<PAGE>
 
                           SCHEDULE 14A INFORMATION
 
  PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
                                     1934
 
Filed by the Registrant [X]
 
Filed by a Party other than the Registrant [_]
 
Check the appropriate box:
 
[_]Preliminary Proxy Statement            [_]Confidential, for Use of the
                                             Commission Only (as permitted by
                                             Rule 14a-6(e)(2))
 
[X]Definitive Proxy Statement
 
[_]Definitive Additional Materials
 
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
 
 
                         THE STRIDE RITE CORPORATION^
             -----------------------------------------------------
               (Name of Registrant as Specified In Its Charter)
 
 
                         THE STRIDE RITE CORPORATION^
             -----------------------------------------------------
                  (Name of Person(s) Filing Proxy Statement)
 
Payment of Filing Fee (check the appropriate box):
 
[X]No fee required
 
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
 
  (1) Title of each class of securities to which transaction applies:
 
  (2) Aggregate number of securities to which transaction applies:
 
  (3) Per unit price or other underlying value of transaction computed
      pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
      filing fee is calculated and state how it was determined):
 
  (4) Proposed maximum aggregate value of transaction:
 
  (5) Total fee paid:
 
[_]Fee paid previously with preliminary materials.
 
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
   0-11(a)(2) and identify the filing for which the offsetting fee was paid
   previously. Identify the previous filing by registration statement number,
   or the Form or Schedule and the date of its filing.
 
  (1) Amount Previously Paid:
 
  (2) Form, Schedule or Registration Statement No.:
 
  (3) Filing Party:
 
  (4) Date Filed:
 
<PAGE>
 
                        [STRIDERITE LOGO APPEARS HERE]
 
                               191 Spring Street
                                 P.O. Box 9191
                      Lexington, Massachusetts 02420-9191
 
                                                              February 25, 1999
 
To Our Stockholders:
 
  You are cordially invited to attend the Annual Meeting of Stockholders of
The Stride Rite Corporation to be held at our executive offices, 191 Spring
Street, Lexington, Massachusetts, on Thursday, April 15, 1999, at 10:00 A.M.
 
  I believe that the Annual Meeting provides an excellent opportunity for
stockholders to become better acquainted with Stride Rite's business strategy,
the product lines of our brands and our directors and officers. I hope that
you will be able to attend.
 
  Whether or not you plan to attend, the prompt execution and return of your
proxy card will both assure that your shares are represented at the meeting
and minimize the cost of proxy solicitation. I thank you for your continued
interest and support.
 
                                          Sincerely,
 
                                          /s/ James A. Eskridge
                                            James A. Eskridge
                                            Chairman of the Board
                                            and Chief Executive Officer
<PAGE>
 
                          THE STRIDE RITE CORPORATION
 
                               ----------------
 
                            NOTICE OF ANNUAL MEETING
 
                               ----------------
 
                                                        Lexington, Massachusetts
                                                               February 25, 1999
 
To the Stockholders of
The Stride Rite Corporation
 
  The Annual Meeting of Stockholders of The Stride Rite Corporation, a
Massachusetts corporation, will be held at its executive offices, 191 Spring
Street, Lexington, Massachusetts, on Thursday, April 15, 1999, at 10:00 A.M.
(Boston time), for the following purposes:
 
  1. To elect to the Board of Directors of The Stride Rite Corporation two
  directors in the class of directors whose term expires at the 1999 Annual
  Meeting and one additional nominee;
 
  2. To consider and act upon a proposal to add 1,500,000 shares to The
  Stride Rite Corporation 1998 Stock Option Plan;
 
  3. To consider and act upon a proposal to amend The Stride Rite Corporation
  1998 Non-Employee Director Stock Ownership Plan to increase the portion of
  director compensation paid in common stock;
 
  4. To consider and act upon a proposal to approve The Stride Rite
  Corporation 1999 Executive Long Term Bonus Plan;
 
  5. To consider and act upon the matter of ratifying the selection of
  PricewaterhouseCoopers LLP as auditors of The Stride Rite Corporation for
  the current fiscal year;
 
  6. To consider and act upon any other matters which may properly come
  before the meeting or any adjournments or postponements thereof.
 
  Only holders of record at the close of business on February 17, 1999 are
  entitled to receive notice of and to vote at the 1999 Annual Meeting.
 
                                         By Order of the Board of Directors
 
                                         /s/ John B. Douglas III
                                         John B. Douglas, III, Clerk
 
  PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.
<PAGE>
 
                          THE STRIDE RITE CORPORATION
 
               191 Spring Street, Lexington, Massachusetts 02420
 
                               ----------------
 
                                PROXY STATEMENT
 
                    For the Annual Meeting of Stockholders
 
                               ----------------
 
General Information
 
  This Proxy Statement is being furnished to holders of common stock, par
value $.25 per share (the "Common Stock"), of THE STRIDE RITE CORPORATION (the
"Company") in connection with the solicitation of proxies by the Board of
Directors to be used at the Annual Meeting of Stockholders on April 15, 1999
and at any adjournments or postponements of such meeting.
 
  All proxies delivered in response to this solicitation are revocable at the
option of the person executing the proxy at any time before the voting of such
proxies at the meeting. A proxy may be revoked in writing delivered to the
Company's Clerk, at the principal executive offices of the Company prior to
the Annual Meeting, or by attending the Annual Meeting and voting in person.
Submission of a later dated proxy will revoke any earlier dated proxy. Unless
previously revoked, proxies so delivered will be voted at the meeting. Where a
choice or instruction is specified by the stockholder on a proxy, the proxy
will be voted in accordance with such specification. Where a choice or
instruction is not specified by such stockholder, the proxy will be voted as
recommended by the directors.
 
  Only stockholders of record at the close of business on February 17, 1999
are entitled to receive notice of, and to vote at, the Annual Meeting. The
transfer books will not be closed. As of the close of business on February 17,
1999 there were outstanding and entitled to vote 46,405,301 shares of Common
Stock. Each share is entitled to one vote.
 
  The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the meeting is
necessary to constitute a quorum for the transaction of business. Votes
withheld from any nominee for election as director, abstentions and broker
"non-votes" are counted as present or represented for purposes of determining
the presence or absence of a quorum for the meeting. A "non-vote" occurs when
a nominee holding shares for a beneficial owner votes on one proposal, but
does not vote on another proposal because, in respect of that other proposal,
the nominee does not have discretionary voting power and has not received
instructions from the beneficial owner. The vote on each matter submitted to
stockholders is tabulated separately. Abstentions are included in the number
of shares present or represented and voting on each matter. Neither
abstentions nor broker "non-votes" are counted as affirmative votes on any
matter.
 
  This Proxy Statement, the related form of proxy and the Company's Annual
Report for the fiscal year ended November 27, 1998 are being mailed together
on or about February 25, 1999 to stockholders entitled to notice of and to
vote at the meeting.
 
  The principal executive offices of the Company are located at 191 Spring
Street, Lexington, Massachusetts 02420.
<PAGE>
 
                           1. ELECTION OF DIRECTORS
 
  Pursuant to the provisions of Massachusetts law, the Board of Directors of
the Company has three classes of directors who serve staggered three-year
terms. The classes are as nearly equal in size as possible. Serving in Class
III for terms expiring at the 1999 Annual Meeting are James A. Eskridge,
Margaret A. McKenna and Frank R. Mori. Serving in Class I for terms expiring
at the 2000 Annual Meeting are Robert L. Seelert and Myles J. Slosberg.
Serving in Class II for terms expiring at the 2001 Annual Meeting are Donald
R. Gant, Warren Flick and W. Paul Tippett, Jr. Mr. Gant was expected to resign
from the Board effective as of the 1999 Annual Meeting due to the Board's
retirement policy. This policy has been changed and Mr. Gant is now expected
to serve his full term expiring at the 2001 Annual Meeting. Ms. McKenna, whose
term expires at the 1999 Annual Meeting, has decided not to stand for re-
election.
 
  The Board of Directors has nominated James A. Eskridge, Frank R. Mori and
Bruce Van Saun to serve as the Class III directors for a term of office
expiring at the 2002 Annual Meeting of Stockholders. Mr. Mori has been
previously elected by the Stockholders and Mr. Eskridge was elected to the
Board in connection with his employment as Chairman and Chief Executive
Officer in December 1998. Mr. Van Saun is not currently a director of the
Company. The Board of Directors recommends that the Stockholders elect James
A. Eskridge, Frank R. Mori, and Bruce Van Saun to serve as Class III
directors.
 
  It is the intention of the persons named as proxies to vote the proxies,
unless authority to vote is specifically withheld, to elect as directors the
three nominees listed above to the class of directors whose terms expire at
the 2002 Annual Meeting of Stockholders. The Company believes that the
nominees will be able and willing to serve. If any of them should be unable or
choose not to take office, the persons named as proxies may vote in favor of
such other person or persons as the Board of Directors at the time recommends.
 
Information as to Directors and Nominees for Director
 
  Set forth below are the name and age of each director currently in office
and of the nominees for director, his or her principal occupation for the past
five years, the year each became a director of the Company and the names of
certain other companies in which he or she serves as a director.
 
<TABLE>
<CAPTION>
Name, Age, Principal Occupation,                               Director  Term
Business Experience and Directorships                           Since   Expires
-------------------------------------                          -------- -------
<S>                                                            <C>      <C>
               Nominees For Class III Directors
Frank R. Mori, age 58.........................................   1996    1999
 Since 1986, President and co-Chief Executive Officer of
  Takihyo, Inc., which owns the Anne Klein group of companies,
  a women's apparel company, including Anne Klein & Company,
  of which Mr. Mori has been President and Chief Executive
  Officer since 1975. Director of Takihyo, Inc.
James A. Eskridge, age 56.....................................   1998    1999
 Chairman of the Board of Directors and Chief Executive
  Officer of the Company since December 1998. Private investor
  from April 1996 until December 1998 and a consultant with
  Mattel, Inc., a toy company. Group President, Worldwide,
  Mattel, Inc., from April 1995 until April 1996. Prior to
  that, President and Chief Executive Officer of Fisher Price,
  a toy company wholly owned by Mattel, from October 1993 to
  October 1995.
</TABLE>
 
 
                                       2
<PAGE>
 
<TABLE>
<CAPTION>
Name, Age, Principal Occupation,                               Director  Term
Business Experience and Directorships                           Since   Expires
-------------------------------------                          -------- -------
 
<S>                                                            <C>      <C>
Bruce Van Saun, age 41........................................    --      --
 Senior Executive Vice President and Chief Financial Officer,
  Bank of New York, a banking company, since May 1997. Chief
  Financial Officer of Deutsche Bank North America Group, a
  banking company, from October 1994 to May 1997. Chief
  Operating Officer and Chief Financial Officer of Wasserstein
  Perella, an investment banking firm, from 1990 to October
  1994.
 
                               Class I Directors
 
Robert L. Seelert, age 56.....................................   1993    2000
 Chairman, Saatchi & Saatchi, plc, an advertising and
  marketing communications firm, since January 1999, and Chief
  Executive Officer from December 1997 to January 1999. From
  July 1995 to December 1997, Mr. Seelert was Chief Executive
  Officer of Cordiant plc, an advertising and marketing
  communications firm. Mr. Seelert was a private investor from
  February 1994 to July 1995, and the President and Chief
  Executive Officer of Kayser-Roth Corporation, a legwear
  company, from May 1991 to February 1994. Mr. Seelert is a
  director of Saatchi & Saatchi, plc.
 
Myles J. Slosberg, age 62.....................................   1961    2000
 Attorney in private practice since July 1994. From March 1991
  to July 1994, Mr. Slosberg was an Assistant Attorney General
  for the Commonwealth of Massachusetts. Mr. Slosberg was
  employed by the Company from 1959 to 1986, during which
  period he served in a number of executive capacities.
 
                               Class II Directors
 
Warren Flick, age 55..........................................   1998    2001
 Chairman of the Board of eSave Network Inc., an internet
  commerce company, since February 1999. Private investor from
  January 1998 to February 1999. Prior to that Mr. Flick was
  the President and Chief Operating Officer of U.S. K-Mart
  Stores, a mass merchant discount department store, from 1995
  to 1997, Chairman, President and Chief Executive Officer of
  Sears de Mexico, a subsidiary of Sears Roebuck and Co., a
  retailer, from 1994 to 1995 and Group Vice President of
  Sears Roebuck and Co. from 1988 to 1994. Mr. Flick is a
  Director of One Price Clothing Corporation.
 
Donald R. Gant, age 70........................................   1987    2001
 Limited Partner of The Goldman Sachs Group, L.P., an
  investment banking firm, since 1990. Mr. Gant is a director
  of Diebold, Incorporated and of ABC Rail Products
  Corporation.
 
W. Paul Tippett, Jr., age 66..................................   1993    2001
 Principal of Ann Arbor Partners, a consulting firm, since
  1990. Mr. Tippett was President and a Director of Springs
  Industries, Inc., a manufacturer of finished fabrics, home
  furnishings and industrial fabrics from 1985 to 1989 and
  Chairman of the Board and Chief Executive Officer of
  American Motors Corp., an automobile manufacturer, prior to
  its acquisition by Chrysler Corporation in 1985.
</TABLE>
 
                                       3
<PAGE>
 
Ownership of Equity Securities
 
  The following table shows the beneficial ownership of Common Stock of (i)
each person or entity known to the Company to be the beneficial owner of more
than 5% of the Common Stock and (ii) each director and nominee for director,
the chief executive officer, the other executive officers listed in the
summary compensation table and, as a group, the directors and executive
officers, reported to the Company as of the close of business on February 17,
1999, except as otherwise provided below. The numbers disclosed include shares
as to which a right to acquire beneficial ownership within 60 days exists (for
example, through the exercise of stock options, conversions of securities or
through various trust arrangements) within the meaning of Rule 13d-3(d)(1)
under the Securities Exchange Act of 1934, as amended (the "1934 Act").
 
<TABLE>
<CAPTION>
                                             Shares of Common Stock Percent of
                   Name                      Beneficially Owned(1)    Class
                   ----                      ---------------------------------
<S>                                          <C>         <C>        <C>
Lord, Abbett & Co..........................    4,084,530        (2)    8.61%
  767 Fifth Avenue
  New York, NY 10153
David L. Babson and Company Incorporated...    2,996,726        (3)    6.31%
  One Memorial Drive
  Cambridge, MA 02142-1300
James A. Eskridge..........................      100,000        (4)      (5)
Warren Flick...............................       11,538        (6)      (5)
Donald R. Gant.............................       29,302    (7),(8)      (5)
Margaret A. McKenna........................       10,650    (7),(9)      (5)
Frank R. Mori..............................        9,300       (10)      (5)
Robert L. Seelert..........................       20,440   (7),(11)      (5)
Robert C. Siegel...........................      498,078       (12)    1.05%
Myles J. Slosberg..........................      172,430   (7),(13)      (5)
W. Paul Tippett, Jr........................       14,500        (7)      (5)
Bruce Van Saun.............................        1,000                 (5)
C. Madison Riley, III......................       64,238       (14)      (5)
Diane M. Sullivan..........................      135,000       (15)      (5)
Joanna M. Jacobson.........................      523,179       (16)    1.10%
Howard B. Collins, Jr......................       35,833       (17)      (5)
The Directors and Executive Officers listed
 above and other executive officers as a
 group (18 persons)........................    1,841,283       (18)    3.88%
</TABLE>
--------
 (1) With respect to directors and executive officers, based on information
     furnished by the nominee, director or executive listed. Unless otherwise
     indicated, the persons listed above have sole voting and dispositive
     power with respect to shares beneficially owned.
 (2) According to a Schedule 13G filed with the SEC on February 16, 1999 by
     Lord, Abbett & Co., such entity beneficially owned 4,084,530 shares of
     the Company's Common Stock as of December 31, 1998, of which such entity
     had sole power to vote or direct the vote with respect to 4,084,530
     shares.
 (3) According to a Schedule 13G filed with the SEC on February 1, 1999 by
     David L. Babson and Co., Inc., such entity beneficially owned 2,996,726
     shares of the Company's Common Stock as of December 31, 1998, of which
     such entity had sole power to vote or direct the vote with respect to
     2,993,446 shares and shared power to vote with respect to 3,280 shares.
 (4) Shares owned by a trust established for Mr. Eskridge's children, as to
     which Mr. Eskridge and his wife are the trustees and Mr. Eskridge shares
     voting power for these shares with his wife.
 (5) Less than one percent of the outstanding shares of Common Stock of the
     Company.
 
                                       4
<PAGE>
 
 (6) Includes 1,538 Phantom Stock Units credited to Mr. Flick's account
     pursuant to the Deferred Compensation Plan for Directors.
 (7) Includes currently exercisable options to purchase 5,000 shares, granted
     pursuant to the Company's 1994 Non-Employee Director Stock Ownership Plan
     (the "1994 Directors' Plan").
 (8) Includes 13,652 Phantom Stock Units credited to Mr. Gant's account
     pursuant to the Deferred Compensation Plan for Directors.
 (9) Includes 1,000 shares of Common Stock held in trust for the benefit of
     Ms. McKenna's sister, with respect to which Ms. McKenna disclaims
     beneficial ownership.
(10) Includes currently exercisable options to purchase 3,300 shares, granted
     pursuant to the 1994 Directors' Plan.
(11) Includes 12,440 Phantom Stock Units credited to Mr. Seelert's account
     pursuant to the Deferred Compensation Plan for Directors.
(12) Includes 398,334 shares that Mr. Siegel is entitled to purchase under the
     Company's 1975 Executive Incentive Stock Purchase Plan (the "1975 Plan")
     and the Company's 1995 Long-Term Growth Incentive Plan (the "1995 Plan").
(13) Includes 89,400 shares of Common Stock held in an irrevocable trust
     created on December 2, 1942 of which Mr. Slosberg's father was the
     settlor and Mr. Slosberg is one of two trustees, for the benefit of Mr.
     Slosberg's mother and for Mr. Slosberg and his siblings, and also
     includes 8,300 shares of Common Stock held in an irrevocable trust
     created on May 11, 1976 of which Mr. Slosberg is the settlor and Mr.
     Slosberg's wife is one of two trustees, for the benefit of Slosberg's
     children, and under certain circumstances, for the benefit of Mr.
     Slosberg's wife, as a remainder interest. Mr Slosberg disclaims
     beneficial ownership of these 97,700 shares of Common Stock.
(14) Includes 1,500 shares Mr. Riley is entitled to purchase under the
     Company's 1975 Plan, 49,667 shares Mr. Riley is entitled to purchase
     under the Company's 1995 Plan and 10,000 shares Mr. Riley is entitled to
     purchase under the Company's 1998 Stock Option Plan.
(15) Includes 110,000 shares Ms. Sullivan is entitled to purchase under the
     Company's 1995 Plan and 20,000 shares Ms. Sullivan is entitled to
     purchase under the 1998 Stock Option Plan.
(16) Includes 200,000 shares Ms. Jacobson is entitled to purchase under the
     Company's 1995 Plan and 20,000 shares Ms. Jacobson is entitled to
     purchase under the Company's 1998 Stock Option Plan.
(17) Includes 26,666 shares Mr. Collins is entitled to purchase under the
     Company's 1995 Plan and 6,667 shares Mr. Collins is entitled to purchase
     under the Company's 1998 Stock Option Plan.
(18) Includes 66,294 shares (4230 shares of which are owned by a trust
     established under the Uniform Gifts to Minors Act by one officer for the
     benefit of his children and as to which that officer disclaims beneficial
     ownership) and currently exercisable options to purchase 150,501 shares
     under the 1975 Plan, the 1995 Plan and the 1998 Stock Option Plan
     beneficially owned by executive officers not separately listed above.
 
Meetings of the Board of Directors and Committees
 
  During the Company's 1998 fiscal year, which ended November 27, 1998, the
Board of Directors held six meetings. During fiscal 1998, the Board had
standing Audit, Compensation and Investment Committees, and a Committee on the
Board. All of the directors attended more than 75% of the aggregate of (i) the
meetings of the Board of Directors held while they served and (ii) the total
number of meetings held by all committees on which they served.
 
  The Committee on the Board met five times during the 1998 fiscal year and is
currently composed of Messrs. Gant (Chairman), Flick, Tippett and Ms. McKenna.
Its purpose is to review the performance of directors, recommend to the Board
of Directors the selection of directors to be nominated, and consider and
recommend issues relating to Director compensation. With respect to the 2000
Annual Meeting, the Committee will consider nominees recommended by
stockholders received by the Company pursuant to procedures set forth in the
Company's by-laws and, addressed to the Office of the Clerk, The Stride Rite
Corporation, 191 Spring Street, P.O. Box 9191, Lexington, Massachusetts 02420-
9191.
 
  The Audit Committee met three times during the 1998 fiscal year and is
currently composed of Messrs. Seelert (Chairman), Flick, Mori and Slosberg.
The Audit Committee recommends the selection of independent auditors to the
Board of Directors, reviews the overall scope, as well as the results, of the
annual audit, and reviews the overall internal controls of the Company.
 
                                       5
<PAGE>
 
  The Compensation Committee met four times during the 1998 fiscal year and is
composed of Messrs. Mori (Chairman), Gant and Tippett and Ms. McKenna. Members
of the Compensation Committee are non-employee directors of the Company. The
Compensation Committee reviews executives' salaries, administers various
incentive compensation plans and recommends action to the Board of Directors
on matters related to compensation for officers and other key employees of the
Company and its subsidiaries. The Compensation Committee Report for the 1998
fiscal year is included in this proxy statement, commencing on page 11.
 
  The Investment Committee met five times during the 1998 fiscal year. It is
composed of Messrs. Slosberg (Chairman), Seelert and Tippett. The Investment
Committee recommends the selection of independent investment managers for the
investment of the Company's pension funds and reviews and monitors the
performance of the Company's pension funds. The Investment Committee also
reviews the Company's short-term investment of the Company's available funds.
 
Compensation of Directors
 
  Effective as of the second quarter of fiscal 1998, director compensation was
changed so that each director receives a flat annual cash retainer of $30,000.
Meeting attendance fees and committee fees were eliminated. Directors who
served for the entire 1998 fiscal year received average cash fees equal to
$27,125. Three directors received additional cash compensation in connection
with their work on the search for a new Chief Executive Officer for the
Company. In addition, pursuant to the 1998 Non-Employee Director Stock
Ownership Plan (the "1998 Directors' Plan") each director receives each year a
grant of 500 shares of Common Stock and receives each year an option to
purchase 5,000 shares of Common Stock on the first business day following the
Annual Meeting of Stockholders. Each option has a term of ten years from the
date of grant and becomes exercisable in three installments: 1,600 shares on
the first anniversary of the grant and 1,700 shares on each of the second and
third anniversaries of the grant. Each director was eligible to defer all or a
portion of his or her cash compensation and the annual stock grant of 500
shares into either a cash deferral account or phantom stock units.
 
  The Board of Directors has voted to amend the 1998 Directors' Plan. Under
the amended 1998 Directors' Plan, each director would receive an annual
retainer of $40,000, payable either all in shares of Common Stock or one-half
in cash and one-half in shares of Common Stock, payable in increments of one-
quarter of such amount at the beginning of each fiscal quarter. The actual
number of shares would be calculated based on the closing price of the
Company's Common Stock on the last day of each preceding fiscal quarter. This
annual retainer would be in lieu of the current cash retainer of $30,000 and
the annual grant of 500 shares described in the preceding paragraph and is
subject to Stockholder approval. The annual stock option grant provided for in
the 1998 Directors' Plan would continue unchanged, except that new directors
would also receive option grants for up to 5,000 shares upon initial election
to the Board with the amount of such grant based on the number of months
remaining prior to the next annual meeting of Stockholders. Each director
would continue to be eligible to defer his or her annual retainer, with the
cash portion, if any, deferrable in a cash deferred account and the stock
option portion deferrable in stock credits.
 
  As of February 1999, the Company adopted stock ownership guidelines for
directors pursuant to which each director is expected to accumulate shares of
Common Stock with a value equal to at least five (5) times the annual retainer
for directors within five (5) years of election to the Board, or February 2004
in the case of current directors. Each director is expected to achieve at
least one-half of this goal within three (3) years, or February 2002 in the
case of current directors.
 
 
                                       6
<PAGE>
 
Executive Compensation
 
 Summary Compensation Table
 
  The following table shows the compensation for the past three fiscal years
of the Chief Executive Officer and each of the other four most highly
compensated executive officers (the "named executive officers") as of the end
of the Company's 1998 fiscal year.
 
                          SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                             Long Term Compensation
                                                             ----------------------
                                    Annual Compensation              Awards
                                    -------------------              ------
                                                   Other
                                                  Annual  Restricted           All Other
                                                  Compen-   Stock               Compen-
  Name and                 Fiscal Salary   Bonus  sation    Awards     Options  sation
  Principal Position        Year    ($)     ($)   ($)(1)     ($)         (#)    ($)(2)
  ------------------       ------ ------- ------- ------- ----------   ------- ---------
  <S>                      <C>    <C>     <C>     <C>     <C>          <C>     <C>
  Robert C. Siegel(3)       1998  655,390     --     --        --      100,000  348,273
   Chairman of the Board,   1997  545,000 817,500    --        --       75,000   49,992
   President & Chief        1996  520,000     --     --        --      100,000   57,865
    Executive Officer
----------------------------------------------------------------------------------------
  Joanna M. Jacobson        1998  295,000 175,000    --        --       60,000      864
   President, The Keds      1997  282,500 111,000    --        --       75,000      720
   Corporation(4)           1996  169,936  37,000    --    215,582(5)  150,000      420
----------------------------------------------------------------------------------------
  Diane M. Sullivan         1998  295,000  59,375    --     40,625(6)   60,000    3,783
   Group President          1997  259,266 200,000    --        --       60,000    3,077
                            1996  212,032  40,000    --        --       40,000      720
----------------------------------------------------------------------------------------
  Howard B. Collins, Jr.    1998  234,999  29,688    --     20,312(6)   20,000    5,044
   President, Stride Rite   1997  222,482 156,000  3,495       --       20,000    1,108
    Sourcing
   International, Inc.(4)   1996   40,051  20,000    --        --       20,000       60
----------------------------------------------------------------------------------------
  C. Madison Riley, III     1998  186,300  49,437    --     10,563(6)   30,000    4,267
   President, Stride Ride   1997  158,103 110,000    --        --       25,000    3,242
    Children's
   Group, Inc.(4)           1996  141,750     --     --        --       18,000    2,942
</TABLE>
 
--------
(1) Amounts reimbursed by the Company for the payment of taxes on non-
    deductible relocation expenses. Amounts for executive perquisites and
    other personal benefits, securities or property are not shown because the
    aggregate dollar amount per executive is less than the lesser of either
    $50,000 or 10% of annual salary and bonus.
(2)  Amounts awarded include (i) payments of dividend equivalents on shares of
     Common Stock subject to unexercised options granted under the 1975 Plan
     of $40,000, $48,000 and $55,500 for Mr. Siegel in respect of fiscal 1998,
     1997 and 1996 respectively and $300, $300 and $300 for Mr. Riley in
     respect of fiscal 1998, 1997 and 1996 respectively; (ii) Company
     contributions to the executive's Employee Savings and Investment Plan
     account of $833, $792 and $1,165 for Mr. Siegel in respect of fiscal
     1998, 1997 and 1996, respectively, $2,919 and $2,357 for Ms. Sullivan in
     respect of fiscal 1998 and 1997 respectively, $4,180 and $388 for Mr.
     Collins in respect of fiscal 1998 and 1997 respectively and $3,162,
     $2,372 and $2,126 for Mr. Riley in respect of fiscal 1998, 1997 and 1996
     respectively; (iii) amounts of insurance premiums paid by the Company for
     term life insurance for the benefit of the executive of $1,440, $1,200
     and $1,200 for Mr. Siegel in respect of fiscal 1998, 1997 and 1996
     respectively, $864, $720 and $420 for Ms. Jacobson in respect of fiscal
     1998, 1997 and 1996 respectively, $864, $720 and $720 for Ms. Sullivan in
     respect of fiscal 1998, 1997, and 1996 respectively, $864, $720 and $60
     for Mr. Collins in respect of fiscal 1998, 1997 and 1996 respectively and
     $805, $570 and $516 for Mr. Riley in respect of fiscal 1998, 1997 and
     1996 respectively; and (iv) $306,000 for Mr. Siegel to replace long-term
     benefits forfeited by Mr. Siegel by leaving his prior employment pursuant
     to Mr. Siegel's employment agreement with the Company.
(3)  Mr. Siegel resigned as Chief Executive Officer of the Company, effective
     as of December 6, 1998, and remains associated with the Company as a
     consultant for transition purposes.
(4)  Each of the Keds Corporation, Stride Rite Sourcing International, Inc.
     and Stride Rite Children's Group, Inc. are subsidiaries of the Company.
 
                                       7
<PAGE>
 
(5)  Ms. Jacobson as part of her offer of employment, received 20,779 shares
     of restricted stock on April 18, 1996 at a fair market value of $10.375
     on the date of the award. The restrictions lapsed on July 1, 1996. Ms.
     Jacobson received one dividend payment of $1,038.95 with respect to these
     restricted shares during the restricted period.
(6)  Shares of the Common Stock of the Company were granted as a portion of
     the Company's annual bonus plan.
 
 Executive Stock Ownership Guidelines
 
  As of February 1999, the Company adopted stock ownership guidelines for the
Chief Executive Officer and other key executives. Under these guidelines key
executives are expected to accumulate shares of Common Stock with a value
equal to at least five (5) times base compensation in the case of the Chief
Executive Officer, three (3) times base compensation in the case of top
executive officers and one (1) or two (2) times base compensation for other
key executives within five (5) years of being designated as a key executive
subject to the guidelines (by February 2004 for current designees). Each
executive is expected to achieve at least one-half of these goals within three
(3) years (by February 2002 for current designees). There are currently nine
(9) executives subject to these guidelines.
 
 Stock Option Grants
 
  The following table shows information concerning options to purchase Company
Common Stock granted during fiscal 1998 to the named executive officers
pursuant to the 1998 Stock Option Plan.
 
                      OPTION GRANTS FOR FISCAL YEAR 1998
 
<TABLE>
<CAPTION>
                                                                               Potential
                                                                          Realizable Value at
                                                                            Assumed Annual
                                     % of           Option               Rates of Stock Price
                            No. of   Total           Date                    Appreciation
                            Options Shares  Option  Market  Expiration    for Option Term (1)
                            Granted Granted  Price   Value     Date    -------------------------
                            ------- ------- ------- ------- ----------
  Name                                                                  0%      5%       10%
  ----                                                                 ----- -------- ----------
  <S>                       <C>     <C>     <C>     <C>     <C>        <C>   <C>      <C>
  Robert C. Siegel........  100,000   9.8   $11.000 $11.000  12/11/07  $0.00 $691,784 $1,753,117
------------------------------------------------------------------------------------------------
  Joanna M. Jacobson......   60,000   5.9   $11.000 $11.000  12/11/07  $0.00 $415,070 $1,051,870
------------------------------------------------------------------------------------------------
  Diane M. Sullivan.......   60,000   5.9   $11.000 $11.000  12/11/07  $0.00 $415,070 $1,051,870
------------------------------------------------------------------------------------------------
  Howard B. Collins, Jr. .   20,000   2.0   $11.000 $11.000  12/11/07  $0.00 $138,357 $  350,623
------------------------------------------------------------------------------------------------
  C. Madison Riley, III...   30,000   2.9   $11.000 $11.000  12/11/07  $0.00 $207,535 $  525,935
</TABLE>
 
--------
(1) Based upon the market price on the date of grant and an annual
    appreciation at the rate stated of such market price through the
    expiration date of such options. The dollar amounts under these columns
    are the result of calculations at 0% and at the 5% and 10% rates set by
    the SEC and therefore are not intended to forecast possible future
    appreciation, if any, of the Company's stock price. The Company did not
    use an alternative formula for a grant date valuation, as the Company is
    not aware of any formula which will determine with reasonable accuracy a
    present value based on future unknown or volatile factors.
 
                                       8
<PAGE>
 
Aggregated Option Exercises and Option Values
 
  The following table shows information concerning the exercise of stock
options during fiscal year 1998 by each of the named executive officers and
the fiscal year-end value of unexercised options.
 
                AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
                       AND FISCAL YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                                                          Value of
                                                          Number of Unexercised   Unexercised In-the-Money
                                                Value     Options at Fy-End (#)   Options at Fy-End ($)(1)
                            Shares Acquired on Realized ------------------------- -------------------------
  Name                         Exercise (#)      ($)    Exercisable Unexercisable Exercisable Unexercisable
  ----                      ------------------ -------- ----------- ------------- ----------- -------------
  <S>                       <C>                <C>      <C>         <C>           <C>         <C>
  Robert C. Siegel........       105,000       968,438    306,667      183,333(2)    1,875       37,500
-----------------------------------------------------------------------------------------------------------
  Joanna M. Jacobson......             0             0    133,333      151,667           0            0
-----------------------------------------------------------------------------------------------------------
  Diane M. Sullivan.......             0             0     76,667      113,333      30,000       15,000
-----------------------------------------------------------------------------------------------------------
  Howard B. Collins, Jr. .             0             0     20,000       40,000           0            0
-----------------------------------------------------------------------------------------------------------
  C. Madison Riley, III...             0             0     36,333       53,167      22,125       11,063
</TABLE>
--------
(1) Represents the difference between the closing price of the Company's
    Common Stock on November 27, 1998 ($8.875) and the exercise price of the
    options, multiplied by the number of shares represented by such options.
(2) Of this number, 91,667 options had been cancelled as of February 17, 1999
    as a result of Mr. Siegel's retirement from the Company.
 
Employment Agreements
 
  On June 5, 1998 and November 11, 1998, the Company entered into two
amendments to the November 4, 1997 employment agreement with Robert C. Siegel,
prior Chairman of the Board of Directors, President and Chief Executive
Officer, pursuant to which Mr. Siegel retired from the Company, effective as
of December 6, 1998. Mr. Siegel will remain a consultant to the Company's
Board of Directors for transition purposes through December 31, 1999. Mr.
Siegel will receive compensation of $50,000 in his capacity as a consultant
under the amended agreement.
 
  On November 11, 1998, the Company entered into an employment agreement with
James A. Eskridge for Mr. Eskridge's service to the Company as Chairman and
Chief Executive Officer for the period from December 7, 1998 through December
7, 2001 and renewable annually thereafter (the "Employment Agreement"). Mr.
Eskridge's annual rate of base salary under his Employment Agreement is
$600,000 and he is eligible for an annual bonus with a target bonus percentage
of 50% of his base salary. Mr. Eskridge was also granted non- qualified stock
options to purchase up to 500,000 shares of the Common Stock of the Company at
the closing price of the Company's Common Stock on the trading day prior to
the public announcement of his appointment ($10.125 per share).
 
  Under his Employment Agreement, Mr. Eskridge is also entitled to receive
certain enumerated perquisites and to participate in the various employee
benefit plans which the Company maintains or adopts during his employment
period. The Agreement also provides for severance payments to Mr. Eskridge in
the event that the Company terminates Mr. Eskridge's employment during the
employment period without "cause" or Mr. Eskridge terminates his employment
for "good reason". In such event, Mr. Eskridge would receive payments equal to
twelve months' salary plus continued participation in medical and dental plans
through the end of the employment period and accelerated vesting of the stock
options granted to him under the Employment Agreement if the closing price of
the Company's Common Stock on the date of termination is no less than double
the exercise price for such options.
 
                                       9
<PAGE>
 
Mr. Eskridge has also entered into a change of control agreement with the
Company as described under the heading "Change of Control Employment
Agreements" below.
 
Change of Control Employment Agreements
 
  The Company has entered into change of control employment agreements with
each of the named executive officers in the summary compensation table and
with certain other executive officers. The change of control employment
agreements are for two-year terms, which terms extend for one-year upon each
anniversary unless a notice not to extend is given by the Company. These
agreements provide generally that the executive's terms and conditions of
employment (including position, location, compensation and benefits) will not
be adversely changed during the two-year period after a change of control of
the Company. If the Company terminates the executive's employment (other than
for cause, death, disability or retirement) or if the executive terminates for
good reason during such two-year period (or upon certain terminations within
18 months prior to a change of control in connection with or in anticipation
of a change of control), the Company must provide certain specified severance
benefits. For purposes of the agreements, a change of control shall mean,
subject to the conditions and exceptions specified in the change of control
employment agreements, (i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of securities of the Company where such
acquisition causes such Person to own twenty percent (20%) or more of the
Common Stock or the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors; (ii) individuals who, as of February 12, 1998, constitute the Board
of Directors cease to constitute at least a majority of the Board of
Directors; (iii) consummation of certain reorganizations, mergers or
consolidations or sales or other dispositions of all or substantially all of
the assets of the Company or the acquisition of assets of another entity; or
(iv) approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.
 
  Severance benefits under the agreements with each of the named executive
officers (other than Mr. Collins) include three times the sum of the
executive's base salary, target bonus, and dividend equivalents under the 1975
Plan, and three years of continued welfare insurance plan coverage. The value
of additional retirement benefits which would have been earned by the
executive had he or she remained in the Company's employ for an additional
period of three years would also be paid to the executive. Mr. Collins would
receive severance payments and other benefits based upon a 2-year severance
multiple. In addition, the executives are entitled to receive an additional
payment in an amount sufficient to make them whole for any excise tax on
excess parachute payments imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended. The agreements also provide for the lapse upon a
change of control of all restrictions on options granted under the 1975 Plan.
 
Retirement Income Plan
 
  The Company's Retirement Income Plan, as amended effective as of January 1,
1989 (the "Retirement Plan"), is a non-contributory defined benefit pension
plan. For salaried, management, sales and non-production hourly employees, the
Retirement Plan covers basic compensation received from the Company and its
participating subsidiaries, excluding overtime payments, commissions, bonuses
and any other additional compensation and for commissioned sales personnel
whose compensation is derived wholly from commissions, the Retirement Plan
covers 80% of the commissions received (the "Earnings"). The Retirement Plan
provides for an annual pension at normal retirement age, 65 (with a minimum of
five years of service), determined as follows: (i) for credited service (the
"Credited Service") prior to January 1, 1984, 1% of average annual Earnings
(based on 1981, 1982 and 1983 Earnings) up to $9,000 and 1.75% of average
annual Earnings in excess of $9,000 multiplied by the
 
                                      10
<PAGE>
 
number of years of Credited Service prior to January 1, 1984, plus (ii) for
Credited Service after January 1, 1984 but prior to January 1, 1989, 1.25% of
Earnings up to $15,000 for each year of service and 2% of Earnings in excess
of $15,000 for each year of service; and (iii) for Credited Service after
January 1, 1989, 1.35% of Earnings up to $15,000 for each year of service and
2% of Earnings in excess of $15,000 for each year of service. If the total
number of years of Credited Service exceeds 34 years, an amount equal to 1.80%
of annual Earnings for each additional year of service will be added to the
retirement benefit.
 
  The following table shows, as to each of the named executive officers, his
or her (i) number of years of Credited Service as of February 17, 1999 and
(ii) estimated annual benefits payable upon retirement at age 65. The amounts
presented are on a straight-life annuity basis, but alternative methods of
payment are available at the option of the participant. In no event shall
benefits payable under the Retirement Plan exceed the maximum allowed under
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The
benefit payment under the Retirement Plan is not subject to any deductions for
Social Security benefits or other offset amounts.
 
<TABLE>
<CAPTION>
                                                Number of Years
                                                  of Credited   Estimated Annual
                                                 Service as of  Benefits Payable
                                                 February 17,   Upon Retirement
Name                                                 1999         At Age 65(1)
----                                            --------------- ----------------
<S>                                             <C>             <C>
Robert C. Siegel(2)............................         5           $12,010
Joanna M. Jacobson.............................         2           $87,637
Diane M. Sullivan..............................         3           $75,802
Howard B. Collins, Jr..........................         2           $44,450
C. Madison Riley, III..........................         5           $91,222
</TABLE>
--------
(1)  Assumes continued service until age 65 at current salary levels.
(2)  Mr. Siegel retired as Chief Executive Officer of the Company on December
     6, 1998.
 
Compensation Committee Report
 
  The Compensation Committee (the "Committee") is comprised of four non-
employee directors: Mr. Frank Mori, Committee Chairman, Ms. Margaret McKenna
and Messrs. Donald Gant and Paul Tippett. The Committee reviews and oversees
the Company's various incentive plans, evaluates performance and reviews
compensation levels and other related matters for the Company's senior
executives. When evaluating the performance of its senior executives, the
Committee reviews with the full Board in detail all aspects of compensation
for the senior executives, including the five individuals named in the Summary
Compensation Table. The Committee met five times in fiscal 1998.
 
 Compensation Philosophy
 
  The Committee's strategy is to align the Company's executive compensation
program to corporate performance and shareholder returns. The Committee
considers the following objectives when evaluating the Company's compensation
programs:
 
  .  Competitive base salaries to attract and retain well-qualified,
     experienced executives;
 
  .  Link cash-based incentive compensation to corporate performance goals
     and individual performance; and
 
  .  Link senior executive long-term compensation to consistent appreciation
     in price of Stride Rite Common Stock through stock option grants.
 
                                      11
<PAGE>
 
  In achieving these objectives, the Committee analyzes Company, division and
individual performance, competitive executive compensation packages and stock
performance. The Committee periodically retains the services of a consulting
firm specializing in executive compensation to review the competitiveness of
the Company's executive compensation programs with other public corporations
with which the Company competes for executive talent.
 
  The three major components of the Company's executive compensation for
fiscal 1998 were: base salary, annual incentive compensation and stock
options. Although each of the three major components of compensation is
described in more detail below, the Committee also evaluates the total
compensation package of each senior executive, including pension benefits,
insurance, severance plans and other benefits.
 
 Base Salary
 
  Base salaries for executive officers are established by evaluating the
responsibilities of the position, the level of experience of the individual,
and competitive market data on comparable positions.
 
  The Committee reviews the base salaries of the Company's senior executives
annually. Salary increases are based on the overall performance of the Company
and each executive officer individually, including the financial results of
the executive's particular business unit. Market data is also utilized in
determining base salary levels for each executive, which are targeted at
approximately the median level among footwear competitors of like size. The
final determination is subjectively made based on these criteria.
 
 Annual Incentive Compensation
 
  Under the annual incentive compensation plan in effect for fiscal 1998,
individual participation and target payouts were established by the Committee,
based on the nature and scope of responsibilities of each participant. Bonuses
were earned based on fiscal 1998 performance against established business and
financial goals. The performance goals were approved by the full Board in
October 1997, and included a threshold consolidated pre-tax income goal, a
consolidated pre-tax income goal and divisional pre-tax income goals. For
fiscal 1998, the Company met the minimum threshold for payments under the
incentive plans, but failed to meet the consolidated pre-tax income goal. The
Keds, International and Stride Rite Children's Group divisions all met or
exceeded their divisional pre-tax income goals and bonus payments were made to
plan participants in those groups. Additional discretionary bonuses were given
to executives who the Committee felt merited incentive compensation based on
subjective criteria.
 
 Stock Options
 
  Under the 1998 Stock Option Plan, the Committee is authorized to grant
options to purchase Common Stock with an exercise price equal to the market
price of the Common Stock on the date of the grant. The Committee has
established guidelines for the number of options to be granted at various
executive levels, based on competitive practices, the duties and scope of
responsibilities of each executive's position, and the amount and terms of
options already held by each executive.
 
  The Committee and the Chief Executive Officer believe that executive
ownership of significant equity interest in the Company will more closely
align the interests of stockholders and management. In light of this belief,
the Company established stock ownership guidelines for senior executives,
effective February 4, 1999. The executives to whom these guidelines apply will
have up to five years to reach target minimum levels of
 
                                      12
<PAGE>
 
stock ownership, based on an ascending scale commensurate with their level in
the Company. The guidelines range from one to five times' annual base salary.
Compliance with these guidelines will be monitored by the Committee and, while
not mandatory, will be taken into consideration when future stock option
grants and bonus awards are made.
 
 Compensation of the Chief Executive Officer
 
  Mr. Siegel's base salary for fiscal year 1998 was $650,000, based on his
Employment Agreement dated November 4, 1997. This base salary was established
by the Committee after consideration of market data and a variety of
subjective factors and negotiation and agreement with Mr. Siegel. He earned no
incentive compensation for fiscal year 1998 because the goals established at
the beginning of the year were not met. Mr. Siegel was granted options to
purchase 100,000 shares of Common Stock pursuant to the 1998 Stock Option Plan
on the same basis as described above for other executive officers.
 
  Mr. Eskridge was elected Chairman and Chief Executive Officer of the Company
by the Board on November 11, 1998, effective as of December 7, 1998. In
evaluating his compensation package, the Committee used data on compensation
levels, including all forms of incentive compensation, from the Company's peer
group.
 
  Pursuant to his Employment Agreement, Mr. Eskridge's annual base salary for
fiscal 1999 was set at $600,000. Mr. Eskridge is eligible to receive incentive
compensation under the Senior Executive Annual Incentive Plan, targeted at 50%
of his base salary. Future payouts under this Plan will be based on the
attainment of financial goals established by the Board in December 1998.
 
  Also pursuant to his Employment Agreement, Mr. Eskridge was awarded non-
qualified stock options to purchase 500,000 shares of Common Stock, at $10.125
per share, the closing price of the Company's Common Stock on the New York
Stock Exchange--Composite Tape, on November 10, 1998. These shares will vest
one-third on each of the first, second and third anniversaries of his December
7, 1998 employment date.
 
 Internal Revenue Code Section 162(m)
 
  Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended,
(the "Code"), publicly traded corporations are not permitted to deduct
compensation exceeding $1,000,000 paid to certain top executives, unless the
compensation qualifies as "performance based compensation". Certain
compensation paid to Mr. Siegel for fiscal year 1998 will be non-deductible as
a result of the $1,000,000 limit, based on the timing of his exercising
previously granted stock options.
 
 Conclusion
 
  As outlined in the compensation plans described above, a substantial portion
of the Company's executive compensation is directly linked to individual and
corporate performance and stock price appreciation, in accordance with our
stated Compensation Philosophy.
 
                                          COMPENSATION COMMITTEE
 
                                          Frank R. Mori (Chairman)
                                          Donald R. Gant
                                          Margaret A. McKenna
                                          W. Paul Tippett, Jr.
 
                                      13
<PAGE>
 
Performance Graph
 
  Set forth below is a graph comparing the cumulative total stockholder return
on the Company's Common Stock, based on the market price of the Common Stock
and assuming reinvestment of dividends, with the cumulative total return of
companies in the Standard & Poor's Small Cap 600 Index, and the Standard &
Poor's Footwear--Small Cap Index (the current performance indicator of peer
group companies), for a period of five fiscal years commencing December 3, 1993
and ending November 27, 1998. The Standard & Poor's Footwear--Small Cap Index
consists of Brown Group, Inc., Justin Industries, Inc., K-Swiss Inc.--Class A,
Timberland Co.--Class A, Wolverine World Wide, Inc. and the Company.
 
                              [GRAPH APPEARS HERE]
 
<TABLE>
<CAPTION>
                                          1993 1994   1995   1996   1997   1998
                                          ---- ----- ------ ------ ------ ------
<S>                                       <C>  <C>   <C>    <C>    <C>    <C>
Company.................................. 100  68.66  50.01  58.46  70.90  53.73
S&P Footwear--Small Cap Index............ 100  76.24  73.77 100.89 137.97  99.86
S&P Small Cap--600 Index................. 100  96.34 126.16 153.78 191.52 181.26
</TABLE>
 
                                       14
<PAGE>
 
Certain Transactions With Management
 
  During fiscal 1998, the Company had a loan outstanding to Dennis Garro,
President of Stride Rite International Corp., a subsidiary of the Company, the
purpose of which had been to assist with his relocation to the Boston area.
The highest amount outstanding on this loan since the beginning of fiscal 1998
was $66,000, and $16,265 remained outstanding as of February 17, 1999. This
loan bears interest at a rate of six percent (6%) per annum.
 
                           2. 1998 STOCK OPTION PLAN
 
General
 
  On February 4, 1999, the Board of Directors of the Company adopted an
amendment to the 1998 Stock Option Plan (the "1998 Plan") to increase the
number of shares of Common Stock which may be purchased or awarded pursuant to
the 1998 Plan by 1,500,000 shares, to an aggregate of 3,900,000 shares,
subject to shareholder approval, and also voted to change the name of the 1998
Plan from the 1998 Long-Term Growth Incentive Plan to the 1998 Stock Option
Plan.
 
  The Company adopted the 1998 Plan in order to encourage and provide
opportunities for stock ownership by employees thereby more closely aligning
employees' interests with those of the stockholders. The Board of Directors
believes that the 1998 Plan enables the Company to attract and retain key
employees who will make significant contributions towards the successful
management and growth of the Company, and that the 1998 Plan links
compensation with the achievement of long-term business goals and increases in
shareholder value.
 
  The 1998 Plan was approved at the 1998 annual meeting of stockholders with
an initial share availability of 2,400,000 shares. Options for approximately
800,000 shares had already been granted subject to approval by the
shareholders at that meeting, options for 500,000 shares were required in
connection with the employment of a new chief executive officer, and
additional options were required in connection with the Company's normal
option grant program. Additional authority is now required in order to make
shares available for future option grants in order to carry out the purposes
of the plan.
 
  The 1998 Plan has a term of three years ending April 2001. The maximum
number of shares of the Company's Common Stock which may be awarded or
purchased upon exercise of options under the 1998 Plan is 3,900,000, subject
to approval by the stockholders of the amendment to the 1998 Plan and subject
to adjustments as provided under the heading "Operation of the 1998 Plan"
below. All statements set forth in this Proxy Statement relating to the 1998
Plan are qualified in their entirety by reference to the text of the 1998
Plan, which is set forth as Appendix A to this Proxy Statement.
 
Administration
 
  The 1998 Plan is administered by a committee consisting of not less than two
non-employee members of the Board of Directors, appointed by the Board of
Directors (the "Committee"). The Committee consists of members who qualify to
administer the 1998 Plan as contemplated by Rule 16b-3 and Section 162(m)
under the Code. To the extent permitted by applicable law and the terms and
conditions of the Plan, the Committee may delegate to one or more employee
members of the Board of Directors the power to make stock or option awards to
1998 Plan participants who are not executive officers pursuant to Section 16
of the 1934 Act (or any successor provision) and are not "covered employees"
within the meaning of Section 162(m) of the Code (or any successor provision).
 
                                      15
<PAGE>
 
Participants
 
  Awards of shares of Common Stock and options to purchase shares of Common
Stock may be granted pursuant to the 1998 Plan to any key executive of the
Company plus, on a highly selective basis, other employees of the Company whom
the Committee determines are key contributors to the business of the Company
(the "Participants").
 
Operation of the 1998 Plan
 
  During the term of the 1998 Plan, the Committee may grant awards of Common
Stock and/or options to Participants, in its discretion. Options may be
incentive stock options as defined by Section 422 of the Code or may be non-
qualified stock options; the Committee will specify at the time of grant
whether an option is an incentive stock option or a non-qualified stock
option. The exercise price of options will be as determined by the Committee,
but shall not be less than the fair market value of the stock on the date of
grant, except that in the event the Participant owns or is deemed to own 10%
or more of the outstanding Common Stock of the Company, the exercise price of
an incentive stock option shall not be less than 110% of the fair market value
of the Common Stock on the date of grant. The aggregate fair market value at
the time of grant of incentive stock options exercisable by any one
Participant in a calendar year shall not exceed $100,000 or other limit
imposed by the Code. Fair market value on any given date is defined as the
last reported sale price of the Common Stock on the last trading date on which
the Common Stock was traded preceding the specified date. The term of each
option shall be as set by the Committee, not to exceed 10 years. Stock options
shall become exercisable as to one-third of the shares of Common Stock
underlying the Stock Option on each of the first three anniversaries of the
date of grant, or as otherwise determined by the Committee.
 
  Common Stock awards shall confer on a Participant the right to receive a
specified number of shares of Common Stock subject to the terms and conditions
of the award set by the Committee, which may include forfeitability
contingencies based on continued employment with the Company, on meeting
performance criteria or both. The shares awarded may be subject to
restrictions lapsing in equal installments on the third, fourth and fifth
anniversaries of grant, or such other restrictions as determined by the
Committee.
 
  Awards of options and shares of Common Stock may not be made following April
2001, or following the earlier termination of the 1998 Plan. The maximum
aggregate number of shares of the Company's Common Stock which may be awarded
or purchased upon exercise of options under the 1998 Plan is 3,900,000 subject
to stockholder approval and the maximum number of shares that may be awarded
to or so purchased by any individual under the 1998 Plan is 500,000, in each
case subject to adjustments as provided below. Awards of shares under the 1998
Plan shall not exceed 200,000 shares. If any options or other awards under the
1998 Plan are forfeited or canceled, the shares underlying such options or
awards may, to the extent permitted by applicable law, again be awarded or be
subject to options under the 1998 Plan. In the event of any change in the
outstanding shares of Common Stock of the Company by reason of any stock
dividend, stock split, combination or exchange of shares, merger,
consolidation, spin-off or other distribution (other than normal cash
dividends) of the Company's assets to stockholders or any other change
affecting the Common Stock, the Committee may make such proportionate
adjustments, if any, as it, in its discretion, may deem appropriate to reflect
such change with respect to (i) the aggregate number and kind of shares that
may be issued under the 1998 Plan; (ii) the number and kind of shares covered
by each outstanding award made under the 1998 Plan; (iii) the option, base or
purchase price per share for any outstanding option and other awards granted
under the 1998 Plan; and/or (iv) the aggregate number of shares of Common
Stock that may be awarded under awards to any one Participant, provided that
any such actions are consistently and equitably applicable to all affected
Participants. In addition,
 
                                      16
<PAGE>
 
any Common Stock issued by the Company through the assumption or substitution
of outstanding grants or grant commitments from an acquired entity shall not
reduce the shares available for issuance under the 1998 Plan. The grant of
stock options under the 1998 Plan will not entitle the Participant to any
interest in any dividend, voting or other rights of a stockholder. Neither the
1998 Plan nor any action taken thereunder will be construed as giving any
person a right to be retained as an employee of the Company, nor will any
action taken thereunder be construed as entitling the Company to the services
of any Participant for any period of time.
 
  Notwithstanding any other provision of the 1998 Plan to the contrary, in the
event of a change of control, (i) any stock options outstanding as of the date
of the change of control that are not then exercisable and vested shall become
fully exercisable and vested and all restrictions applicable to Common Stock
awarded under the 1998 Plan shall lapse and (ii) unless determined otherwise
by the Committee at the time of grant, and subject to certain conditions set
forth in Section 8(g) of the 1998 Plan, options may be surrendered in exchange
for an amount of cash as specified in the 1998 Plan. For purposes of the 1998
Plan, a change of control shall mean, subject to the conditions and exceptions
specified in the 1998 Plan, (i) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act (a
"Person")) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of securities of the Company where such
acquisition causes such Person to own 20 percent or more of the Common Stock
or the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors; (ii)
individuals who, as of December 11, 1997, constitute the Board of Directors
cease to constitute at least a majority of the Board of Directors; (iii) the
approval by the stockholders of the Company of certain reorganizations,
mergers or consolidations or sales or other dispositions of all or
substantially all of the assets of the Company or the acquisition of assets of
another entity or, if consummation of such business combination is subject, at
the time of such approval by stockholders, to the consent of any government or
government agency, the obtaining of such consent (either explicitly or
implicitly by consummation); or (iv) approval by the stockholders of the
Company of a complete liquidation or dissolution of the Company.
 
Non-Transferability
 
  Options granted pursuant to the 1998 Plan may not be assignable, alienable,
saleable or otherwise transferable by a participant other than by will or
under the laws of descent and distribution. If so permitted by the Committee,
a Participant may designate a beneficiary or beneficiaries to exercise such
Participant's rights and receive any distributions under the 1998 Plan upon
the Participant's death. To the extent required to comply with regulations and
rules under the 1934 Act, including Rule 16b-3, any contrary requirements
shall prevail over the provisions set forth above in regard to executive
officers subject to Section l6 of the 1934 Act. A stock option may be
exercised, during the lifetime of the Participant, only by such Participant or
such Participant's legal representative.
 
Federal Income Tax Considerations
 
  The Company has been advised that, based on the present provisions of the
Code and regulations promulgated thereunder, the federal income tax
consequences of the grant, vesting and exercise of stock options under the
Plan and the subsequent disposition of stock acquired thereby will be as
described below. The following discussion addresses only the general federal
income tax consequences of stock options and is not intended as tax advice to
any individual. Holders of stock options are urged to consult their own tax
advisors regarding the impact of federal, state and local taxes, and the
federal alternative minimum tax, given their individual situations.
 
                                      17
<PAGE>
 
 Non-Qualified Options
 
  (a) Generally, an optionee will not recognize any taxable income, and the
Company will not be allowed a tax deduction, upon the granting of a non-
qualified stock option ("NQSO").
 
  (b) Upon the exercise of a NQSO, the optionee realizes ordinary income in an
amount equal to the excess, if any, of the fair market value of the shares
acquired at the time the NQSO is exercised over the exercise price for such
shares. At that time, the Company will be allowed a tax deduction equal to the
amount of ordinary taxable income recognized by the optionee.
 
  (c) When an optionee exercises a NQSO by paying the exercise price solely in
cash, the basis in the shares acquired is equal to the fair market value of
the shares on the date ordinary income is recognized, and the holding period
for such shares begins on the day after the shares are received.
 
  (d) When an optionee exercises a NQSO by exchanging previously acquired
shares of Common Stock held as capital assets in partial or full payment of
the exercise price, shares of Common Stock received by the optionee equal in
number to the previously acquired shares exchanged therefor will be received
free of tax and will have the same basis and holding period as such previously
acquired shares. The optionee will recognize ordinary taxable income equal to
the fair market value of any additional shares received by the optionee, less
the amount of any cash paid by the optionee. The optionee will have a basis in
such additional shares equal to their fair market value on the date ordinary
income is recognized and the holding period of such shares will commence on
the day after they are transferred to the optionee.
 
  (e) Upon subsequent disposition of shares acquired upon exercise of a NQSO,
the difference between the amount realized on the sale and the basis in the
shares is treated as long-term or short-term capital gain or loss, depending
on the holding period for the shares, and the long-term capital gain or loss
rate may vary based upon the holding period for the shares. The subsequent
disposition of shares acquired by exercise of a NQSO will not result in any
additional tax consequences to the Company.
 
 Incentive Stock Options
 
  (a) Generally, an optionee will not recognize any taxable income and the
Company will not be allowed a tax deduction upon the granting of an Incentive
Stock Option ("ISO").
 
  (b) Upon the exercise of an ISO, the optionee will not realize ordinary
taxable income and the Company will not be allowed a tax deduction, as long as
the optionee is an employee of the Company (or of a participating subsidiary)
from the time of the grant through the date three months before the ISO was
exercised. (The foregoing requirement is waived with respect to exercises by
the estate of an optionee who dies while employed, or within three months
after the termination of his or her employment, and the three-month period is
extended to one year in the case of a termination because of total and
permanent disability.) If the foregoing requirement is not met, the exercise
of an ISO is treated in the same manner as the exercise of a NQSO (see above).
The basis for the shares so acquired equals the exercise price, and the
holding period for the shares begins on the day after the date the shares are
received.
 
  (c) Generally, upon the disposition of shares acquired through the exercise
of an ISO, the optionee will recognize long-term capital gain or loss to the
extent the amount realized on the sale of such shares is greater than or less
than the exercise price, as long as the disposition is not a "disqualifying
disposition" (see paragraph (d) below).
 
                                      18
<PAGE>
 
  (d) A "disqualifying disposition" generally occurs if shares acquired upon
exercise of an ISO are disposed of by the optionee prior to the expiration of
two years from the date of grant of the Option or one year from the date of
transfer of shares to the optionee. (However, disposition by the estate of a
deceased employee is not considered a disqualifying disposition even if it
occurs before these dates.) Upon a disqualifying disposition, the optionee
will realize ordinary taxable income (and the Company will be allowed a tax
deduction) in an amount equal to the excess, if any of (A) the lesser of (i)
the fair market value of the shares on the date the ISO is exercised, or (ii)
the amount realized on such disqualifying disposition over (B) the exercise
price. The excess, if any, of the amount realized upon such disqualifying
disposition over the fair market value of the shares on the date of exercise
will be taxed as long-term or short-term capital gain depending on the holding
period involved, and the long-term capital gain or loss rate may vary based
upon the holding period for the shares.
 
  (e) Generally, if the optionee exchanges previously acquired shares of
Common Stock in partial or full payment of the exercise price of an ISO, the
exchange will not affect the ISO treatment of the exercise and, except as
otherwise described herein, no gain or loss or other income will be recognized
upon the disposition of the previously acquired shares. Shares of Common Stock
received by the optionee equal in number to the previously acquired shares
exchanged therefor will have the same basis (increased by the amount of
ordinary income, if any recognized on the exchange) and the same holding
period for capital gains purposes as the previously acquired shares. Optionees
will not, however, be able to use the old holding period for purposes of
satisfying the holding period requirement for avoiding a disqualifying
disposition of the ISO. Shares of Common Stock received by the optionee in
excess of the number of previously acquired shares will have a basis of zero
and a holding period which commences on the day after the date the shares are
received upon exercise of the ISO. If payment of the exercise price is made
using shares of Common Stock acquired upon exercise of an ISO, the delivery of
these previously acquired shares to the Company will be considered a
disposition of the shares for the purpose of determining whether a
disqualifying disposition has occurred.
 
 Change of Control
 
  The vesting of Stock Options upon a change of control is considered to
result in a "parachute payment", some or all of which could be an "excess
parachute payment" to the holder. Excess parachute payments are subject to a
20 percent excise tax imposed on the holder and are nondeductible by the
Company. In addition, the vesting of ISOs on a change of control would cause
ISOs to cease to qualify for ISO status, and to be taxed as NQSOs, to the
extent ISOs on more than $100,000 fair market value of Common Stock
(determined at the time of grant) become exercisable in a single year.
Finally, the exercise of a right following a change of control to have Stock
Options canceled in exchange for a payment in cash or Common Stock would
result in ordinary income to the holder in an amount equal to the sum of any
cash received and the fair market value of any Common Stock received. The
optionee's basis in any shares of Common Stock received would be equal to the
amount of ordinary income recognized with respect to such shares, and, upon
subsequent disposition, any further gain or loss would be either short-term or
long-term capital gain or loss, depending on the holding period of the shares.
The holding period for such shares would commence on the day after the shares
were received. Subject to the excess parachute rules discussed above, the
Company would be allowed a tax deduction equal to the amount of ordinary
income recognized by the holder.
 
 Withholding
 
  The Company has a right to withhold any sum required by federal, state or
local tax laws with respect to the exercise or cancellation of any Stock
Option, or to require payment of such amounts before delivery of shares.
 
                                      19
<PAGE>
 
Vote Required
 
  THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE 1998 PLAN. Approval of the Amendment to the 1998 Plan requires (assuming a
quorum is present) the affirmative vote of the holders of a majority of the
shares of Common Stock entitled to vote and represented in person or by proxy
at the meeting.
 
              3. 1998 NON-EMPLOYEE DIRECTOR STOCK OWNERSHIP PLAN
 
General
 
  On February 4, 1999, the Board of Directors unanimously adopted an amendment
to the 1998 Non-Employee Director Stock Ownership Plan (the "1998 Director
Plan"), subject to stockholder approval.
 
  The amended plan would provide for an annual retainer of $40,000, payable
either entirely in shares of Common Stock or one-half in shares of Common
Stock and one-half in cash at the election of each director. This annual
retainer would replace a portion of the existing annual director compensation
program, which includes a cash retainer of $30,000 and an annual stock grant
of 500 shares. Under both the existing and amended plans, directors also
receive an annual grant of options to purchase 5,000 shares of Common Stock at
fair market value.
 
  The amended plan would also provide for an initial grant of options to
purchase up to 5,000 shares of Common Stock at fair market value to new
directors based on the number of months between the date of initial election
to the Board of Directors and the next annual meeting of stockholders.
 
  The Board of Directors believes that paying directors in shares of Common
Stock gives directors added incentive to further the long-term profitability
of the Company and thereby benefits the stockholders of the Company. The Board
of Directors also wishes to assure that its director compensation arrangements
remain competitive with those offered elsewhere in order to be able to attract
and retain non-employee directors of outstanding ability. The Board of
Directors believes that these changes will further the goal of aligning the
directors' interests with those of the stockholders. Accordingly, the Board
recommends that the stockholders approve the amendment to 1998 Director Plan.
 
  All statements set forth in this Proxy Statement relating to the 1998
Director Plan are qualified in their entirety by reference to the text of the
1998 Director Plan, as amended, which is set forth as Appendix B to this Proxy
Statement.
 
Administration
 
  The 1998 Director Plan will be self-governing. Questions of interpretation,
if any, will be resolved by the Board of Directors.
 
Participants
 
  Awards of shares of Common Stock and options to purchase shares of Common
Stock may be granted pursuant to the 1998 Director Plan to any director who is
not an employee of the Company. As of February 17, 1999, all of the directors
other than Mr. Eskridge (seven persons) were eligible to participate in the
1998 Director Plan.
 
                                      20
<PAGE>
 
Operations of the 1998 Director Plan
 
  During the term of the Amended 1998 Director Plan, beginning with the first
fiscal quarter after the 1999 annual meeting of stockholders, until the 1998
Director Plan is terminated or amended, each director will receive an annual
retainer of $40,000, payable entirely in shares of Common Stock or one-half in
shares of Common Stock and one-half in cash at the election of the director.
Such amount will be payable in quarterly increments at the beginning of each
fiscal quarter with the number of shares to be granted based on the closing
price of the Common Stock on the last day of each preceding fiscal quarter.
 
  Each director would be eligible to defer his or her annual retainer, with
the cash portion, if any, deferrable in a cash deferrable account which would
earn interest based on the prime commercial interest rate at the Chase
Manhattan Bank, and the stock portion deferrable in stock units.
 
  In addition, at each annual meeting of stockholders, each director will
receive a grant of options to purchase 5,000 shares of Common Stock at fair
market value. Each Option will have a term of ten years and will become
exercisable as to the purchase of 1,600 shares one year after the date of
grant, 1,700 shares after two years and a final 1,700 shares after three
years. The exercise price of the options granted will be the fair market value
of a share of Common Stock on the date of grant, defined as the last reported
sale price of the Common Stock on the last trading date on which the Common
Stock was traded preceding the grant date.
 
  Each new director will also receive a grant of options to purchase up to
5,000 shares of Common Stock at fair market value as of his or her initial
election to the Board of Directors. The number of options for each new
director will be pro rated as follows, based on the time between the date of
initial election to the Board of Directors and the next annual meeting of
stockholders: less than 3 months--1,250 shares; at least 3 months and up to 6
months--2,500 shares; at least 6 months and up to 9 months--3,750 shares;
greater than 9 or more months--5,000 shares. Initial option grants will have a
term of ten years and will become exercisable as to the purchase of 32% one
year after the date of grant and 34% each after two years and after three
years.
 
  Unvested options are forfeited upon the director ceasing to serve on the
Board of Directors. Upon a change of control of the Company (as described
above in "1998 Stock Option Plan--Operation of the 1998 Plan"), any stock
options outstanding as of the date of the change of control which are not then
exercisable and vested, shall become fully exercisable and vested, effective
immediately prior to the occurrence of such change of control.
 
  The maximum number of shares of Common Stock which may be purchased upon
exercise of stock options and grants of Common Stock under the 1998 Director
Plan is 300,000, subject to adjustments as provided below. If any options
awarded under the 1998 Director Plan are forfeited, canceled, reacquired by
the Company, satisfied without issuance of Common Stock or otherwise
terminated (except by exercise), the shares which underlie such options may
again be awarded under the 1998 Director Plan. In the event of any change in
the outstanding shares of Common Stock by reason of any stock dividend, stock
split, combination of shares, exchanges of shares, warrants or rights
offerings to purchase Common Stock at a price below its fair market value,
recapitalization, reclassification, merger, consolidation, spinoff or other
similar changes in capitalization, then the 1998 Director Plan provides for
the adjustment of (i) the aggregate number and kind of shares reserved for
issuance under the 1998 Director Plan, (ii) the number of options and/or
shares of Common Stock issuable pursuant to the automatic grants described
above, and (iii) the number, kind and exercise price of shares of the Common
Stock subject to outstanding stock options, as required to ensure that the
proportionate interests of the holders of options granted under the 1998
Director Plan will be maintained.
 
                                      21
<PAGE>
 
Termination of Awards
 
  If for any reason, a non-employee director ceases to be a director of the
Company one year or more after such director's initial election or appointment
to the Board, while such director holds an option granted under the 1998
Director Plan which has vested, such option shall continue to be exercisable
for a period of three years or the remainder of the option term, whichever is
shorter. If for any reason other than death, a non-employee director ceases to
be a director of the Company within one year of such director's initial
election or appointment to the Board, any options granted under the 1998
Director Plan to such director shall be canceled as of the date of such
cessation. In the event a non-employee director dies within one year of his or
her initial election or appointment to the Board, any options held by such
director at the time of his or her death shall be exercisable by the
transferee who received the option pursuant to a will or in accordance with
the laws of descent and distribution for a period of three years following
such director's death.
 
Non-Transferability
 
  Options granted pursuant to the 1998 Director Plan may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or under the laws of descent and distribution. An option may be
exercised, during the lifetime of a non-employee director, only by such non-
employee director or his or her legal representative.
 
Term of the 1998 Director Plan
 
  The 1998 Director Plan was in effect as of April 16, 1998 and will remain in
effect for a term of ten years, unless earlier terminated by the Board of
Directors.
 
                               NEW PLAN BENEFITS
 
                1998 Non-Employee Director Stock Ownership Plan
 
<TABLE>
<CAPTION>
                                                           Annual
                              Annual Options            Stock to be
      Name and Position       to be Granted               Granted
      -----------------       -------------- ----------------------------------
<S>                           <C>            <C>
Non-employee Directors as a                  Shares with a fair market value of
 group (7 persons)...........     35,000      up to $280,000
</TABLE>
 
Federal Income Tax Considerations
 
  Based on the present provisions of the Code and regulations promulgated
thereunder, the federal income tax consequences of the grant, vesting and
exercise of options under the 1998 Director Plan and the subsequent
disposition of stock acquired thereby will be as described below. The
following discussion addresses only the general federal income tax
consequences of stock options and is not intended as tax advice to any
individual. Holders of stock options are urged to consult their own tax
advisors regarding the impact of federal, state and local taxes, and the
federal alternative minimum tax, given their individual situations.
 
  A director will not recognize any taxable income, and the Company will not
be allowed a tax deduction, upon the grant of an option under the 1998
Director Plan. Upon the exercise of an option, the director will have ordinary
income in an amount equal to the excess, if any, of (i) the fair market value
on the date of exercise of the shares of Common Stock so acquired over (ii)
the option exercise price. The director's basis in the shares so acquired will
equal the amount of such ordinary income, and the Company will be allowed a
tax deduction in the same amount.
 
                                      22
<PAGE>
 
  Upon subsequent disposition of shares of Common Stock acquired upon exercise
of an option under the 1998 Director Plan, the director will recognize the
difference between the amount realized on the sale and the basis in the shares
as long-term or short-term capital gain or loss, depending on the holding
period for the shares.
 
Vote Required
 
  THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE 1998 DIRECTOR PLAN. Approval of the amendment to the 1998 Director Plan
requires (assuming a quorum is present) the affirmative vote of the holders of
a majority of the shares of Common Stock entitled to vote and represented in
person or by proxy at the meeting.
 
                    4. 1999 EXECUTIVE LONG-TERM BONUS PLAN
 
General
 
  The Stride Rite Corporation 1999 Executive Long-Term Bonus Plan (the "1999
Long-Term Bonus Plan") was adopted by the Board of Directors on February 4,
1999, subject to approval by the Company's stockholders. The purpose of the
plan is to reward key executives for attaining specified three-year goals, the
achievement of which is expected to lead to increased shareholder returns.
 
  If approved by the Company's stockholders, the 1999 Long-Term Bonus Plan
will be effective for any period of three consecutive fiscal years beginning
on or after November 28, 1998.
 
  All statements set forth in this Proxy Statement relating to the 1999 Long-
Term Bonus Plan are qualified in their entirety by reference to the text of
the plan which is set forth as Appendix C to this Proxy Statement.
 
Administration
 
  The 1999 Long-Term Bonus Plan is administered by the Compensation Committee,
which has powers under the plan to designate three year performance periods,
to determine the persons who may receive awards and the amount of the target
awards, to determine the goals to be achieved and the weighting of each goal,
and to certify attainment of the goals.
 
Operation of the 1999 Long-Term Bonus Plan
 
  The 1999 Long-Term Bonus Plan provides that the Compensation Committee of
the Board of Directors may establish a three-year bonus award for any three-
year period beginning on or after the fiscal year commencing on November 28,
1998. The Committee has the power to designate participants in the plan,
establish a target award for each participant, establish performance goals
based upon two or more of the following criteria: revenue growth, earnings per
share, cash flow, cash flow return on investment, return on equity, and the
Company's stock price as a percentage of a peer group of stocks, and to
establish the weighting of the designated goals.
 
  Following the end of the designated performance period, the Committee must
determine whether the performance goals have been attained. If the Committee
certifies that payment of performance awards should be made, such payments are
to be made one-half in cash and one-half in shares of Common Stock, or all in
cash at the Committee's discretion, by no later than February 15 of the year
following the end of the performance period. No individual may receive an
award under the 1999 Long-Term Bonus Plan in an amount exceeding $1 million.
 
                                      23
<PAGE>
 
  The Committee has established an initial Performance Period under the 1999
Long-Term Bonus Plan commencing November 28, 1998. For this period the
Committee has designated nine (9) employees as participants, with a maximum
award of no more than $625,000 for any one participant. The Committee has
established three goals: Revenue Growth, Earnings Per Share and Stock Price as
a percentage of the companies comprising the footwear component of the
Standard & Poor's Small Cap 600 Index. In order to earn awards, the three
goals must be achieved at threshold levels in all three years in the initial
Performance Period. If the goals are achieved at the target level, the nine
(9) designated participants would earn awards in an aggregate amount of $4.5
million.
 
Vote Required
 
  THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL.
Approval of this proposal requires (assuming a quorum is present) the
affirmative vote of the holders of a majority of the shares of Common Stock
entitled to vote and represented in person or by proxy at the meeting.
 
                           5. SELECTION OF AUDITORS
 
  Although Massachusetts law no longer requires that the Company's auditors be
approved each year by the stockholders, the Board of Directors continues the
practice of submitting such selection to the stockholders for their approval
because the Board deems it appropriate to do so. The Board of Directors has
selected PricewaterhouseCoopers LLP, which has acted as auditors of the
Company since 1972, to act as auditors for its current fiscal year. In the
event that the stockholders do not approve of PricewaterhouseCoopers LLP, the
Board of Directors will reconsider the appointment of PricewaterhouseCoopers
LLP.
 
  A representative of PricewaterhouseCoopers LLP will be present at the
meeting, will be provided the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions
from the stockholders.
 
  The Company's consolidated financial statements for the 1998 fiscal year
were examined and reported upon by PricewaterhouseCoopers LLP. In connection
with that examination, they also reviewed the Company's Annual Report and the
Company's filings with the SEC, and provided consultations on financial
statement implications of matters under consideration. PricewaterhouseCoopers
LLP also examined and reported upon the financial statements of the Company's
retirement and pension plans.
 
                               6. OTHER MATTERS
 
Compliance with Section 16(a) of the Securities Exchange Act of 1934
 
  Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act") requires the Company's Executive Officers and Directors and persons
owning more than 10% of the outstanding Common Stock of the Company to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Executive Officers, Directors and greater than 10% holders of
Common Stock are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
 
  Based solely on copies of such forms furnished as provided above, or written
representations that no Forms 4 or 5 were required, the Company believes that
all Section 16(a) filing requirements applicable to its Executive Officers,
Directors and owners of greater than 10% of its Common Stock were complied
with in fiscal 1998 other than (i) Forms 5 for Warren Flick and Donald R. Gant
reporting acquisition of phantom stock units pursuant to
 
                                      24
<PAGE>
 
the Deferred Compensation Plan for Directors, which were filed 1 and
approximately 10 days after the deadline specified in Section 16(a) of the
1934 Act, (ii) Forms 4 for Diane M. Sullivan, Joseph T. Barrell, and Howard B.
Collins, Jr., reporting acquisition of Common Stock of the Company as part of
their annual bonus for fiscal year 1998, which were filed approximately 40
days after the deadline specified in Section 16(a) of the 1934 Act, and (iii)
Form 4 for C. Madison Riley, III reporting acquisition of Common Stock of the
Company pursuant to the Company's Employee Stock Purchase Plan, which was
filed approximately 14 months after the deadline specified in Section 16(a) of
the 1934 Act.
 
  The Board of Directors of the Company is not aware of any other matters
which may come before the meeting. If any other matters shall properly come
before the meeting, it is the intention of the persons named in the enclosed
proxy to vote the proxy in accordance with their judgment on any such matters.
 
                              PROXY SOLICITATION
 
  The solicitation of proxies will be principally by mail, and may be followed
by telephone and personal contacts by officers, directors or regular employees
of the Company, or by employees of D.F. King & Company, Inc., proxy solicitors
for the Company. The cost of soliciting proxies will be borne by the Company.
The Company does not yet have a written agreement with D.F. King & Company,
Inc. regarding the proxy solicitation. It is anticipated that the agreement
with D.F. King & Company, Inc. will be on customary terms. The costs of proxy
solicitation are not anticipated to exceed $20,000, unless circumstances
require otherwise. Brokers and others holding shares of Common Stock in their
names or in the names of their nominees will be expected to forward copies of
the Company's proxy soliciting material to beneficial owners of such shares
and to seek authority for execution of proxies and will be reimbursed by the
Company for their reasonable expenses.
 
                             STOCKHOLDER PROPOSALS
 
  Stockholder proposals intended to be presented at the 2000 Annual Meeting of
Stockholders must be received by the Company on or before October 28, 1999 to
be considered for inclusion, pursuant to Rule 14a-8 under the 1934 Act, in the
proxy material for that meeting. Any such proposal should be addressed as
follows:
 
                                          Office of the Clerk
                                          The Stride Rite Corporation
                                          191 Spring Street
                                          P.O. Box 9191
                                          Lexington, Massachusetts 02420-9191
 
February 25, 1999
 
                                      25
<PAGE>
 
                                  APPENDIX A
 
                          THE STRIDE RITE CORPORATION
                            1998 STOCK OPTION PLAN
 
Section 1: Purpose
 
  The purpose of The Stride Rite Corporation 1998 Stock Option Plan (the
"Plan") is to enable The Stride Rite Corporation (the "Corporation") and its
Subsidiaries to attract and retain key employees who will make significant
contributions towards the successful management, growth and protection of the
Corporation and to provide meaningful incentives to such employees who are
more directly linked to the achievement of long-term business goals and
increase in shareholder value. In addition, the Plan is designed to encourage
and provide opportunities for stock ownership by such employees which will
more closely align their interests with those of the stockholders of the
Corporation.
 
Section 2: Definition of Terms
 
  (a) Award means any Stock Option or Stock Award granted under the Plan.
 
  (b) Board means the Board of Directors of the Corporation.
 
  (c) Code means the Internal Revenue Code of 1986, as amended from time to
time.
 
  (d) Committee means a committee of not less than two non-employee members of
the Board, appointed by the Board to administer the Plan. The Committee shall
be comprised of members who qualify to administer this Plan as contemplated by
(a) Rule 16b-3 under the 1934 Act or any successor rule, and (b) Section
162(m) under the Code.
 
  (e) Common Stock means the common stock, $.25 par value, of the Corporation.
 
  (f) Corporation means The Stride Rite Corporation, a corporation established
under the laws of the Commonwealth of Massachusetts, and its Subsidiaries.
 
  (g) Fair Market Value means on any given date the last reported sale price
of the Common Stock on the last trading date on which the Common Stock was
traded preceding the specified date or, if no Common Stock was traded on such
date, the most recent date on which Common Stock was traded preceding the
specified date, as reflected on The New York Stock Exchange--Composite Tape
or, if not listed on such exchange, on any other national securities exchange
on which the Common Stock is listed or on the National Association of
Securities Dealers Automated Quotation system, or par value of Common Stock if
greater.
 
  (h) Incentive Stock Option (ISO) means a Stock Option to purchase Shares
awarded to a Participant which is intended to be an "Incentive Stock Option"
within the meaning of Section 422 of the Code or any successor provision.
 
  (i) Non-Qualified Stock Option (NQSO) means a Stock Option to purchase
Shares of Common Stock awarded to a Participant which is not intended to be an
ISO.
 
  (j) 1934 Act means the Securities Exchange Act of 1934, as amended from time
to time.
 
 
                                      A-1
<PAGE>
 
  (k) Participant means a person selected by the Committee (or its delegate as
provided under Section 4) to receive an Award under the Plan.
 
  (l) Reporting Person means an individual who is subject to Rule 16b-3 of the
1934 Act or any successor rule.
 
  (m) Shares means shares of the Common Stock of the Corporation.
 
  (n) Stock Award means an Award to a Participant comprised of Common Stock or
valued by reference to Common Stock granted under Section 7(c) of the Plan.
 
  (o) Stock Option means an Award in the form of the right to purchase a
specified number of Shares at a specified price during a specified period.
 
  (p) Subsidiary means any entity that, directly or through one or more
intermediaries, is controlled by, controls or is under common control with,
the Corporation or any entity in which the Corporation has a significant
equity interest as determined by the Committee.
 
Section 3: Effective Dates
 
  The Plan shall be effective as of the date the shareholders of the Company
approve the Plan, subject to the registration of the Shares issuable pursuant
to the Plan. No Awards may be made under the Plan after three years from the
date of shareholder approval or earlier termination of the Plan by the Board.
However, unless otherwise expressly provided in the Plan or in an applicable
Award agreement, any Award granted prior to three years following shareholder
approval or any earlier termination date may extend beyond such date, and, to
the extent set forth in the Plan, the authority of the Committee to amend,
alter, adjust, suspend, discontinue or terminate any such Award, or to waive
any conditions or restrictions with respect to any such Award, and the
authority of the Board to amend the Plan, shall extend beyond such date.
 
Section 4: Administration
 
  The Plan shall be administered by the Committee. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations, and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time, and shall be
final, conclusive and binding upon all persons, including the Corporation, any
Subsidiary, any Participant, any holder or beneficiary of any Award, any
shareholder and any employee of the Corporation or of any Subsidiary. The
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the operation of the
Plan as it shall from time to time consider advisable. To the extent permitted
by applicable law and the terms and provisions of the Plan, the Committee may
delegate to one or more employee members of the Board the power to make Awards
to Participants who are not Reporting Persons and are not "covered employees"
within the meaning of Section 162(m) of the Code or any successor provision.
 
Section 5: Eligibility
 
  Key executives of the Corporation and its Subsidiaries plus, on a highly
selective basis, other employees of the Corporation and its Subsidiaries whom
the Committee determines are key contributors to the business of the
Corporation and its Subsidiaries shall be eligible to receive an Award under
the Plan.
 
                                      A-2
<PAGE>
 
Section 6: Stock Available for Awards
 
  (a) Common Shares Available. Subject to adjustment as provided in Section
6(c) below, the maximum number of Shares available for Awards under the Plan
shall be 3,900,000, plus, to the extent permitted under applicable law, the
number of Shares added back pursuant to Section 6(d).
 
  (b) Share Usage Limits. For the period that the Plan is in effect the
aggregate number of Shares that shall be granted as Stock Awards shall not
exceed 200,000. Additionally, the aggregate number of Shares that shall be
awarded to any one Participant as Awards over the period that the Plan is in
effect shall not exceed 500,000 Shares.
 
  (c) Adjustments. In the event of any stock dividend, stock split,
combination or exchange of Shares, merger, consolidation, spin-off or other
distribution (other than normal cash dividends) of the Corporation's assets to
shareholders, or any other change affecting Shares, such proportionate
adjustments, if any, as the Committee in its discretion may deem appropriate
to reflect such change shall be made with respect to (i) the aggregate number
and kind of shares that may be issued under the Plan; (ii) the number and kind
of shares covered by each outstanding Award made under the Plan; (iii) the
option, base or purchase price per Share for any outstanding Stock Option and
other Awards granted under the Plan and/or (iv) the aggregate number of Shares
that may be awarded to any one Participant under Awards, provided that any
such actions are consistently and equitably applicable to all affected
Participants. In addition, any Shares issued by the Corporation through the
assumption or substitution of outstanding grants or grant commitments from an
acquired entity shall not reduce the Shares available for issuance under the
Plan.
 
  (d) Common Stock Usage. To the extent permitted by applicable law, the
Shares underlying any Awards which are forfeited, canceled, reacquired by the
Corporation, satisfied without the issuance of Common Stock or otherwise
terminated (other than by exercise) shall be added back to the Shares
available for issuance under the Plan.
 
  (e) Accounting for Awards. The number of Shares covered by an Award under
the Plan, or to which such Award relates, shall be counted on the date of
grant of such Award against the number of Shares available for granting Awards
under the Plan.
 
Section 7: Awards
 
  (a) General. The Committee shall determine the number and type(s) of
Award(s) (as set forth below) to be made to each Participant and shall approve
the terms and conditions of all such Awards in accordance with Sections 4 and
8 of the Plan. Awards may be granted singly, in combination or in tandem such
that the settlement of one Award automatically reduces or cancels the other.
Awards may also be made in replacement of, as alternatives to or as forms of
payment for grants or rights under any other employee compensation plan or
arrangement of the Corporation, including the plans of any acquired entity.
 
  (b) Stock Options. A Stock Option shall confer on a Participant the right to
purchase a specified number of Shares from the Corporation subject to the
terms and conditions of the Stock Option grant. The Committee shall establish
the option price at the time each Stock Option is awarded, provided that the
per-share price shall not be less than 100% of the Fair Market Value of a
Share on the date of grant. Stock Options may be in the form of ISOs or NQSOs,
and the Committee shall specify at the time of grant whether the Stock Option
is an ISO or an NQSO. If a Participant owns or is deemed to own (by reason of
the attribution rules applicable under
 
                                      A-3
<PAGE>
 
Section 424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Corporation or any subsidiary or parent corporation of
the corporation (within the meaning of Section 424 of the Code) and an ISO is
awarded to such Participant, the option price shall not be less than 110% of
the Fair Market Value at the time such ISO is awarded. The aggregate Fair
Market Value at the time of grant of the Shares covered by ISOs exercisable by
any one optionee in any calendar year shall not exceed $100,000 (or such other
limit as may be required by the Code). The term of each Stock Option shall be
fixed by the Committee, provided, however, that in no event shall the term of
any Stock Option exceed a period of ten years from the date of its grant. A
Stock Option shall become exercisable with respect to 1/3 of the Shares
subject to such Stock Option on each of the first three anniversaries of the
date of grant or, alternatively, in such manner and within such period or
periods and in such installments or otherwise as shall be determined by the
Committee. The recipient of a Stock Option grant shall pay for the Shares at
the time of exercise in cash or such other forms as the Committee may approve,
including Shares valued at their Fair Market Value on the date of exercise, or
in a combination of form(s). The Committee may also permit Participants to
have the option price delivered to the Corporation by a broker pursuant to an
arrangement whereby the Corporation, upon irrevocable instructions from a
Participant, delivers the exercised Shares to the broker. Any ISO which in
whole or in part cannot be treated as an ISO following its grant shall be
treated as an NQSO to the extent ISO treatment no longer applies.
 
  (c) Stock Awards. A Stock Award shall confer on a Participant the right to
receive a specified number of Shares subject to the terms and conditions of
the Award, which may include forfeitability contingencies based on continued
employment with the Corporation or on meeting performance criteria or both.
The restriction period for Stock Awards will be a five year restriction period
with restrictions lapsing in equal installments on the third, fourth and fifth
anniversaries of the date of grant or on any other such terms as the Committee
shall establish. Such Stock Awards may be subject to the attainment of
specified performance goals or targets, as determined by the Committee and set
forth in the specific Stock Award agreements. The Committee shall determine
the restrictions and restriction or performance period, and any other terms,
conditions and rights relating to a grant of Stock Awards, including the
determination to adjust performance goals (up or down) as business conditions
so warrant and the consideration, if any, required from Participants for Stock
Awards. The Committee may also grant Stock Awards that are not subject to any
restrictions.
 
Section 8: General Provisions Applicable to Awards
 
  (a) Transferability and Exercisability. Any Award under this Plan will be
non-transferable and accordingly shall not be assignable, alienable, saleable
or otherwise transferable by the Participant other than by will or the laws of
descent and distribution. A Stock Option may be exercised, during the lifetime
of the Participant, only by such Participant or the Participant's legal
representative.
 
  If so permitted by the Committee, a Participant may designate a beneficiary
or beneficiaries to exercise the Participant's rights and receive any
distributions under this Plan upon the Participant's death. To the extent
required to comply with regulations and rules under the 1934 Act, including
Rule 16b-3, any contrary requirements shall prevail over the provisions set
forth above in regards to Reporting Persons.
 
  (b) General Restrictions. Each Award shall be subject to the requirement
that, if at any time the Committee shall determine, in its sole discretion,
that the listing, registration or qualification of any Award under the Plan
upon any securities exchange or under any state or federal law, or the consent
or approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Award or the grant
or settlement thereof, such Award may not be exercised or settled in whole or
in part
 
                                      A-4
<PAGE>
 
unless such listing, registration, qualification, consent or approval has been
effected or obtained free of any conditions not acceptable to the Committee.
 
  (c) Grant Terms and Conditions. Subject to the terms and conditions of this
Plan, in addition to its determinations under Section 7(b) and/or 7(c) the
Committee shall determine the provisions and duration of grants made under
this Plan, and the conditions under which a Participant will retain rights
under this Plan in the event of the Participant's termination of employment
while holding any outstanding Awards.
 
  (d) Tax Withholding. No later than the date as of which an amount first
becomes includible in the gross income of a Participant for federal income tax
purposes with respect to any Award under this Plan, the Participant shall pay
to the Corporation, or make arrangements satisfactory to the Corporation
regarding the payment of, any federal, state, local or foreign taxes of any
kind required by law to be withheld with respect to such amount. Unless
otherwise determined by the Committee, withholding obligations may be settled
with Shares, including Shares that are part of the Award that gives rise to
the withholding requirement. The obligations of the Corporation under this
Plan shall be conditional on such payment or arrangements, and the Corporation
and its Subsidiaries shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participants. The
Committee may establish such procedures as it deems appropriate, including the
making of irrevocable elections, for the settlement of withholding obligations
with Shares. Shares that are used to satisfy withholding obligations shall be
valued at their Fair Market Value on the date the tax withholding is
effective.
 
  (e) Documentation of Grants. Awards made under the Plan shall be evidenced
by written agreements or such other appropriate documentation as the Committee
shall prescribe. The Committee need not require the execution of any
instrument or acknowledgment of notice of an Award under the Plan, in which
case acceptance of such Award by the respective Participant will constitute
agreement to the terms of the Award.
 
  (f) Settlement. The Committee shall determine, at the time of grant or
settlement of an Award, whether such Award will be settled in whole or in part
in cash, Shares, or other Awards subject, in the case of Participants subject
to Section 16(b) of the 1934 Act, to compliance with Rule 16b-3 of the 1934
Act. The Committee may require or permit a Participant to defer all or any
portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash.
 
  (g) Change of Control. Notwithstanding any other provision of this Plan to
the contrary, in the event of a Change of Control (as hereinafter defined),
the provisions of this Section 8(g) shall apply.
 
    (i) Any Stock Options outstanding as of the date of Change of Control
  that are not then exercisable and vested shall become fully exercisable and
  vested and all restrictions applicable to any then-outstanding Stock Award
  shall lapse, upon the occurrence of a Change of Control.
 
    (ii) During the 60-day period from and after a Change of Control (the
  "Exercisable Period"), unless the Committee shall determine otherwise at
  the time of grant, each holder of a Stock Option (an "Optionee") shall have
  the right, whether or not such Stock Option is then fully exercisable and
  in lieu of the payment of the exercise price for the Shares being purchased
  under the Stock Option and by giving notice to the Corporation, to elect
  (within the Exercisable Period) to surrender all or part of the Stock
  Option to the Corporation and to receive cash, within 30 days of such
  notice, in an amount equal to the amount by which the Change of Control
  Price (as hereinafter defined) per Share on the date of such election shall
  exceed the exercise price per Share under the Stock Option (the "Spread"),
  multiplied by the number of
 
                                      A-5
<PAGE>
 
  Shares granted under the Stock Option as to which the right granted under
  this Section 8(g)(ii) shall have been exercised. Notwithstanding the
  foregoing, if any right granted pursuant to this Section 8(g)(ii) would
  make a Change of Control transaction ineligible for pooling of interest
  accounting under APB No. 16 that but for this Section 8(g)(ii) would
  otherwise be eligible for such accounting treatment, the Committee shall
  have the ability to substitute for the cash payable pursuant to this
  Section 8(g)(ii) Shares, or the securities into which such Shares are
  converted, with a Fair Market Value equal to the cash that would otherwise
  be payable hereunder.
 
    (iii) Definition of Change of Control. For purposes of this Plan, a
  "Change of Control" shall mean any of the following events:
 
      (A) The acquisition by any individual, entity or group (within the
    meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act (a "Person"))
    of beneficial ownership (within the meaning of Rule 13d-3 promulgated
    under the 1934 Act) of 20% or more of either (i) the then outstanding
    Shares (the "Outstanding Corporation Common Stock") or (ii) the
    combined voting power of the then outstanding voting securities of the
    Corporation entitled to vote generally in the election of directors
    (the "Outstanding Corporation Voting Securities"); provided, however,
    that for purposes of this subsection (A), the following acquisitions
    shall not constitute a Change of Control: (i) any acquisition directly
    from the Corporation, (ii) any acquisition by the Corporation, (iii)
    any acquisition by any employee benefit plan (or related trust)
    sponsored or maintained by the Corporation or any corporation
    controlled by the Corporation, (iv) any acquisition by any corporation
    pursuant to a transaction that complies with clauses (i), (ii) and
    (iii) of subsection (C) below, or (v) any acquisition of less than 25%
    of the Outstanding Corporation Common Stock or Outstanding Corporation
    Voting Securities by a Person who certifies that such securities are
    not being acquired or held for the purpose of and will not have the
    effect of changing or influencing the control of the Corporation and
    are not being acquired in connection with or as a participant in any
    transaction having such purpose or effect, only for so long as such
    Person can continue to make such certification; or
 
      (B) Individuals who, as of December 11, 1997, constitute the Board
    (the "Incumbent Board") cease for any reason to constitute at least a
    majority of the Board; provided, however, that any individual becoming
    a director subsequent to the date hereof whose election, or nomination
    for election by the Corporation's shareholders, was approved by a vote
    of at least a majority of the directors then comprising the Incumbent
    Board shall be considered as though such individual were a member of
    the Incumbent Board, but excluding, for this purpose, any such
    individual whose initial assumption of office occurs as a result of an
    actual or threatened election contest with respect to the election or
    removal of directors or other actual or threatened solicitation of
    proxies or consents by or on behalf of a Person other than the Board;
    or
 
      (C) The approval by the shareholders of the Corporation of a
    reorganization, merger or consolidation or sale or other disposition of
    all or substantially all of the assets of the Corporation or the
    acquisition of assets of another entity ("Business Combination") or, if
    consummation of such Business Combination is subject, at the time of
    such approval by shareholders, to the consent of any government or
    governmental agency, the obtaining of such consent (either explicitly
    or implicitly by consummation), in each case, unless following such
    Business Combination: (i) all or substantially all of the individuals
    and entities who were the beneficial owners, respectively of the
    Outstanding Corporation Common Stock or the Outstanding Corporation
    Voting Securities immediately prior to such Business Combination will
    beneficially own, directly or indirectly, more than 60% of,
    respectively, the then outstanding shares of common stock and the
    combined voting power of then
 
                                      A-6
<PAGE>
 
    outstanding voting securities entitled to vote generally in the
    election of directors, as the case may be, of the corporation resulting
    from such Business Combination (including, without limitation, a
    corporation that as a result of such transaction owns the Corporation
    or all or substantially all of the Corporation's assets either directly
    or through one or more subsidiaries) in substantially the same
    proportions as their ownership, immediately prior to such Business
    Combination of the Outstanding Corporation Common Stock or the
    Outstanding Corporation Voting Securities, as the case may be, (ii) no
    Person (excluding any employee benefit plan (or related trust) of the
    Corporation or such corporation resulting from such Business
    Combination) will beneficially own, directly or indirectly, 20% or more
    of, respectively, the then outstanding shares of common stock of the
    corporation resulting from such Business Combination or the combined
    voting power of the then outstanding voting securities of such
    corporation except to the extent that such ownership existed prior to
    the Business Combination and (iii) at least a majority of the members
    of the Board of Directors of the corporation resulting from such
    Business Combination will have been members of the Incumbent Board at
    the time of the execution of the initial agreement, or of the action of
    the Board, providing for such Business Combination; or
 
      (D) Approval by the shareholders of the Corporation of a complete
    liquidation or dissolution of the Corporation.
 
    (iv) Change of Control Price. For purposes of this Plan, "Change of
  Control Price" means the higher of (i) the highest reported sales price of
  a Share in any transaction reported on the New York Stock Exchange
  Composite Tape during the 60-day period prior to and including the date of
  a Change of Control and (ii) if the Change of Control is the result of a
  tender or exchange offer or a Business Combination, the highest price per
  share of Stock paid in such tender or exchange offer or Business
  Combination; provided, however, that in the case of ISOs, the Change of
  Control Price shall be in all cases the Fair Market Value of the Common
  Stock on the date such ISO is exercised. To the extent that the
  consideration paid in any such transaction described above consists all or
  in part of securities or other non-cash consideration, the value of such
  securities or other non-cash consideration shall be determined in the sole
  discretion of the Committee.
 
Section 9: Miscellaneous
 
  (a) Plan Amendment or Termination. The Board may amend, alter, suspend,
discontinue or terminate the Plan as it deems necessary or appropriate except
that no amendment shall be made (i) without shareholder approval, if such
amendment would increase the total number of Shares available for issuance
under the Plan or if such approval is otherwise necessary under any applicable
law or stock exchange rule; or (ii) to cause the Plan not to comply with Rule
16b-3 of the 1934 Act or any successor rule. No amendment, alteration,
suspension, discontinuation or termination of the Plan may impair any
Participant's rights under the Plan under an Award theretofore granted with
the written consent of the Participant.
 
  (b) No Right to Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Corporation expressly
reserves the right at any time to dismiss a Participant free from any
liability or claim under the Plan, except as expressly provided by an
applicable Award.
 
  (c) No Rights as Shareholder. Only upon issuance of Shares to a Participant
(and only with respect to such Shares) shall the Participant obtain the rights
of a shareholder, subject, however, to any limitations imposed by the terms of
the applicable Award.
 
                                      A-7
<PAGE>
 
  (d) No Fractional Shares. No fractional shares shall be issued under the
Plan, however, the Committee may provide for a cash payment as settlement in
lieu of any fractional shares.
 
  (e) Other Corporate Benefit and Compensation Programs. Except as expressly
determined by the Committee, settlements of Awards received by Participants
under this Plan shall not be deemed to be part of a Participant's regular,
recurring compensation for purposes of calculating payments or benefits from
any Corporate benefit or severance program (or severance pay law of any
country). The above notwithstanding, the Corporation may adopt other
compensation programs, plans or arrangements as it deems appropriate or
necessary.
 
  (f) Unfunded Plan. The Plan shall be unfunded and shall not create (or be
construed to create) a trust or a separate fund(s). Likewise, the Plan shall
not establish any fiduciary relationship between the Corporation and any
Participant or other person. To the extent any person holds any rights by
virtue of an Award granted under the Plan, such rights shall be no greater
than the rights of an unsecured general creditor of the Corporation.
 
  (g) Successors and Assignees. The Plan shall be binding on all successors
and assignees of a Participant, including, without limitation, the estate of
such Participant and the executor, administrator or trustee of such estate, or
any receiver or trustee in bankruptcy or representative of the Participant's
creditors.
 
  (h) Governing Law. The validity, construction and effect to the Plan and any
actions taken under or relating to the Plan shall be determined in accordance
with the laws of the Commonwealth of Massachusetts and applicable federal law.
 
                                      A-8
<PAGE>
 
                                  APPENDIX B
 
                          THE STRIDE RITE CORPORATION
         1998 NON-EMPLOYEE DIRECTOR STOCK OWNERSHIP PLAN (as amended)
 
Section 1: Purpose
 
  The Stride Rite Corporation 1998 Non-Employee Director Stock Ownership Plan
(the "Plan") has been adopted to promote the long-term growth and financial
success of The Stride Rite Corporation (the "Company") by attracting and
retaining non-employee directors of outstanding ability and assisting the
Company in promoting a greater identity of interest between the Company's non-
employee directors and its stockholders.
 
Section 2: Definitions
 
  As used in the Plan, the following terms have the respective meanings as set
forth below.
 
  -- Award means any Stock Option, Stock Award or Director's Award granted
     under the Plan.
 
  -- Board means the Company's Board of Directors.
 
  -- Common Stock means the Common Stock, $.25 par value, of the Company.
 
  -- Company means The Stride Rite Corporation, a corporation established
     under the laws of the Commonwealth of Massachusetts, and any entity that
     is directly or indirectly controlled by the Company.
 
  -- Fair Market Value means on any given date the last reported sale price
     of the Common Stock on the last trading date on which the Common Stock
     was traded preceding the specified date or, if no Common Stock was
     traded on such date, the most recent date on which Common Stock was
     traded preceding the specified date, as reflected on The New York Stock
     Exchange--Composite Tape or, if not listed on such exchange, on any
     other national securities exchange on which the Common Stock is listed
     or on the National Association of Securities Dealers Automated Quotation
     system, or par value of Common Stock if greater.
 
  -- 1934 Act means the Securities Exchange Act of 1934, as amended from time
     to time.
 
  -- Participant means a Director of the Board who is not an employee of the
     Company coincident with or subsequent to shareholder approval of the
     Plan.
 
  -- Shares means shares of the Common Stock.
 
  -- Stock Award means an Award to a Participant comprised of Common Stock
     granted under Section 6 of the Plan.
 
  -- Stock Option means an Award in the form of the right to purchase a
     specified number of Shares at a specified price during a specified
     period granted under Section 6 of the Plan.
 
Section 3: Effective Dates
 
  The Plan, as amended, shall be in effect as of April 15, 1999, subject to
approval by the Company's stockholders. No Awards may be made under the Plan
after ten years from the date of original approval of the Plan (April 16,
1998) or earlier termination of the Plan by the Board.
 
                                      B-1
<PAGE>
 
Section 4: Plan Operation
 
  The Plan is intended to be self-governing and requires no discretionary
action by any administrative body with regard to any transaction under the
Plan. To the extent, if any, that any questions of interpretation arise, these
shall be resolved by the Board.
 
Section 5: Stock Available for Awards
 
  (a) Common Shares Available. The maximum number of Shares available for
Awards under the Plan may not exceed 300,000 shares of Common Stock of the
Company.
 
  (b) Adjustments and Reorganizations. In the event of any change in the
Common Stock by reason of any stock dividend, stock split, combination of
shares, exchange of shares, warrants or rights offering to purchase Common
Stock at a price below its fair market value, reclassification,
recapitalization, merger, consolidation, spin-off or other change in
capitalization of the Company, other than a transaction in which the Stock
Options would be assumed pursuant to Section 7(b) hereof, the aggregate number
and kind of shares reserved for issuance under the Plan, the number of Stock
Options and Stock Awards issuable pursuant to the automatic grant provisions
of Section 6 hereof, and the number, kind and option price of shares subject
to outstanding Stock Options, shall be automatically adjusted such that the
proportionate interests of the holders of Stock Options granted under the Plan
will be maintained as before the occurrence of such event; provided, however,
that the number of shares subject to any Award shall always be a whole number.
 
  (c) Common Stock Usage. The number of Shares of Common Stock underlying any
Awards granted under the Plan which are forfeited, canceled, reacquired by the
Company, satisfied without issuance of Common Stock or otherwise terminated
(other than by exercise) shall again be available for granting of additional
Awards under the Plan.
 
Section 6: Awards
 
  (a) On the day after the date of the effectiveness of the Registration
Statement for the Shares, the Company will issue to each Participant a stock
grant of 500 Shares and a non-qualified Stock Option to purchase 5,000 Shares.
The Company will issue to each Participant an additional non-qualified Stock
Option to purchase 5,000 Shares on the day after each annual meeting of
Stockholders commencing with the 1999 annual meeting of stockholders. Any
Stock Option granted pursuant to this Section 6(a) shall be referred to as an
"Annual Stock Option".
 
  (b) Each Annual Stock Option shall have a term of ten years and shall become
exercisable as follows: with respect to 1,600 Shares one year after grant;
with respect to 1,700 Shares two years after grant and with respect to 1,700
Shares three years after grant.
 
  (c) The Stock Option exercise price shall be the Fair Market Value of a
Share on the date of grant, payable at the time of exercise in cash or Shares
(held at least six months prior to exercise, unless purchased by the
Participant on the open market) valued at their Fair Market Value, or in a
combination thereof.
 
  (d) In the case of a new Director elected or appointed to the Board after
the 1999 annual meeting of stockholders, such new Director shall be issued an
initial Stock Option prorated for the number of months of service as a
Director prior to the next annual meeting of the stockholders determined in
accordance with the following schedule ("Initial Stock Option"):
 
                                      B-2
<PAGE>
 
<TABLE>
<CAPTION>
        Months of service to be completed               Number of Shares awarded
        until next annual stockholders' meeting         as Initial Stock Option
        ---------------------------------------         ------------------------
        <S>                                             <C>
        Fewer than 3...................................          1,250
        3 or more, but fewer than 6....................          2,500
        6 or more, but fewer than 9....................          3,750
        9 or more......................................          5,000
</TABLE>
 
Each Initial Stock Option shall have a term of ten years and shall become
exercisable as follows: with respect to 32%, one year after the date of grant;
with respect to 34%, two years after the date of grant; with respect to 34%,
three years after the date of grant.
 
  (e) Effective with the beginning of the first fiscal quarter following the
1999 annual meeting of stockholders, the Company shall provide each
Participant with an annual opportunity ("Director's Award Election") to choose
from among the following forms of Director's compensation ("Director's
Award"): (i) the issuance of Shares with a Fair Market Value equal to $40,000,
or (ii) the issuance of Shares with a Fair Market Value equal to $20,000 and
$20,000 in cash. A Director's Award shall be earned on a quarterly basis, and
shall be payable (in Shares, or in Shares and cash, as the case may be) in
advance as of the beginning of each quarter of the Company's fiscal year. The
number of Shares to be issued as of the beginning of each quarter shall be
determined by the Fair Market Value of the Shares as of the end of the
Company's preceding fiscal quarter. In the case of a new Director who is
elected or appointed to the Board other than effective as of the first day of
a fiscal quarter, the Director shall be entitled to a pro rata portion of the
Director's Award based upon the number of days remaining in the Company's
fiscal quarter.
 
  (f) Except as otherwise provided in this Section 6(f), a Director's Award
Election shall be made prior to the beginning of the Company's fiscal year to
which the Director's Award relates. In the case of a new Director, a
Director's Award Election shall be made by the Participant within 30 days
after becoming a Director. Each Director who is already a Participant of this
Plan as of the date of the 1999 annual meeting of stockholders shall make a
special Director's Award Election with respect to the Director's Award for the
balance of the Company's fiscal year ending in 1999 within 30 days after the
1999 annual meeting of the stockholders.
 
  (g) A Director's Award Election shall be made in writing on a form to be
prescribed for such purpose by the Company. In the absence of a signed
Director's Award Election specifying the manner of payment, a Director's Award
shall be paid quarterly in the form of Shares only. In the event that a
Director fails to make a new Director's Award Election for any subsequent
year, the election in effect or deemed to be in effect for the previous year
shall be continued and shall be deemed effective with respect to any
subsequent Director's Award.
 
  (h) The Company shall have the power to withhold, or require a Participant
to remit to the Company, an amount sufficient to satisfy any federal, state,
or local withholding tax requirements on any amount payable or Shares issued
under the Plan, and the Company may defer the payment of any amount or the
issuance of Shares until such requirements are satisfied.
 
  (i) Each Participant may elect to defer delivery of all or a portion of the
Shares to be issued or the cash to be paid pursuant to a Director's Award
Election in accordance with the Deferred Compensation Plan for Directors of
The Stride Rite Corporation set forth as Exhibit 1 to this Plan.
 
Section 7: Effect of Changes of Control and Business Combinations
 
  (a) Notwithstanding any other provision of this Plan to the contrary, in the
event of a Change of Control (as hereinafter defined), the provisions of this
Section 7 shall apply.
 
 
                                      B-3
<PAGE>
 
    (i)  Any Stock Options outstanding as of the date a Change of Control
         occurs, which are not then exercisable and vested, shall become
         fully exercisable and vested, effective immediately prior to the
         occurrence of such Change of Control.
 
    (ii) Definition of Change of Control. For purposes of this Plan, a
         "Change of Control" shall mean the happening of any of the following
         events:
 
      (A) The acquisition by any individual, entity or group (within the
    meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act (a "Person"),
    of beneficial ownership (within the meaning of Rule 13d-3 promulgated
    under the 1934 Act) of 20% or more of either (i) the then outstanding
    Shares (the "Outstanding Company Common Stock") or (ii) the combined
    voting power of the then outstanding voting securities of the Company
    entitled to vote generally in the election of directors (the
    "Outstanding Company Voting Securities"); provided, however, that for
    purposes of this subsection (A) the following acquisitions shall not
    constitute a Change of Control: (i) any acquisition directly from the
    Company, (ii) any acquisition by the Company, (iii) any acquisition by
    any employee benefit plan (or related trust) sponsored or maintained by
    the Company or any corporation controlled by the Company, (iv) any
    acquisition pursuant to a transaction which complies with clauses (i),
    (ii) and (iii) of subsection (C) below; or (v) any acquisition of less
    than 25% of the Outstanding Company Common Stock or Outstanding Company
    Voting Securities by a Person who certifies that such securities are
    not being acquired or held for the purpose of and will not have the
    effect of changing or influencing the control of the Company and are
    not being acquired in connection with or as a participant in any
    transaction having such purpose or effect, only for so long as such
    Person can continue to make such certification; or
 
      (B) Individuals who, as of the date hereof, constitute the Board (the
    "Incumbent Board") cease for any reason to constitute at least a
    majority of the Board; provided, however, that any individual becoming
    a director subsequent to the date hereof whose election, or nomination
    for election by the Company's shareholders, was approved by a vote of
    at least a majority of the directors then comprising the Incumbent
    Board shall be considered as though such individual were a member of
    the Incumbent Board, but excluding, for this purpose, any such
    individual whose initial assumption of office occurs as a result of an
    actual or threatened election contest with respect to the election or
    removal of directors or other actual or threatened solicitation of
    proxies or consents by or on behalf of a Person other than the Board.
 
      (C) The approval by the shareholders of the Company of a
    reorganization, merger or consolidation or sale or other disposition of
    all or substantially all of the assets of the Corporation or the
    acquisition of assets of another entity (each a "Business Combination")
    or, if consummation of such Business Combination is subject, at the
    time of such approval by shareholders, to the consent of any government
    or governmental agency, the obtaining of such consent (either
    explicitly or implicitly by consummation), in each case, unless
    following such Business Combination, (i) all or substantially all of
    the individuals and entities who were the beneficial owners,
    respectively, of the Outstanding Company Stock or the Outstanding
    Company Voting Securities immediately prior to such Business
    Combination will beneficially own, directly or indirectly, more than
    60% of, respectively, the then outstanding shares of common stock and
    the combined voting power of then outstanding voting securities
    entitled to vote generally in the election of directors, as the case
    may be, of the corporation resulting from such Business Combination
    (including, without limitation, a corporation that as a result of such
    transaction owns the Company or all or substantially all of the
    Company's assets either directly or through one or more subsidiaries)
    in substantially the same proportions as their ownership,
 
                                      B-4
<PAGE>
 
    immediately prior to such Business Combination, of the Outstanding
    Company Common Stock or the Outstanding Company Voting Securities, as
    the case may be, (ii) no Person (excluding any employee benefit plan
    (or related trust) of the Company or such corporation resulting from
    such Business Combination) will beneficially own, directly or
    indirectly, 20% or more of, respectively, the then outstanding shares
    of common stock of the corporation resulting from such Business
    Combination or the combined voting power of the then outstanding voting
    securities of such corporation, except to the extent that such
    ownership existed prior to the Business Combination and (iii) at least
    a majority of the members of the Board of Directors of the corporation
    resulting from such Business Combination will have been members of the
    Incumbent Board at the time of the execution of the initial agreement,
    or of the action of the Board, providing for such Business Combination;
    or
 
      (D) Approval by the shareholders of the Company of a complete
    liquidation or dissolution of the Company.
 
  (b) In the event of a Business Combination, outstanding Stock Options shall
be assumed by the successor or acquiror corporation, as the case may be, or a
parent thereof, or be replaced with a comparable option to purchase shares of
the capital stock of such successor, acquiror or parent, provided that each
outstanding Stock Option which is assumed in connection with a Business
Combination or is otherwise to continue in effect shall be appropriately
adjusted, immediately after such Business Combination, to apply and pertain to
the number and class of securities which would have been issuable, upon the
consummation of such Business Combination, to an actual holder of the same
number of shares of Common Stock as are subject to such Stock Option
immediately prior to such Business Combination, and provided further that,
should the consideration to be received in the Business Combination by the
holders of Common Stock be cash in whole or in part, the holder of each Stock
Option shall be entitled to receive that amount of cash that would be payable
upon the consummation of such Business Combination, to an actual holder of the
same number of shares of Common Stock as are subject to such Stock Option
immediately prior to such Business Combination, less the exercise price per
share subject to such Stock Option. In the event that Stock Options are
assumed or otherwise continue in effect, in whole or in part, appropriate
adjustments shall also be made to the exercise price payable per share,
provided the aggregate exercise price payable for such securities shall remain
the same, and, in addition, the class and number of securities available for
issuance under the Plan and the automatic grant provisions of Section 6 hereof
following the consummation of the Business Combination shall be appropriately
adjusted.
 
  (c) The grant of Awards under this Plan shall in no way affect the right of
the Company to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
 
Section 8: General Provisions Applicable to Awards
 
  (a) Non-Transferability of Stock Options. Stock Options granted under
Section 6 hereof may not be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or under the laws of descent
and distribution. The designation of a beneficiary shall not constitute a
transfer. A Stock Option may be exercised, during the lifetime of the
Participant, only by such Participant or his legal representative.
 
  (b) Termination of Directorship. If for any reason a Participant ceases to
be a Director of the Company one year or more after the Director's initial
election or appointment to the Board while holding a Stock Option granted
under this plan, any Stock Option which has vested shall continue to be
exercisable for a period of three years or the remainder of the option term
whichever is shorter (the "post termination period"). If for any reason
 
                                      B-5
<PAGE>
 
other than death a Participant ceases to be a Director of the Company within
one year of the Director's initial election or appointment to the Board, any
Stock Option awarded under this plan and held by the Director shall be
canceled as of the date of such termination. In the event a Participant dies
within one year of initial election or appointment to the Board, the Stock
Options shall be exercisable by the transferee who received such Stock Option
pursuant to a will or in accordance with the laws of descent and distribution
for a period of three years following the date of death.
 
  (c) Documentation of Grants. Awards made under the Plan shall be evidenced
by written agreements or such other appropriate documentation as the Board
shall prescribe. The Board need not require the execution of any instrument or
acknowledgment of notice of an Award under the Plan, in which case acceptance
of such Award by the respective Participant will constitute agreement to the
terms of the Award.
 
  (d) Plan Amendment or Termination. The Board may suspend the Plan or any
portion of the Plan or terminate the Plan. The Board may also amend the Plan
if deemed to be in the best interests of the Company and its stockholders;
provided, however, that no such suspension, termination or amendment may
impair any Participant's right regarding any outstanding Awards without his or
her consent.
 
  (e) Governing Law. The validity, construction and effect of the Plan and any
such actions taken under or relating to the Plan shall be determined in
accordance with the laws of the Commonwealth of Massachusetts and applicable
federal law.
 
                                      B-6
<PAGE>
 
                                                        Exhibit 1 to Appendix B
 
                   DEFERRED COMPENSATION PLAN FOR DIRECTORS
                                      OF
                          THE STRIDE RITE CORPORATION
 
                                   ARTICLE I
 
  1.1 Name and Purpose. The name of this plan is the "Deferred Compensation
Plan for Directors of The Stride Rite Corporation" (the "Plan"). This Plan is
an amendment and restatement of the Directors' Deferred Compensation Plan
originally adopted by the Company effective as of December 17, 1993, and later
amended and restated as of January 1, 1997. The changes made pursuant to this
amendment and restatement of the Plan are effective as of April 15, 1999,
subject to approval by the Company's stockholders. The purpose of the Plan, as
amended, is to provide non-employee Directors of the Company with flexibility
in timing the receipt of Director's Awards under the Non-Employee Director
Stock Ownership Plan and to assist the Company in attracting and retaining
qualified individuals to serve as Directors. Capitalized terms not otherwise
defined herein shall have the respective meanings set forth in the Non-
Employee Director Stock Ownership Plan.
 
  1.2 Definitions. Whenever used in the Plan, the following terms shall have
the meaning set forth below:
 
    (a) "Closing Price" means the NYSE closing price of the Company's Common
  Stock as reported in The Wall Street Journal, for the day at issue or the
  previous trading day if the day at issue is not a trading day.
 
    (b) "Common Stock" means the Common Stock $.25 par value of the Company.
 
    (c) "Company" means The Stride Rite Corporation.
 
    (d) "Compensation" means all remuneration paid to a Director for service
  as a Director under the Non-Employee Director Stock Ownership Plan, and
  such other cash remuneration as the Board of Directors of the Company may
  permit to be deferred under this Plan.
 
    (e) "Director" means any individual serving on the Board of Directors of
  the Company who is not an employee of the Company or any of its
  subsidiaries.
 
    (f) "Non-Employee Director Stock Ownership Plan" means the Stride Rite
  Corporation 1998 Non-Employee Director Stock Ownership Plan, as such plan
  may be amended from time to time by the Company.
 
    (g) "Participant" means a Director who has filed an election to
  participate under Section 3.1 of this Plan with regard to any Plan Year.
 
    (h) "Plan Administrator" means the Compensation Committee of the Board.
 
    (i) "Plan Year" means the calendar year.
 
    (j) "Stock Credit" means a credit that is equivalent to one share of
  Stride Rite Common Stock.
 
                                  ARTICLE II
 
  2.1 Participation in the Plan. Any individual who is a non-employee Director
may participate in the Plan.
 
 
                                      B-7
<PAGE>
 
                                  ARTICLE III
 
  3.1 Election to Participate. Each Director may elect annually to have
payment of all or any portion of his or her Compensation for that Plan Year
deferred. If the Participant ceases to be a Director, the Participant's
account balance under this Plan will be paid in accordance with Section 3.3 as
soon as practicable following the end of the Plan Year during which the
Participant ceased to be a Director. No election to defer under this Plan may
be made after December 31 of the year preceding the Plan Year during which
Compensation would otherwise be paid or within thirty days after the date a
Director becomes a Director. An election to defer any Compensation shall be in
writing and shall be received by the Secretary of the Company in a form
prescribed by the Plan Administrator. An election to defer shall be
irrevocable by the Director and shall be effective only for the Plan Year
immediately following the date on which it was filed. In the absence of a
signed Director's election to defer delivered to the Secretary, any
Compensation will be paid directly to the Director.
 
  3.2 Mode of Deferral. Payment of a Participant's Compensation which is
otherwise payable in cash may be deferred only by means of a Cash Credit.
Payment of a Participant's Compensation which is otherwise payable in the form
of Shares may be deferred only by means of a Stock Credit. Cash Credits and
Stock Credits shall be recorded in accounts established in each Participant's
name on the books of the Company.
 
  (a) Cash Credits. If the deferral is by means of a Cash Credit, the
Participant's Cash Credit account shall be credited with the dollar amount of
Compensation deferred by means of a Cash Credit at the time it would otherwise
have been paid. As of the last day of each calendar quarter, the Participant's
Cash Credit account shall be credited with interest equivalent to the sum of
(i) an amount determined by multiplying one quarter of the applicable interest
rate to the balance in the account as of the first day of such quarter, and
(ii) for each deferral amount credited to the Participant's Cash Credit
account during such quarter, such amount multiplied by the applicable interest
rate and further multiplied by a fraction, the numerator of which is the
number of days during such quarter that such amount was credited to the Cash
Credit account and the denominator of which is 365. The "applicable interest
rate" for any calendar quarter shall be equal to the closing prime commercial
rate on the last business day of such quarter at the Chase Manhattan Bank
(National Association) located in New York City.
 
  (b) Stock Credits. If the deferral is by means of a Stock Credit, the
Participant's Stock Credit account shall be credited with a Common Stock
equivalent equal to the number of shares of Common Stock (including fractions
of a share) that would have been issued as Shares under the Non-Employee
Director Stock Ownership Plan. As of the date any dividend is paid to
shareholders of Common Stock the Participant's Stock Credit account shall also
be credited with an additional Common Stock equivalent equal to the number of
shares of Common Stock (including fractions of a share) that could have been
purchased at the Closing Price of Common Stock on such date with the dividend
paid on the number of shares of Common Stock to which the Participant's Stock
Credit account is then equivalent. In case of dividends paid in property, the
dividend shall be deemed to be the fair market value of the property at the
time of distribution of the dividend, as determined by the Plan Administrator.
A Participant shall have no shareholder rights with respect to any Stock
Credits credited to his or her Stock Credit account.
 
  3.3 Distribution of Credits.
 
  (a) Payment of a Participant's account balance shall be made in one
installment as soon as practicable following the end of the Plan Year in which
the Participant ceases to be a Director. Notwithstanding any provision hereof
to the contrary, if a Participant believes he or she is suffering from an
unforeseen emergency, an application may be made to the Plan Administrator for
an acceleration of payments from such Participant's Cash Credit account.
"Unforeseen Emergency" for this purpose shall mean a severe financial hardship
to the
 
                                      B-8
<PAGE>
 
Participant resulting from a sudden and unexpected illness or accident of the
Participant or a dependent of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant. If the Plan Administrator determines, in its sole discretion,
that the Participant is suffering from an "unforeseen emergency," the Plan
Administrator may accelerate payment to the Participant of only such portion
of such Participant's Cash Credit account as the Plan Administrator may
determine is required to alleviate such unforeseen emergency, and such Cash
Credit account shall be charged with the amount paid therefrom as of the date
of payment.
 
  (b) Distribution of a Participant's Cash Credit account balance shall be
made in cash. Distribution of his or her Stock Credit account balance shall be
made in shares of Common Stock, with the amount of the distribution determined
by multiplying the number of Stock Credits by the Closing Price of Common
Stock on the last business day in December immediately prior to the Plan Year
in which the distribution is to be paid. Any fractional shares shall be paid
in cash.
 
  3.4 Adjustment. If at any time the number of outstanding shares of Common
Stock shall be changed as the result of any stock dividend, subdivision or
reclassification of shares, the number of shares of Common Stock to which each
Participant's Stock Credit account is equivalent shall be changed in the same
proportion as the outstanding number of shares of Common Stock is changed. In
the event the Company shall at any time be consolidated with or merged into
any other corporation and holders of the Company's Common Stock receive common
shares of the resulting or surviving corporation, there shall be credited to
each Participant's Stock Credit account, in place of the shares then credited
thereto, a stock equivalent determined by multiplying the number of common
shares of stock given in exchange for a share of Common Stock upon such
consolidation or merger, by the number of shares of Common Stock to which the
Participant's account is then equivalent. If in such a consolidation or
merger, holders of the Company's Common Stock shall receive any consideration
other than common shares of the resulting or surviving corporation, the Plan
Administrator, in its sole discretion, shall determine the appropriate change
in Participants' accounts.
 
  3.5 Distribution upon Death. In the event of the death of a Participant,
whether before or after cessation of service as a Director, any Cash Credit
account balance and Stock Credit account to which he or she was entitled,
shall be converted to cash or shares of Common Stock, as the case may be, and
distributed in a single payment to such person or persons or the survivors
thereof, including corporations, unincorporated associates or trusts, as the
Participant may have designated. All such designations shall be made in
writing, signed by the Participant and delivered to the Clerk. A Participant
may from time to time revoke or change any such designation by written notice
to the Clerk. If there is no unrevoked designation on file with the Plan
Administrator at the time of the Participant's death, or if the person or
persons designated therein shall have all predeceased the Participant or
otherwise ceased to exist, such distribution shall be made in accordance with
the Participant's will or in the absence of a will, to the administrator of
the Participant's estate. Any distribution under this Section 3.5 shall be
made as soon as practicable following notification to the Plan Administrator
of the Participant's death. In this case, the Participant's Stock Credit
account shall be converted to shares of Common Stock by multiplying the number
of whole and fractional shares of Common Stock to which the Participant's
Stock Credit account is equivalent by the Closing Price of Common Stock on the
last business day during the last month prior to the date of death.
 
  3.6 Withholding Taxes. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any federal, state, or local tax withholding requirements.
 
                                      B-9
<PAGE>
 
                                  ARTICLE IV
 
  4.1 Plan Administrator. The Plan Administrator shall have full power and
authority to administer the Plan including the power to promulgate forms to be
used with regard to the Plan, the power to promulgate rules of Plan
administration, the power to settle any disputes as to rights or benefits
arising from the Plan, and the power to make such decisions or take such
action as the Plan Administrator, in its sole discretion, deems necessary or
advisable to aid in the proper maintenance of the Plan.
 
                                   ARTICLE V
 
  5.1 No Funding Required.
 
  (a) Except as provided in (c) below, nothing in this Plan will be construed
to create a trust or to obligate the Company or any other person to segregate
a fund, purchase an insurance contract, or in any other way to fund currently
the future payment of any benefits hereunder, nor will anything herein be
construed to give any Participant or any other person rights to any specific
assets of the Company or of any other person. Except as described in (b) or
(c) below, any benefits which become payable hereunder shall be paid from the
general assets of the Company, in accordance with the terms hereof.
 
  (b) The Company, in its sole discretion, may establish (i) a grantor or
other trust of which the Company is treated as the owner under the Code and
the assets of which are subject to the claims of the Company's general
creditors in the event of its insolvency and which conforms to the terms of
Revenue Procedure 92-64 or any successor ruling thereto, (ii) an insurance
arrangement, or (iii) any other arrangement or arrangements designed to
provide for the payment of benefits hereunder. Any such arrangement shall be
subject to such other terms and conditions as the Company may deem necessary
or advisable to ensure that benefits are not includible, by reason of the
establishment of any such arrangement or the funding of any such trust, in the
income of the beneficiaries of such trust or other arrangement prior to actual
distribution or other payment.
 
  (c) Notwithstanding the foregoing, if the Company is subject to a "change of
control", the Company shall, as soon as possible thereafter, but in no event
longer than thirty (30) days following the change of control, as defined
herein, make an irrevocable contribution to a trust described in (b)(i) above
of an amount that is sufficient to pay each Participant or beneficiary the
benefits to which Participants or their beneficiaries would be entitled
pursuant to the terms of the Plan as of the date on which the change of
control occurred. For purposes of this Section 5.1(c), "change of control"
shall mean the occurrence of any one of the following events:
 
    (A) The acquisition by any individual, entity or group (within the
  meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
  1934, as amended (the "1934 Act")) (a "Person"), of beneficial ownership
  (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 20% or
  more of either (i) the then outstanding shares of Common Stock (the
  "Outstanding Company Common Stock") or (ii) the combined voting power of
  the then outstanding voting securities of the Company entitled to vote
  generally in the election of directors (the "Outstanding Company Voting
  Securities"); provided, however, that for purposes of this subsection (A)
  the following acquisitions shall not constitute a Change of Control: (i)
  any acquisition directly from the Company, (ii) any acquisition by the
  Company, (iii) any acquisition by any employee benefit plan (or related
  trust) sponsored or maintained by the Company or any corporation controlled
  by the Company, (iv) any acquisition pursuant to a transaction which
  complies with clauses (i), (ii) and (iii) of subsection (C) below; or (v)
  any acquisition of less than 25% of the Outstanding Company Common Stock or
  Outstanding Company Voting Securities by a Person who certifies that such
  securities
 
                                     B-10
<PAGE>
 
  are not being acquired or held for the purpose of and will not have the
  effect of changing or influencing the control of the Company and are not
  being acquired in connection with or as a participant in any transaction
  having such purpose or effect, only for so long as such Person can continue
  to make such certification; or
 
    (B) Individuals who, as of February 4, 1999, constitute the Board (the
  "Incumbent Board") cease for any reason to constitute at least a majority
  of the Board; provided, however, that any individual becoming a director
  subsequent to the date hereof whose election, or nomination for election by
  the Company's shareholders, was approved by a vote of at least a majority
  of the directors then comprising the Incumbent Board shall be considered as
  though such individual were a member of the Incumbent Board, but excluding,
  for this purpose, any such individual whose initial assumption of office
  occurs as a result of an actual or threatened election contest with respect
  to the election or removal of directors or other actual or threatened
  solicitation of proxies or consents by or on behalf of a Person other than
  the Board.
 
    (C) The approval by the shareholders of the Company of a reorganization,
  merger or consolidation or sale or other disposition of all or
  substantially all of the assets of the Company or the acquisition of assets
  of another entity (each a "Business Combination") or, if consummation of
  such Business Combination is subject, at the time of such approval by
  shareholders, to the consent of any government or governmental agency, the
  obtaining of such consent (either explicitly or implicitly by
  consummation), in each case, unless following such Business Combination,
  (i) all or substantially all of the individuals and entities who were the
  beneficial owners, respectively, of the Outstanding Company Stock or the
  Outstanding Company Voting Securities immediately prior to such Business
  Combination will beneficially own, directly or indirectly, more than 60%
  of, respectively, the then outstanding shares of common stock and the
  combined voting power of then outstanding voting securities entitled to
  vote generally in the election of directors, as the case may be, of the
  corporation resulting from such Business Combination (including, without
  limitation, a corporation that as a result of such transaction owns the
  Company or all or substantially all of the Company's assets either directly
  or through one or more subsidiaries) in substantially the same proportions
  as their ownership, immediately prior to such Business Combination, of the
  Outstanding Company Common Stock or the Outstanding Company Voting
  Securities, as the case may be, (ii) no Person (excluding any employee
  benefit plan (or related trust) of the Company or such corporation
  resulting from such Business Combination) will beneficially own, directly
  or indirectly, 20% or more of, respectively, the then outstanding shares of
  common stock of the corporation resulting from such Business Combination or
  the combined voting power of the then outstanding voting securities of such
  corporation, except to the extent that such ownership existed prior to the
  Business Combination and (iii) at least a majority of the members of the
  Board of Directors of the corporation resulting from such Business
  Combination will have been members of the Incumbent Board at the time of
  the execution of the initial agreement, or of the action of the Board,
  providing for such Business Combination; or
 
    (D) Approval by the shareholders of the Company of a complete liquidation
  or dissolution of the Company.
 
                                  ARTICLE VI
 
  6.1 Non-Alienation of Benefits. No benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt thereof by the Participant, be in any manner
liable for or subject to the debts, contracts, liabilities, engagements, or
torts of the Participant.
 
 
                                     B-11
<PAGE>
 
                                  ARTICLE VII
 
  7.1 Delegation of Administrative Duties. Administrative duties imposed by
this Plan may be delegated by the Plan Administrator.
 
  7.2 Governing Law. This Plan shall be governed by the laws of the
Commonwealth of Massachusetts.
 
  7.3 Unsecured General Creditors. No Director or his or her legal
representative or any beneficiary designated by him or her shall have any
right, other than the right of an unsecured general creditor, against the
Company in respect of the account of such Director established hereunder.
 
  7.4 Amendment and Termination. The Board of Directors of the Company may
suspend, amend, or terminate the Plan at any time if deemed to be in the best
interest of the Company; provided, however, that no such suspension,
amendment, or termination may (disregarding any future fluctuation in the
Closing Price of Common Stock) reduce the account balance of any Participant
as of the time of such suspension, amendment, or termination.
 
                                     B-12
<PAGE>
 
                                  APPENDIX C
 
                          THE STRIDE RITE CORPORATION
                      1999 EXECUTIVE LONG-TERM BONUS PLAN
 
                                   ARTICLE I
 
                                 Introduction
 
  1.1 Purpose. The purpose of this Plan is to provide key executives of the
Company and any of its subsidiaries with incentive compensation based upon the
future achievement of established performance goals over designated three-year
performance periods.
 
  1.2. Effective Date. Subject to approval of the Plan by a majority of the
Company's stockholders, the Plan is effective as of November 28, 1998.
 
                                  ARTICLE II
 
                                  Definitions
 
  2.1 "Board" shall mean the Board of Directors of the Company.
 
  2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
 
  2.3 "Committee" shall mean the Compensation Committee of the Board.
 
  2.4 "Company" shall mean The Stride Rite Corporation and its successors and
assigns and any of its subsidiaries.
 
  2.5 "Covered Employee" shall mean an employee of the Company or any of its
subsidiaries designated by the Committee as an employee who is or may be a
"covered employee" within the meaning of section 162(m) of the Code.
 
  2.6 "Participant" shall mean any employee of the Company (or of a
subsidiary) who has been designated as a participant of the Plan by the
Committee pursuant to Article III of the Plan.
 
  2.7 "Payment Date" shall have the meaning given to such term by Section 4.4
of the Plan.
 
  2.8 "Performance Award" shall have the meaning given to such term by Section
4.2 of the Plan.
 
  2.9 "Performance Goals" shall have the meaning given to such term by Section
4.1 of the Plan.
 
  2.10 "Performance Period" shall mean any three-year period measured by
reference to three consecutive fiscal years of the Company, as designated by
the Committee.
 
  2.11 "Plan" shall mean The Stride Rite Corporation 1999 Executive Long-Term
Bonus Plan.
 
  2.12 "Total Disability" shall mean a determination by the Committee or its
designate that a Participant is permanently unable, as a result of accident or
sickness, to perform any and every duty pertaining to such Participant's
occupation or employment for which the Participant is suited by reason of the
Participant's previous training, education and experience.
 
 
                                      C-1
<PAGE>
 
                                  ARTICLE III
 
                                  Eligibility
 
  The Committee shall select the Participants of this Plan, if any, within the
first 90 days after the beginning of each Performance Period. Thereafter,
other Participants may be added by the Committee because of promotion, hiring,
or other reasons warranting their inclusion.
 
                                  ARTICLE IV
 
                              Performance Awards
 
  4.1 Establishment of Performance Goals. Within the first 90 days after the
beginning of each Performance Period designated by the Committee, the
Committee shall establish in writing the specific Performance Goals that must
be achieved for the Performance Period in order for a Participant to be
eligible to receive payment of a Performance Award ("Performance Goals"). The
Performance Goals shall be based upon any two or more of the following
criteria: revenue growth, earnings per share growth, cash flow, cash flow
return on investment, return on equity, and the Company's stock price as a
percentage of a peer group of stocks. The Committee shall also establish the
weighting of the performance criteria.
 
  4.2 Performance Awards. Within the first 90 days after the beginning of each
Performance Period (or, if an individual is not a Participant of this Plan as
of such date, the date that the individual is designated by the Committee as a
Participant in the Plan), the Committee shall establish in writing a
performance incentive award target for such Participants as shall be
designated by the Committee, and in such amounts as the Committee shall
determine, subject to the limitations of the Plan ("Performance Award"). No
Performance Award for any Participant for any single Performance Period shall
exceed $1,000,000.
 
  4.3 Certification. As soon as reasonably practical following each
Performance Period, the Committee shall determine in its sole discretion
whether or not the Performance Goals have been attained. If the Performance
Goals have been attained, then the Committee will certify that the Performance
Goals and any other material terms of the Plan were in fact satisfied. For
this purpose, approved minutes of the Compensation Committee meeting in which
the certification is made shall be treated as written certification.
 
  4.4 Payment of Performance Awards. In the event that the Compensation
Committee certifies the payment of Performance Awards in accordance with
Section 4.3 of this Plan, such payment shall be made one-half in cash and one-
half in common stock of the Company, or all in cash, at the discretion of the
Committee, as soon as reasonably practicable following certification. Except
as provided in this Section 4.4, payment of certified Performance Awards shall
be made no later than February 15th of the calendar year immediately following
the end of the Performance Period. All Performance Awards shall be subject to
forfeiture in the event that a Participant fails to remain actively employed
by the Company until the earlier of such February 15th, or the actual date of
payment of a Performance Award ("Payment Date"). The Committee may, in its
sole discretion, defer payment of all or a portion of a Participant's
Performance Award to a date not later than thirty days following the date that
the Participant ceases to be a Covered Employee in order to avoid the loss of
the Company's tax deduction for the payment of the Performance Award under
section 162(m) of the Code. In the event of any deferral of payment of a
Performance Award to a Covered Employee that is subject to the deduction limit
of section 162(m) of the Code, the Committee may, in its sole discretion,
elect to also pay to the affected Participant a reasonable rate of interest on
the deferred portion of the Performance Award. Notwithstanding the
 
                                      C-2
<PAGE>
 
foregoing provisions of this Section 4.4, the Committee may pay a Performance
Award to a Covered Employee even if a Company tax deduction would be
disallowed by reason of section 162(m) of the Code if the Committee in its
sole discretion determines that payment is in the best interest of the
Company.
 
  4.5 Termination of Employment.
 
  (a) In the event a Participant terminates employment with the Company before
a Payment Date because of death, Total Disability, or Early, Normal or Late
Retirement as defined under The Stride Rite Corporation Retirement Income Plan
("Retirement"), such Participant, or, in the case of the Participant's death,
the Participant's surviving spouse (or the Participant's estate if there is no
surviving spouse), shall receive, subject to the terms of this Plan, a
prorated Performance Award for the Performance Period in which the Participant
dies, becomes disabled, or retires. A prorated Performance Award shall be
determined by multiplying the amount equal to the Performance Award (if any)
that would have been earned in view of actual results for such Performance
Period by a fraction the numerator of which is the number of full months of
the Performance Period during which the employee was a Participant in the Plan
and the denominator of which is thirty-six.
 
  (b) In the event a Participant's employment with the Company is terminated
before a Payment Date for any reason other than death, Total Disability, or
Retirement, the Participant shall not be entitled to receive any Performance
Award.
 
  4.6 No Limitation to Corporate Action. Nothing in this Article IV shall
preclude the Committee or the Board, as each or either shall deem necessary or
appropriate, from authorizing the payment to the Participant of compensation
outside the parameters of the Plan, including, without limitation, base
salaries, awards under any other plan of the Company, any other bonuses
(whether or not based on the attainment of performance objectives) and
retention or other special payments.
 
                                   ARTICLE V
 
                              Plan Administration
 
  5.1 Powers of the Committee. The Committee shall have the authority, subject
to the terms of the Plan, to determine each Participant's Performance Award,
if any, for each Performance Period, and to make all other determinations
under the Plan and to interpret and administer the Plan (including the power
to remedy any ambiguities, inconsistencies, or omissions), taking into account
its purposes and such other factors as the Committee may deem relevant
(including recommendations of the Chief Executive Officer of the Company). The
Committee shall have complete control over the administration of the Plan and
complete control and authority to determine, in its sole discretion, the
rights and benefits and all claims, demands and actions arising out of the
provisions of the Plan of any Participant or other person having or claiming
to have any interest under the Plan and the Committee's determinations shall
be conclusive and binding on all such parties. Neither the Committee nor any
member thereof nor the Company shall be liable for any action or determination
made in good faith with respect to the Plan or the rights of any Participant
under the Plan. Except to the extent precluded by section 162(m) of the Code,
the Committee shall have the discretion to modify any Performance Goals and
any Performance Awards to take into account the affect of unforeseen or
extraordinary events (including mergers and acquisitions) and accounting
changes.
 
                                      C-3
<PAGE>
 
  5.2 Duties of the Committee. Subject to the limitations of the Plan, the
Committee from time to time shall establish rules for the administration of
the Plan and the transaction of its business. All actions and determination of
the Committee shall be conclusive and binding on all Participants, their
beneficiaries and estates.
 
  5.3 Action Taken in Good Faith. The members of the Committee and the Company
and its officers, directors and employees shall be entitled to rely upon all
certificates and reports made by any accountant, and upon all opinions given
by any legal counsel, and the members of the Committee, the Company and its
officers, directors and employees shall be fully protected in respect of any
action taken or suffered by them in good faith in reliance upon any such
certificates, reports, opinions or other advice of any accountant or legal
counsel, and all action so taken or suffered, including, without limitation,
the payment of any Performance Awards, shall be conclusive upon each of them
and upon all Participants and their beneficiaries.
 
  5.4 Indemnification. In addition to all other rights of indemnification that
may exist, the Company shall indemnify the Committee, each of its respective
members, and officers and employees of the Company who assist in the
administration and operation of the Plan from and against any liability, joint
and/or several, arising out of or connected with their duties hereunder,
except such liability as may arise from their gross negligence or willful
misconduct.
 
  5.5 Expenses of Administration. The Company shall pay all expenses of
administration of the Plan, including, without limitation, all expenses
incurred by the Committee, accounting and legal fees and expenses, and any
other expenses related to the administration of the Plan.
 
                                  ARTICLE VI
 
                                 Miscellaneous
 
  6.1 Amendment and Termination. The Company shall have the authority, in its
sole discretion, to amend or terminate the Plan at any time, in whole or in
part, and in any manner. Any such amendment or termination may be made by vote
of the Committee or the Board and may be made by the Committee or the Board
retroactively to apply to Performance Awards not yet paid to Participants.
 
  6.2 Tax Withholding. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, State and local withholding tax requirements on any amount payable
under the Plan, and the Company may defer the payment of any amount until such
requirements are satisfied.
 
  6.3 Inalienability of Interests. Except as otherwise provided by applicable
law, a Participant's interests under the Plan shall not be subject to
alienation, assignment, garnishment, execution or levy of any kind, and any
attempt to cause any benefits to be so subjected shall not be recognized.
 
  6.4 No Funding. Nothing in this Plan will be construed to give any
Participant or any other person rights to any specific assets of the Company,
or of any other person. The Participant shall have only the rights of an
unsecured general creditor of the Company with respect to his or her interest
under the Plan. Any Performance Awards which become payable hereunder shall be
paid from the general assets of the Company in accordance with the terms
hereof.
 
                                      C-4
<PAGE>
 
  6.5 Limited Effect. Neither the establishment of the Plan nor participation
in the Plan shall be construed as creating any contract of employment between
the Company and any Participant, employee or other person, nor shall anything
contained in the Plan give any person the right to be retained in the employ
of the Company or otherwise restrain the Company's right to deal with its
employees, including Participants and their hiring, discharge, layoff,
compensation, and all other conditions of employment in all respects as though
the Plan did not exist.
 
  6.6 Effect on Other Plans, Programs or Arrangements. The adoption of the
Plan shall have no effect on awards made or to be made or compensation paid or
to be paid pursuant to other plans, programs, or arrangements covering
employees of the Company, its subsidiaries, or any predecessors or successors
thereto, except that amounts paid hereunder may be taken into account as
"compensation" for purposes of determining the Participant's benefits under
such other plan but only to the extent expressly provided therein.
 
  6.7 Governing Law. All questions pertaining to the construction, validity
and effect of the Plan, or to the rights of any person under the Plan, shall
be determined in accordance with the laws of the Commonwealth of
Massachusetts.
 
  6.8 Stockholder Approval. No Performance Awards shall be paid under this
Plan prior to approval of the Plan by the stockholders of the Company.
 
                                      C-5
<PAGE>
 
 
                                     PROXY
 
                          THE STRIDE RITE CORPORATION
 
          This Proxy is solicited on behalf of the Board of Directors
 
  The undersigned hereby appoints JAMES A. ESKRIDGE and JOHN B. DOUGLAS III,
and each of them acting solely, proxies, with full power of substitution and
with all powers the undersigned would possess if personally present, to
represent and vote, as designated below, all of the shares of Common Stock,
par value $.25 per share, of The Stride Rite Corporation (the "Company") which
the undersigned is entitled to vote at the Annual Meeting of Stockholders of
the Company to be held at its executive offices, 191 Spring Street, Lexington,
Massachusetts, on Thursday, April 15, 1999 at 10:00 A.M. (Boston time), and at
any adjournment(s) or postponement(s) thereof, upon the matters set forth on
the reverse side hereof and described in the Notice of Annual Meeting of
Stockholders and accompanying Proxy Statement and upon such other matters as
may properly be brought before such meeting and any adjournment(s) or
postponement(s) thereof.
 
  The undersigned hereby revokes any proxy previously given and acknowledges
receipt of the Notice of and Proxy Statement for the aforesaid meeting.
 
  THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREBY BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1, 2, 3, 4 AND 5.
 
                                                                     -----------
                     (PLEASE SIGN AND DATE ON REVERSE SIDE           SEE REVERSE
                 AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE)          SIDE
                                                                     -----------
 
<PAGE>
 
[X]  Please mark your
     votes as in this
     example.

The Board of Directors recommends a vote FOR proposals 1, 2, 3, 4 and 5.

                                                    
                              FOR           WITHHELD
1. Election of Directors      [_]             [_]   

Nominees: Frank R. Mori, 
          James A. Eskridge, 
          Bruce Van Saun


--------------------------------------
For all nominees except as noted above

                                                   
                              FOR   AGAINST ABSTAIN
2. Proposal to approve the    [_]     [_]     [_]  
addition of 1,500,000 shares
to The Stride Rite Corporation
1998 Stock Option Plan.

                                                   
                              FOR   AGAINST ABSTAIN
3. Proposal to amend The      [_]     [_]     [_]  
Stride Rite Corporation 1998
Non-Employee Director Stock
Ownership Plan to increase the
portion of director
compensation paid in common
stock.

                                                   
                              FOR   AGAINST ABSTAIN
4. Proposal to approve The    [_]     [_]     [_]  
Stride Rite Corporation 1999
Executive Long Term Bonus
Plan.

                                                   
                              FOR   AGAINST ABSTAIN
5. Proposal to ratify         [_]     [_]     [_]  
selection of
PricewaterhouseCoopers LLP as
Auditors of the Company.

 
Mark here for address change and
note at left [_]

Sign exactly as name appears on this
Proxy. If the shares are registered in
the names of two or more persons, each
should sign. Executors, administrators,
trustees, partners, custodians,
guardians, attorneys and corporate
officers should add their full titles as
such.

--------------------------------------

--------------------------------------
SIGNATURE(S)                  DATE