its competition fairly and honestly. We seek competitive advantages through superior performance, and not through unethical or illegal business practices. UNFAIR ADVANTAGE Stealing proprietary information, possessing trade secret information that was obtained without the owner's consent, or inducing such disclosures by past or present employees of other companies is prohibited. Each employee should strive to respect the rights of and deal fairly with the Company's customers, suppliers, competitors, and employees. No employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of materials facts, or any other intentional unfair-dealing practices. PRICING Antitrust laws are designed to promote competitive pricing in the marketplace, unrestricted by improper conspiracies such as price fixing. Specifically, any agreement or understanding between competitors concerning price, or any element of price (discounts, credit terms), including arrangements which tend to stabilize prices is prohibited. Also, understandings between competitors concerning (1) the amount of their production, (2) the division or allocation of markets, territories, or customers, or (3) the boycotting of third parties is prohibited. Remember, there does not need to be a formal document signed by the parties to be an understanding or agreement. Instead, a conspiracy or understanding may be found if there is any 3 kind of mutual understanding that a business practice or decision adopted by one party would be followed, or at least not opposed, by the other party. Exchanges of business information between competitors and trade association activities may present problems under the antitrust laws. Therefore, you must consult with the ombudsmen if you have any questions. The antitrust laws also prohibit an agreement or understanding by the seller and customer which sets the price at which the customer will resell the product. No restrictions on resale should ever be made without prior legal review. BUSINESS ENTERTAINMENT AND GIFTS The purpose of business entertainment and gifts in a commercial setting is to create good will and sound working relationships, not to gain unfair advantage with customers or suppliers. Employees must exercise the utmost care when giving or receiving business-related gifts. Specifically, no gift or entertainment should be offered, given, provided or accepted by any Company employee or their family members unless it: (1) is not a cash gift, (2) is consistent with customary business practices (i.e. where the exchange of gifts is customary and the gifts are appropriate for the occasion), (3) is nominal in value (generally less than $25); (4) cannot be construed as a bribe or payoff, and (5) does not violate any laws or regulations. Please contact your supervisor, manager or the ombudsmen to discuss any gifts or proposed gifts which you are not certain are appropriate. Also, many of our business partners, suppliers and landlords have policies that prohibit their employees from receiving gifts from suppliers. It is against Company policy for any employee to give a gift to anyone for whom it is against his or her company's policy to receive such gifts. For others, it is generally against Company policy to give a gift of other than token or nominal value (generally less than $25) to business partners, suppliers or landlords or their agents or employees. IV. INSIDER TRADING It is unlawful to deal in the shares of a company while in the possession of material non-public information. Accordingly, employees who are in possession of material non-public information concerning the Company are not permitted to use or share that information. All non-public information (information that has not been disseminated to the public) about the Company should be considered confidential information. It is also unlawful to use non-public information to encourage someone else to make an investment decision on the basis of this information. This policy also applies to family members who live with you, anyone else who resides in your household, and any family members whose transactions in company securities are directed by you or are subject to your influence or control (such as parents or children who consult with you before they trade in company securities). You are responsible for the transactions of these individuals and therefore should make them aware of the need to consult with you before they trade in the Company's securities. 4 Each employee is required to review and comply with the Company's separate Insider Trading Policy. V. CONFIDENTIALITY Employees must maintain the confidentiality of confidential information of the Company and that of business partners, suppliers and landlords, except when disclosure is authorized by a supervisor or the ombudsmen or required by laws, regulations or legal proceedings. Confidential information includes all non-public information that might be of use to competitors, business partners, suppliers, landlords or investors, or harmful to the Company or its shareholders if disclosed. VI. CORPORATE OPPORTUNITIES Employees are prohibited from taking for themselves personally opportunities that are discovered through the use of corporate property, information or position without the consent of the Board of Directors. No employee may use corporate property, information, or position for improper personal gain, and no employee may compete with the Company directly or indirectly. Employees owe a duty to the Company to advance its legitimate interests when an opportunity to do so arises. Any use of Company's property or services that is not solely for the benefit of the Company must be approved in advance by the Company's Board of Directors. VII. PROTECTION AND PROPER USE OF COMPANY ASSETS Protecting Company assets against loss, theft, misuse and waste is the responsibility of every employee. Theft, carelessness and waste directly impact our profitability and any suspected theft, fraud or inefficient use of Company assets should be reported to a manager, supervisor or the Company's ombudsmen. The sole purpose of the Company's equipment, vehicles and supplies is the conduct of our business. They may not be used for non-Company business and may not be sold, loaned, given away or disposed of without proper authorization. VIII. POLITICAL CONTRIBUTIONS Political contributions by corporations are prohibited by Federal law and by the laws of most states. Although individual participation in the political process and in campaign contributions is proper, an employee's contribution must not be made, or even appear to be made with, or be reimbursed from, the Company's funds absent approval of the Board of Directors; nor should the selection of a candidate or of a party be, or seem to be, coerced by the Company. Severe penalties may be imposed on individuals who violate the political contribution laws, and the Company may be fined. IX. NON-DISCRIMINATION AND ANTI-HARASSMENT 5 The Company is committed to providing a work environment free of unlawful discrimination and harassment. It is the Company's policy that all employees and applicants for employment are treated fairly and without regard to race, color, gender, religion, national origin, age, disability, sexual orientation, veteran status, or any other factor protected by law. The Company generally prohibits any form of unwelcome, discriminatory, or inappropriate behavior, including joking, making remarks or other abusive conduct that demeans or demonstrates hostility towards an individual because of race, color, gender, religion, national origin, age, disability, sexual orientation, veteran status or other protected status that creates an intimidating, hostile or offensive work environment. X. HEALTH AND SAFETY The Company strives to provide each employee with a clean, safe and healthy place to work. All employees have a shared responsibility for maintaining a safe and healthy workplace by following all safety and health rules, and reporting any unsafe conditions, practices, accidents or injuries. If you are faced with a health or safety issue, you should contact your supervisor or the Company's ombudsmen. XI. FEDERAL SECURITIES LAWS INCLUDING THE FOREIGN CORRUPT PRACTICES ACT Federal securities laws require that publicly-held companies such as the Company maintain complete and accurate records. The falsification of Company books and records, and the making of false or misleading statements to the Company's auditors, either independent or internal, are specifically prohibited. INTERNAL CONTROL Management is responsible for the conduct and control of Company business transactions. This requires that the Company maintain a system of internal control sufficient to provide management with reasonable assurance that transactions are properly authorized and recorded and that the assets of the Company are adequately safeguarded. Failure to comply with this requirement or knowingly circumventing the internal control systems in place is prohibited. ILLEGAL PAYMENTS/BRIBES In the U.S. and in many other countries, it is illegal to provide, offer or accept a kickback or bribe. Bribery is the giving of money or anything else of value in an attempt to influence unlawfully the action of a public official. No employee should pay, offer or authorize any bribe or make any other unlawful payment on behalf of the Company, no matter how small the amount. This prohibition extends to payments to consultants, agents or other intermediaries when the employee has reason to believe that some part of the payment or "fee" will be used for a bribe or otherwise to influence government action. Payment (other than for purchase of a product) or giving of a gift of other than token or nominal value to suppliers or customers or their agents, employees or fiduciaries may constitute a 6 commercial bribe or kickback, which may also be a violation of law. Kickbacks or other commercial bribery are also against Company policy, and no employee may engage in such commercial bribery on behalf of the Company. XII. COMPLIANCE WITH OTHER LAWS 1. The Company strives to be a good corporate citizen and to comply with applicable foreign and domestic laws and regulations. All employees must respect and obey the laws and regulations of the cities, states and countries in which we operate. Compliance includes, but is not limited to, rules and regulations set forth by the SEC, Nasdaq and adherence to generally accepted accounting principles ("GAAP"). 2. Neither the Company nor its employees should assist any third party in violating the laws of any country. This policy applies whether or not the Company's assistance itself violates the laws of any country. 3. Cooperation with foreign country boycotts that discriminate against United States firms or citizens on the basis of certain characteristics such as race, color, religion, sex or national origin, and compliance with the request of a foreign country for conduct or information implementing the boycott of a nation friendly to the United States violates U.S. Law. Criminal penalties and the loss of certain U.S. tax benefits may result. It is the Company's policy to reject all such requests, as well as to report the receipt of such requests to all applicable agencies in a timely manner, in accordance with the requirements of applicable law. XIII. PUBLIC DISCLOSURE AND FINANCIAL REPORTING The Company requires that the information in all of its public communications, including filings with the Securities and Exchange Commission ("SEC"), be full, fair, accurate, timely and understandable. All employees who are involved in the Company's disclosure process, including the Chief Executive Officer ("CEO") and the President, Chief Financial Officer, Controller and senior financial officers performing similar functions ("Senior Financial Officers"), are responsible for acting in furtherance of this policy. In particular, these individuals are required to maintain familiarity with the disclosure requirements applicable to the Company and are prohibited from knowingly misrepresenting, omitting, or causing others to misrepresent or omit, material facts about the Company to others, whether within or outside the Company. In addition, any employee who has a supervisory role in the Company's disclosure process has an obligation to discharge his or her responsibilities diligently. The CEO and the Senior Financial Officers are responsible for the full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by the Company with the SEC. Accordingly, it is the responsibility of the CEO and each of the Senior Financial Officers promptly to bring to the attention of the Audit Committee any material information of which he or she may become aware that affects the disclosures made by the Company in its public filings. 7 The CEO and each of the Financial Officers shall promptly bring to the attention of the Audit Committee any information he or she may have concerning (a) significant deficiencies in the design or operation of internal controls that could adversely affect the Company's ability to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's financial reporting, disclosures or internal controls. The Company's CEO and Senior Financial Officers are required to establish and manage the Company's reporting systems and procedures to ensure that: 1. Business transactions are properly authorized and accurately recorded on the Company's books and records and in accordance with GAAP. 2. The Company's records are maintained in accordance with applicable legal and regulatory requirements and Company policy. 3. Periodic reporting and communications with the public are communicated in a manner that offers the highest degree of clarity and meaning so that readers will be able to determine the significance and potential consequences. 4. Personnel dealing with the finances of the Company are informed as to rules and regulations that affect the financial operation of the Company. 5. The financial operation of the Company is monitored as to compliance with any applicable rules and regulations. The CEO and each of the Senior Financial Officers shall promptly bring to the attention of the Audit Committee any information he or she may have concerning evidence of a material violation of the securities or other laws, rules or regulations applicable to the Company or the operation of its business, by the Company or any agent thereof, or of violations of this Code. XIV. REPORTING VIOLATIONS OF (OR DEVIATIONS FROM) THIS CODE Employees are encouraged to talk to their supervisor, manager or the Company's ombudsmen about observed illegal or unethical behavior and when in doubt about the best course of action in a particular situation. Any employee who believes in good faith that there has been a violation of this Code, including any actual or apparent conflicts of interest between personal and professional relationships involving management or other employees, should report it immediately to the Company's ombudsmen. Any employee who believes in good faith that there has been a violation of this Code caused by questionable accounting or auditing matters may submit confidential, anonymous complaints in writing to the Company's ombudsmen or the Chairman of the Audit Committee. Complaints must provide sufficient information so that a reasonable investigation can be conducted and may be made in writing directly to either (a) Ombudsmen of the Company at 2815 Scott Avenue, St. Louis, 8 Missouri 63103, or (b) the Chairman of the Audit Committee of the Board of Directors of the Company at 2815 Scott Avenue, St. Louis, Missouri 63103. Upon receipt of a complaint, the Company's Audit Committee, or designee thereof, shall promptly investigate the matter. The Ombudsmen and Audit Committee will treat the matter as confidential to the fullest extent possible consistent with the need to investigate and within the limits allowed by law. Employees are required to cooperate in all internal investigations of misconduct. XV. ENFORCEMENT PROCEDURES The Board of Directors shall determine, or designate appropriate persons to determine, appropriate actions to be taken in the event of violations of the Code of Business Conduct. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to the Code of Business Conduct, and shall include written notices to the individual involved that the Board has determined that there has been a violation, censure by the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits (as determined by the Board) and termination of the individual's employment. In determining what action is appropriate in a particular case, the Board of Directors or such designee shall take into account all relevant information, including the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of action and whether or not the individual in question had committed other violations in the past. XVI. NO RETALIATION The Company prohibits retaliation of any kind by or on behalf of the Company and its employees against good faith reports or complaints of violations of this Code or unethical conduct. Open communication of issues and concerns by all employees without fear of retaliation or retribution is vital to the successful implementation of this Code. XVII. AMENDMENT, MODIFICATION AND WAIVER This Code may be amended, modified or waived by the Board of Directors, or any committee thereof appointed to administer this Code of Business Conduct, subject to the disclosure and other provisions of the Securities Exchange Act of 1934 and the rules thereunder, and the applicable rules of the Nasdaq Stock Market, Inc. ("Nasdaq"). Requests for waivers of any provisions of this Code must be made in writing to the Board of Directors or any committee thereof appointed to administer this code. XVIII. APPOINTMENT OF OMBUDSMEN The CEO shall appoint an ombudsmen to serve as an impartial administrator of this Business Code of Conduct. The ombudsmen's duties shall include: (i) receiving, reviewing, and consolidating all complaints and alleged violations of this Code; (ii) reporting all material complaints to the Board of Directors or any committee thereof appointed to administer this Code 9 (iii) assisting in the investigations of any alleged violations of this Code and (iv) seeking the advise of outside legal counsel regarding the interpretation of ethical and legal obligations imposed by this Code. XIX. COMPLIANCE WITH THIS CODE As evidence of compliance with this code, all directors, officers and employees will sign an annual attestation that they have received and read this Code. 10 IN SUMMARY, you must: - ALWAYS adhere to the provisions of the Company's Code of Business Conduct. Employees who violate these standards will be subject to appropriate disciplinary action. - ALWAYS be alert to possible violations of the Company's Code of Business Conduct so that they may be reported to and investigated by the Company's General Counsel. - ALWAYS seek advice from your supervisor or the Company's ombudsmen if you are in doubt about the application of law or Company policy to a particular situation. 11 Please read this statement carefully and sign the acknowledgement to this letter, retain one copy and return the other copy to the Company's ombudsmen, as confirmation that you have carefully reviewed and understand the statement. If you do not feel that you understand the policies or require further clarification, contact the ombudsmen at once to discuss your question. ACKNOWDLEDGEMENT (NOTE: Check only one.) ________ I understand the Company's policies, and to the best of my knowledge and belief I have complied and intend to continue to comply with all such policies. ________ I would like to discuss these matters. ____________________________________ (SIGNATURE) ____________________________________ (PRINT NAME) ________________________ Date Signed 12 EX-24.1 20 c83898exv24w1.txt POWER OF ATTORNEY Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That each person whose signature appears below, as a Director or Officer of Bakers Footwear Group, Inc. (the "Company"), a Missouri corporation with its principle offices at 2815 Scott Avenue, St. Louis, Missouri 63103, does hereby make, constitute and appoint PETER A. EDISON or LAWRENCE L. SPANLEY, JR., or either one of them acting alone, his or her true and lawful attorneys, with full power of substitution and resubstitution, in his or her name, place and stead, in any and all capacities, to execute and sign the Company's Annual Report on Form 10-K, for fiscal year ended January 3, 2004, and any and all amendments thereto, and documents in connection therewith, to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, giving and granting unto said attorneys full power and authority to do and perform such actions as fully as they might have done or could do if personally present and executing any of said documents. Dated and effective as of the ___ of March 2004.
Signature TITLE --------- ----- /s/ Peter A. Edison Chairman of the Board and Chief Executive ------------------- Officer, Director (Principal Executive Officer) (Peter A. Edison) /s/ Lawrence L. Spanley, Jr. Chief Financial Officer, Vice President - Finance, Treasurer and Secretary - ---------------------------- (Principal Financial Officer and Principal Accounting Officer) (Lawrence L. Spanley, Jr.) /s/ Andrew N. Baur Director ------------------ (Andrew N. Baur) /s/ Michele Bergerac Director -------------------- (Michele Bergerac) /s/ Timothy F. Finley Director -------------------- (Timothy F. Finley) /s/ Harry E. Rich Director ------------------ (Harry E. Rich) /s/ Scott C. Schnuck Director -------------------- (Scott C. Schnuck)
EX-31.1 21 c83898exv31w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT RULE 13a-14(a) I, Peter A. Edison, certify that: 1. I have reviewed this annual report on Form 10-K of Bakers Footwear Group, Inc. (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the Registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. [Reserved.] c. Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: April 1, 2004 /s/ Peter A. Edison ---------------------------------------- Peter A. Edison Chairman of the Board and Chief Executive Officer Bakers Footwear Group, Inc. EX-31.2 22 c83898exv31w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULE 13a-14(a) I, Lawrence L. Spanley, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Bakers Footwear Group, Inc. (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the Registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. [Reserved.] c. Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: April 1, 2004 /s/ Lawrence L. Spanley, Jr. ------------------------------------ Lawrence L. Spanley, Jr. Chief Financial Officer Bakers Footwear Group, Inc. EX-32.1 23 c83898exv32w1.txt 906 CERTIFICATIONS OF CEO AND CFO EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Bakers Footwear Group, Inc. (the "Company") on Form 10-K for the period ending January 3, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter A. Edison, Chairman of the Board and Chief Executive Officer of the Company, and I, Lawrence L. Spanley, Jr., Chief Financial Officer, Vice President - Finance, Treasurer and Secretary of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 1, 2004 /s/ Peter A. Edison ----------------------------------- Peter A. Edison Chairman of the Board and Chief Executive Officer Bakers Footwear Group, Inc. Date: April 1, 2004 /s/ Lawrence L. Spanley, Jr. --------------------------------- Lawrence L. Spanley, Jr. Chief Financial Officer, Vice President - Finance, Treasurer and Secretary Bakers Footwear Group, Inc. A signed original of this written statement or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to Bakers Footwear Group, Inc. and will be retained by Bakers Footwear Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended January 3, 2004

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


Missouri		43-0577980
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

2815 Scott Avenue, St. Louis, Missouri (Address of Principal Executive Offices)		63103 (Zip Code)



		Fiscal Year

Category		2000			2001			2002			2003

Private Label Footwear			84.5	%		79.6	%		73.0	%		75.0	%
Branded Footwear			8.7	%		12.5	%		17.2	%		15.5	%
Accessories			6.8	%		7.9	%		9.8	%		9.5	%

	Total		100.0	%		100.0	%		100.0	%		100.0	%


	No.
	Stores

Alabama		1
Arizona		2
Arkansas		1
California		31
Colorado		4
Connecticut		2
Delaware		1
Florida		18
Georgia		15
Idaho		1
Illinois		17
Indiana		5
Kansas		2
Louisiana		5
Maryland		5
Massachusetts		4
Michigan		8
Minnesota		2
Mississippi		1
Missouri		7


	No.
	Stores

Nebraska		2
Nevada		4
New Jersey		9
New Mexico		1
New York		17
North Carolina		2
Ohio		5
Oklahoma		2
Pennsylvania		8
Rhode Island		1
South Carolina		1
Texas		17
Utah		4
Virginia		4
Washington		3
Wisconsin		3

Total Stores		215	*
Total States		36


PART I		2
Item 1.	Business	2
Item 2.	Properties	21
Item 3.	Legal Proceedings	22
Item 4.	Submission of Matters to a Vote of Security Holders	22
PART II		23
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	23
Item 6.	Selected Financial Data	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 8.	Financial Statements and Supplementary Data	37
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	37
Item 9A.	Controls and Procedures	37
PART III		37
Item 10.	Directors and Executive Officers of the Registrant	37
Item 11.	Executive Compensation	39
Item 12.	Security Ownership of Certain Beneficial Owners and Management	39
Item 13.	Certain Relationships and Related Transactions	40
Item 14.	Principal Accounting Fees and Services	40
PART IV		40
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	40


*	Excludes our Internet site, which is merchandised as a Bakers store.


	Bakers	Wild Pair

Target customer:	Women — ages 12-29	Men & women — ages 17-24
Key brands:	Skechers®, Guess Sport®, Steve Madden®, bebe®, Diesel® and Chinese Laundry®	Steve Madden®, Steve Madden Men’s®, Guess Sport®, Skechers®, Candies®, Chinese Laundry®, Diesel Women’s®, Diesel Men’s®, Luichiny®, Rocket Dog®, Volatile®, Perry Ellis Men’s® and Puma®
Fashion content:	Widely-accepted	Edgy, lifestyle-based
Number of stores (as of
January 3, 2004):	185	30
Approximate average size:	2,450 square feet	1,800 square feet


	Our failure to identify and respond to changing consumer fashion preferences in a timely manner would negatively impact our sales, profitability and our image as a fashion resource for our customers.


	*A decline in general economic conditions could lead to reduced consumer demand for our footwear and accessories and could lead to reduced sales and a delay in our expansion plans.*


	*We are susceptible to operating losses which would adversely affect our business and an investment in our common stock.*


	*Our failure to integrate a significant number of new stores could strain our resources and cause the performance of our existing stores to suffer.*


	*Our sales and inventory levels fluctuate on a seasonal basis, leaving our annual and quarterly operating results particularly susceptible to changes in customer shopping patterns.*


	*Fluctuations in our quarterly results of operations could cause the price of our common stock to decline substantially.*


	*Our market share may be adversely impacted at any time by a significant number of competitors.*


Item 1.	*Business.*


	*Store Economics.*


	*Store Operations.*


	*The departure of members of our senior management team could adversely affect our business.*


	*Our failure to maintain good relationships with our manufacturers could harm our ability to procure quality inventory in a timely manner.*


	*We rely on a small number of buying agents for our merchandise purchases, and our failure to maintain good relationships with any of them could harm our ability to source our products.*


	*Our merchandise is manufactured by foreign manufacturers; therefore, the availability and costs of our products may be negatively affected by risks associated with international trade.*


	*Our reliance on manufacturers in China exposes us to supply risks.*


	*Our ability to expand into some territorial and foreign jurisdictions under the trademarks “Bakers” and “Wild Pair” is restricted.*


	*Our potential inability or failure to renew, register or otherwise protect our trademarks could have a negative impact on the value of our brand names.*


	We rely on third parties to manage the warehousing and distribution aspects of our business. If these third parties do not adequately perform these functions, our business would be disrupted.


	*We are subject to risks associated with leasing our stores, especially those stores where we acquired the lease through bankruptcy auctions.*


	*The market price of our common stock may be materially adversely affected by market volatility.*


	*We are controlled by a small group of shareholders whose interests may differ from other shareholders.*


	*Our charter documents and Missouri law may inhibit a takeover, which may cause a decline in the value of our stock.*


Item 4.	*Submission of Matters to a Vote of Security Holders.*


Item 5.	*Market for Registrant’s Common Equity and Related Stockholder Matters*


		Distribution

Fiscal 2002:
First Quarter		$	414,190
Second Quarter			950,541
Third Quarter			455,278
Fourth Quarter			163

	Total	$	1,820,172

Fiscal 2003:
First Quarter		$	540
Second Quarter			409
Third Quarter			0
Fourth Quarter			0

	Total	$	949



	Fiscal Year Ended

	December 31,			December 30,		January 5,		January 4,			January 3,
	1999(1)			2000(2)		2002		2003(5)			2004

Net sales	$	87,400,591		$	140,709,517	$	140,841,929	$	151,147,810		$	148,223,553
Gross profit		21,448,475			38,676,442		42,594,849		45,136,057			45,166,111
Income (loss) before cumulative effect of change in accounting		(3,948,773	)		1,616,315		4,959,653		(490,627	)		1,674,894
Cumulative effect of change in accounting(3)		—			—		—		2,774,899			—

Net income (loss)(4)	$	(3,948,773	)	$	1,616,315	$	4,959,653	$	2,284,272		$	1,674,894


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations.*



	Fiscal Year Ended January 5, 2002

	First		Second		Third			Fourth

Net sales	$	33,164,841	$	37,528,409	$	31,940,160		$	38,208,519
Gross profit		9,023,469		12,041,029		8,720,594			12,809,757
Operating expenses		8,923,018		8,994,310		8,721,270			9,521,727
Operating income (loss)		100,451		3,046,719		(676	)		3,288,030



	Fiscal Year Ended January 4, 2003

	First		Second		Third			Fourth

Net sales	$	32,059,325	$	39,405,673	$	36,259,634		$	43,423,178
Gross profit		10,075,453		11,892,540		8,502,972			14,665,093
Operating expenses		9,341,152		10,932,410		11,101,821			12,681,844
Operating income (loss)		734,301		960,130		(2,598,850	)		1,983,249



	Fiscal Year Ended January 3, 2004

	First			Second		Third			Fourth

Net sales	$	31,909,958		$	38,310,685	$	34,274,081		$	43,728,829
Gross profit		7,718,475			11,518,141		9,348,082			16,581,413
Operating expenses		10,539,622			10,328,960		9,917,497			10,877,283
Operating income (loss)		(2,821,147	)		1,189,181		(569,415	)		5,704,130