SEARS, ROEBUCK AND CO.
SEARS TOWER
CHICAGO, ILLINOIS 60684
March 22, 1995
EDWARD A. BRENNAN
Chairman of the Board
Dear Shareholder:
You are cordially invited to attend the Company's 1995 annual meeting on
Thursday, May 11, 1995.
The meeting will begin promptly at 10:00 a.m. in the Rubloff Auditorium at
the Art Institute of Chicago, 230 South Columbus Drive, between Monroe
Street and Jackson Boulevard in Chicago, Illinois.
The official Notice of Meeting, proxy statement and form of proxy are
included with this letter. The matters listed in the Notice of Meeting are
described in detail in the proxy statement.
The vote of every shareholder is important. Mailing your completed proxy
will not prevent you from voting in person at the meeting if you wish to do
so.
Please sign, date and promptly mail your proxy. Your cooperation will be
greatly appreciated.
Your Board of Directors and management look forward to greeting those
shareholders who are able to attend.
Sincerely,
[SIGNED]
Edward A. Brennan
SEARS, ROEBUCK AND CO.
SEARS TOWER
CHICAGO, ILLINOIS 60684
March 22, 1995
DAVID SHUTE
Senior Vice President
General Counsel
and Secretary
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of Sears, Roebuck and Co. will be held
in the Rubloff Auditorium at the Art Institute of Chicago, 230 South
Columbus Drive, between Monroe Street and Jackson Boulevard, Chicago,
Illinois, on Thursday, May 11, 1995, at 10:00 a.m., for the following
purposes:
1. to elect 4 directors in Class A for terms expiring at the 1998
annual meeting of shareholders and one director in Class B for a
term expiring at the 1996 annual meeting of shareholders;
2. to vote on the recommendation of the Audit Committee that
Deloitte & Touche LLP be appointed auditors of the Company for
1995;
3. to vote on shareholder proposals, if presented, concerning:
a) high-performance workplace;
b) de-classifying the Board of Directors;
c) submitting incentive compensation performance measures for
annual shareholder vote; and
4. to transact such other business as may properly come before the
meeting.
The Board of Directors has amended Article III of the By-Laws of the
Company relating to the Nominating Committee, to: a) provide that the
Committee shall recommend to the Board the composition of the Committee; b)
expand the number of senior officers whose election is to be recommended to
the Board by the Committee; c) eliminate the requirement that the Committee
recommend Trustees of The Savings and Profit Sharing Fund of Sears
Employees and review the Fund's voting materials, and d) add a requirement
that the Committee annually assess the performance of the Board; and
relating to the Compensation Committee, to: y) provide that the Committee
make recommendations to the Board with respect to the compensation of
directors; and z) reflect in the By-Laws that the Committee reviews the
compensation of the Chief Executive Officer. A summary of the amended
By-Laws is set forth on page 5 of the enclosed proxy statement. The text of
Article III is attached in Appendix A.
By Order of the Board of Directors,
[SIGNED]
David Shute
Secretary
YOUR VOTE IS IMPORTANT
Whether or not you plan to attend the meeting, please sign and date the
enclosed proxy and mail it promptly in the envelope provided, which
requires no postage if mailed in the United States.
Sears, Roebuck and Co.
Proxy Statement
March 22, 1995
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Sears, Roebuck and Co. for
the annual meeting of shareholders to be held on May 11, 1995. Only
shareholders of record at the close of business on March 22, 1995 are
entitled to notice of and to vote at the meeting. There were 387,847,075
common shares outstanding and entitled to vote on that date.
The Company is mailing its annual report for the year ended December 31,
1994 together with this proxy statement and the enclosed proxy commencing
on March 24, 1995, to shareholders entitled to vote at the annual meeting.
By notice dated February 16, 1995, the Company established March 20, 1995
as the Exchange Date for the Company's Series A Mandatorily Exchangeable
Preferred Shares (``PERCS''(trademark)). Consequently, all depositary
receipts related to PERCS were required to be exchanged for common shares
of the Company on such date and thereafter, holders who did not exchange
their depositary receipts have no voting rights until they exchange their
depositary receipts for common shares.
Shareholders are entitled to vote cumulatively for the election of
directors. Each shareholder is entitled to a number of votes for such
election equal to the number of shares held by such shareholder multiplied
by the number of directors to be elected, and may cast all votes for one
nominee or distribute the votes among the nominees. There are no
state-prescribed requirements that shareholders must satisfy prior to
making use of cumulative voting. On all other matters, shareholders are
entitled to one vote per share.
When you sign and return the enclosed proxy, the shares represented thereby
(including whole shares which are held for your account in the Sears,
Roebuck and Co. Dividend Reinvestment and Share Purchase Plan) will be
voted for the nominees for director listed in Class A and Class B on page
2, for the proposal set forth in Item 2 and against the proposals set forth
in Item 3 in the Notice of Meeting, unless otherwise indicated on the
proxy. The enclosed proxy also permits you to vote your shares cumulatively
for the election of directors, to withhold authority for one or more
nominees, and to vote against the approval of auditors. The enclosed proxy
also gives the proxy holders discretion to vote shares cumulatively for the
election of directors and for less than the entire number of nominees if
they believe such action is desirable in order to maximize the number of
such nominees elected.
Returning your completed proxy will not prevent you from voting in person
at the meeting should you be present and wish to do so. In addition, you
may revoke your proxy any time before it is voted by sending notice prior
to the meeting to Corporate Election Services, Inc., First & Market
Building, 100 First Ave., Suite 400, Pittsburgh, PA 15222-1507. If you
submit more than one proxy, each later-dated proxy will revoke all previous
proxies.
Participants in The Savings and Profit Sharing Fund of Sears Employees
(``the Profit Sharing Fund'') who receive this proxy statement in their
capacity as such participants will be receiving a voting instruction form
in lieu of a proxy.
The Board of Directors expects all nominees named below to be available for
election. In case any nominee is not available, the proxy holders may vote
for a substitute. The Company knows of no specific matter to be brought
before the meeting that is not referred to in the Notice of Meeting or this
proxy statement. However, if proposals of shareholders that are not
included in this proxy statement are presented at the meeting the proxies
will be voted in the discretion of the proxy holders. Regulations of the
Securities and Exchange Commission permit the proxies solicited pursuant to
this proxy statement to confer discretionary authority with respect to
matters of which the Company did not know a reasonable time before the
meeting. Accordingly, the proxy holders may use their discretionary
authority to vote with respect to any such matter pursuant to the proxy
solicited hereby.
Directors will be elected at the annual meeting by a plurality of the votes
cast at the meeting by the holders of shares represented in person or by
proxy. Approval of Items 2 and 3 requires the affirmative vote of a
majority of the votes cast at the meeting by the holders of shares
represented in person or by proxy. Abstentions and broker non-votes are
counted as shares present for determination of a quorum but are not counted
as affirmative or negative votes on any item to be voted upon and are not
counted in determining the amount of shares voted on any item. The holders
of one-third of the total number of shares entitled to vote, present in
person or represented by proxy, constitute a quorum for the transaction of
business.
In connection with all meetings of shareholders, all proxies, ballots and
vote tabulations that identify the particular vote of a shareholder are
kept confidential, except that disclosure may be made (i) to allow the
independent election inspectors to certify the results of the vote; or (ii)
as necessary to meet applicable legal requirements, including the pursuit
or defense of judicial actions. The tabulator and the inspectors are
independent of the Company, its directors, officers and employees. Comments
written on proxies, consents or ballots, may be transcribed and provided to
the Secretary of the Company with the name and address of the shareholder
without reference to the vote of the shareholder, except where such vote is
included in the comment or disclosure is necessary to understand the
comment. Information concerning which shareholders have not voted and
periodic status reports on the aggregate vote, including break-downs of
vote totals by different types of shareholders, provided that the Company
is not able to determine how a particular shareholder voted, may be made
available to the Company if the Company so requests.
Item 1: Election of Directors
The Board of Directors consists of three classes, as nearly equal in number
as possible. Directors hold office for staggered terms of three years (and
until their successors are elected and qualified). One of the three
classes, comprising approximately one third of the directors, is elected
each year to succeed the directors whose terms are expiring. The directors
in Classes B and C are serving terms expiring at the annual meeting of
shareholders in 1996 and 1997, respectively.
The directors in Class A, whose terms expire at the 1995 annual meeting of
shareholders, are Warren L. Batts, Nancy C. Reynolds and Clarence B.
Rogers, Jr. Arthur C. Martinez was elected a director by the Board
effective February 7, 1995 for a term expiring at the annual meeting, and
has been nominated to serve in Class A. Dorothy A. Terrell was elected a
director by the Board effective March 10, 1995 for a term expiring at the
annual meeting, and has been nominated to serve in Class B.
Information as to each nominee and as to directors continuing in Classes B
and C follows:
NOMINEES FOR DIRECTOR
Class A: Terms Expiring at 1998
Annual Meeting of Shareholders
Warren L. Batts
Chairman and Chief Executive Officer of Premark International, Inc.
(consumer and commercial products) since September 1986, Mr. Batts is also
a director of The Allstate Corporation, Cooper Industries, Inc. and Sprint
Corporation. He is also a Trustee of the Art Institute of Chicago,
Children's Memorial Hospital of Chicago and Northwestern University.
Chairman: Finance Committee.
Member: Audit Committee, Executive Committee and Nominating Committee.
Director since 1986. Age 62.
Common shares: owned-1,600.
Deferred common share equivalents: 21,015*.
Arthur C. Martinez
Chairman and Chief Executive Officer of the Merchandise Group of the
Company since September 1992, Mr. Martinez previously served as Vice
Chairman and a director of Saks Fifth Avenue from August 1990 to August
1992, and as Senior Vice President and a director of Batus, Inc. from
January 1987 until August 1990. Mr. Martinez is also a director of
Ameritech.
Member: Executive Committee.
Director since 1995. Age 55.
Common shares: owned-107,374; subject to option-67,348.
Nancy C. Reynolds
Senior Consultant to The Wexler Group, a unit of Hill and Knowlton, Inc.,
since August 1992, Mrs. Reynolds was Vice Chairman of The Wexler Group and
Senior Vice President of Hill and Knowlton Public Affairs Worldwide (a
public affairs consulting firm in Washington, D.C.) from August 1990 until
August 1992. Mrs. Reynolds was Vice Chairman of Wexler, Reynolds, Fuller,
Harrison & Schule, Inc. from February 1989 until its merger into Hill and
Knowlton, Inc. in August 1990. Mrs. Reynolds is also a director of The
Allstate Corporation, Norrell Corporation, The Wackenhut Corporation, The
National Park Foundation, and a Trustee of The Smithsonian's National
Museum of the American Indian.
Chairman: Public Issues Committee.
Member: Audit Committee and Finance Committee.
Director since 1982. Age 67.
Common shares: owned-1,400.
Clarence B. Rogers, Jr.
Chairman and Chief Executive Officer of Equifax Inc. (information-based
administrative services) since October 1992. Mr. Rogers was President and
Chief Executive Officer of Equifax Inc. from October 1989 until October
1992. Previously, he served as Senior Vice President of IBM Corporation. He
is also a director of Briggs & Stratton Corporation, Dean Witter, Discover
& Co., and Equifax Canada Inc.
Chairman: Compensation Committee.
Member: Executive Committee, Intercompany Transactions Committee,
Nominating Committee and Public Issues Committee.
Director since 1980. Age 65.
Common shares: owned-4,696.
Deferred common share equivalents: 25,342*.
Class B: Term Expiring at 1996
Annual Meeting of Shareholders
Dorothy A. Terrell
President of SunExpress, Inc. (operating company of Sun Microsystems, Inc.,
a leading supplier of open network computing products and services) and
Corporate Executive Officer of Sun Microsystems, Inc. since August, 1991.
Ms. Terrell previously served as a Group Manager in Digital Equipment
Corporation from October, 1987 to July, 1991. She is a member of the board
of directors of General Mills, Inc., Massachusetts Technology Development
Corporation and The Computer Museum. Her professional affiliations include
The Boston Club and the Massachusetts Governor's Council on Economic Growth
and Technology.
Member: Audit Committee, Finance Committee and Public Issues Committee.
Director since 1995. Age 49.
Common shares: owned-*.
* Ms. Terrell was not a director of the Company on January 31, 1995, the
date as of which ownership of Sears common shares by directors is provided
in this proxy statement. Shortly before her election to the Board on March
10, 1995, Ms. Terrell purchased 250 Sears common shares.
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
Class B: Terms Expiring at 1996
Annual Meeting of Shareholders
William E. LaMothe
Chairman of the Board and Chief Executive Officer of Kellogg Company (a
manufacturer and marketer of convenience food products) from December 1979
until his retirement on December 31, 1991, Mr. LaMothe has served as
Chairman Emeritus of Kellogg Company since January 1, 1992. Mr. LaMothe is
also a director of The Allstate Corporation, Kellogg Company, and The
Upjohn Company, and is a Trustee of the W. K. Kellogg Foundation and the W.
K. Kellogg Foundation Trust.
Member: Audit Committee, Compensation Committee and Public Issues
Committee.
Director since 1992. Age 68.
Common shares: owned-2,100.
Michael A. Miles
Chairman of the Board and Chief Executive Officer of Philip Morris
Companies Inc. (a holding company engaged primarily in the manufacture and
sale of various consumer products) from September 1991 until his retirement
in July 1994, Mr. Miles served as Deputy Chairman of Philip Morris
Companies Inc. from April 1991 to August 1991. He previously served as
Chairman and Chief Executive Officer of Kraft General Foods, Inc. and Vice
Chairman of Philip Morris Companies Inc. from December 1989 to March 1991.
Mr. Miles is a Special Limited Partner of Forstmann Little & Co. (a holding
company with interests in electronics, aerospace, publishing and other
industries). He is also a director of Dean Witter, Discover & Co., Dell
Computer Corp. and Time Warner Inc. and a member of the International
Advisory Committee of Chase Manhattan Bank. Mr. Miles is also a Trustee of
Northwestern University.
Chairman: Intercompany Transactions Committee.
Member: Executive Committee, Audit Committee, Compensation Committee and
Nominating Committee.
Director since 1992. Age 55.
Common shares: owned-1,171.
Deferred common share equivalents: 3,757*.
Donald H. Rumsfeld
Mr. Rumsfeld is currently in private business. He served as Chairman and
Chief Executive Officer of General Instrument Corporation (an electronics
company) from October 1990 until August 1993 and as President of General
Instrument Corporation from April 1992 until August 1993. Mr. Rumsfeld was
senior advisor to William Blair & Co. (an investment banking firm) from
October 1985 until October 1990. He is also a director of The Allstate
Corporation, Amylin Pharmaceuticals Inc., Gilead Sciences, Inc., Kellogg
Company, Metricom, Inc. and Tribune Company. Mr. Rumsfeld served as
Personal Representative of the President of the United States in the Middle
East from November 1983 to May 1984 and was on leave of absence as a
director during this period.
Chairman: Nominating Committee.
Member: Executive Committee, Compensation Committee and Finance Committee.
Director since 1977. Age 62.
Common shares: owned-4,600.
Deferred common share equivalents: 12,884*.
Class C: Terms Expiring at 1997
Annual Meeting of Shareholders
Edward A. Brennan
Chairman of the Board of Directors and Chief Executive Officer of Sears,
Roebuck and Co. since January 1986 and President since January 1, 1989, Mr.
Brennan is also a director of The Allstate Corporation, Dean Witter,
Discover & Co., Minnesota Mining and Manufacturing Company and AMR
Corporation.
Chairman: Executive Committee.
Member: Finance Committee.
Director since 1978. Age 61.
Common shares: owned-136,126; subject to option-585,586.
Hall Adams, Jr.
Chairman of the Board and Chief Executive Officer of Leo Burnett Company,
Inc. (advertising agency) from January 1987 until his retirement on January
1, 1992, Mr. Adams is also a director of The Dun & Bradstreet Corporation,
McDonald's Corporation and Junior Achievement and a Trustee of
Rush-Presbyterian St. Luke's Medical Center.
Member: Audit Committee, Intercompany Transactions Committee, Nominating
Committee and Public Issues Committee.
Director since 1993. Age 61.
Common shares: owned-1,000.
James W. Cozad
Chairman and Chief Executive Officer of Whitman Corporation (a diversified
consumer and commercial products company) from January 1990 until his
retirement on May 9, 1992, Mr. Cozad is also a director of Eli Lilly and
Company, GATX Corporation, Inland Steel Industries, Inc., Inland Steel
Company, and Whitman Corporation. He is also President of the Lyric Opera
of Chicago, a director of the Indiana University Foundation and a Life
Trustee of the Northwestern Memorial Hospital Corporation.
Member: Compensation Committee, Finance Committee, Intercompany
Transactions Committee and Public Issues Committee.
Director since 1993. Age 68.
Common shares: owned-1,000.
Sybil C. Mobley
Dean of the School of Business and Industry at Florida A&M University, Ms.
Mobley is also a director of Anheuser-Busch Companies, Inc., Dean Witter,
Discover & Co., Hershey Foods Corporation, Southwestern Bell Corporation
and Champion International Corporation.
Chairman: Audit Committee.
Member: Finance Committee, Intercompany Transactions Committee and Public
Issues Committee.
Director since 1982. Age 69.
Common shares: owned-1,255.
* Defers all fees as a director under the Company's Deferred Compensation
Plan for Directors to a fund which is credited with amounts based upon the
market value of and dividends on the Company's common shares. Amounts shown
are as of February 28, 1995. No distributions have been made from the fund.
Security Ownership of Directors and Executive Officers:
The Allstate
Sears Corporation
Common Shares Common Stock*
Amount and Amount and
Nature of Nature of
Beneficial Beneficial
Name Ownership(a) Ownership(a)
Hall Adams, Jr. 1,000 -
Warren L. Batts 1,600 5,200
Edward A. Brennan 721,712(b) 3,000
James W. Cozad 1,000 -
William E. LaMothe 2,100 1,400
Arthur C. Martinez 174,722(c) -
Michael A. Miles 1,171 4,500
Sybil C. Mobley 1,255 -
Nancy C. Reynolds 1,400 1,200
Clarence B. Rogers, Jr. 4,696 1,000
Donald H. Rumsfeld 4,600 7,200
Jerry D. Choate 44,229(d) 18,526(d)
James M. Denny 243,891(e) 2,000
Wayne E. Hedien 56,092(f) 134,472(f)
All directors and
executive officers
as a group 1,340,124(g) 178,998(g)
*A majority-owned, indirect subsidiary of the Company.
(a) Direct ownership unless indicated otherwise.
(b) Includes 19,900 shares held in trust for Mrs. Brennan. Also includes
585,586 shares subject to option.
(c) Includes 67,348 shares subject to option.
(d) Includes 37,703 Sears common shares and 16,526 shares of Allstate
common stock subject to option.
(e) Includes 191,612 shares subject to option.
(f) Includes 15,281 Sears common shares and 106,872 shares of Allstate
common stock subject to option.
(g) Includes 957,523 Sears common shares and 123,398 shares of Allstate
common stock subject to options.
Security Ownership of Certain Beneficial Owners
(as of February 6, 1995)(a)
Amount and Nature of Percent
Beneficial Ownership: of
Name and Address Sears Common Shares(b) Class
The Northern 29,344,443 shares 8.3%
Trust Company Trust, Employee
of New York benefit plan
80 Broad Street
19th Floor
New York, NY 10004
The United States 19,624,336 shares (c) 5.6%
Trust Company Trust, Employee
of New York benefit plan
114 West 47th Street
New York,
NY 10036-1532
(a) The Northern Trust Company of New York, Trustee under the Profit
Sharing Trust (one of two trusts under the Profit Sharing Fund) held the
common shares shown above on behalf of participants in the Fund and United
States Trust Company of New York, Trustee under the ESOP Trust (the second
of two trusts under the Profit Sharing Fund) held the common shares shown
above in a suspense account.
(b) Beneficial ownership may under certain circumstances include both
voting power and investment power. Information is provided for reporting
purposes only and should not be construed as an admission of actual
beneficial ownership.
(c) Excludes approximately 334,880 Sears common shares held for other
clients.
Except as set forth above, share ownership of nominees, directors and
executive officers on pages 2, 3 and 4 is as of January 31, 1995 and
includes (i) shares in which they may be deemed to have a beneficial
interest, (ii) common shares held as nontransferable restricted shares
awarded under the Company's 1979 Incentive Compensation Plan and 1990
Employees Stock Plan as of January 31, 1995, which are subject to
forfeiture under certain circumstances, and (iii) shares credited to
individual accounts in the Profit Sharing Fund.
To the knowledge of the Company, as of January 31, 1995, no director had a
beneficial interest in more than .21% of the outstanding Sears common
shares and all directors and executive officers together beneficially owned
an aggregate of 1,340,124 Sears common shares (.38% of the outstanding
shares), which included 957,523 shares subject to option. No director or
executive officer had a beneficial interest in more than .03% of the
outstanding common stock of The Allstate Corporation (``Allstate''), and
all directors and Executive Officers together beneficially owned an
aggregate of 178,998 Allstate common shares (.04% of the outstanding
shares). On pages 2, 3 and 4, shares shown as ``subject to option'' are
subject to employee stock options exercisable on or prior to April 1, 1995.
Further Information
Concerning the
Board of Directors
The Board of Directors held 8 meetings during 1994. The committees of the
Board of Directors and the number of meetings held by each such committee
in 1994 were:
Number of
Committee Meetings Held
Name During 1994
Audit Committee 4
Compensation Committee 6
Executive Committee 0
Finance Committee 4
Intercompany Transactions Committee 1
Nominating Committee 7
Public Issues Committee 1
The Nominating Committee recommends nominees for election to the Board of
Directors, other committees of the Board and as certain Corporate Officers
and the positions of Business Group Chairmen. The Committee will consider a
nominee for election to the Board recommended by a shareholder if the
shareholder submits the nomination to the Committee. In addition,
shareholders who wish to nominate candidates for election to the Board may
do so by complying with the nomination requirements of the Company's
By-Laws described below.
The Company's By-Laws provide, in general, that if a shareholder intends to
propose business or make a nomination for the election of directors at an
annual meeting, or make a nomination for the election of directors at a
special meeting of shareholders, the Company must receive written notice of
such intention. Excerpts from the By-Laws containing these requirements are
attached in Appendix A. The deadline for shareholder nominations for
directors and proposals at the annual meeting of shareholders was March 14,
1995.
The Board of Directors has amended Article III of the By-Laws relating to
Committees.
The Nominating Committee reviews and recommends to the Board of Directors
prior to the annual shareholders' meeting each year: (a) the appropriate
size and composition of the Board of Directors; (b) a proxy statement and
form of proxy; (c) policies and practices on shareholder voting; (d) plans
for the annual shareholders' meeting; and (e) nominees: (i) for election to
the Board of Directors for whom the Company should solicit proxies; (ii) to
serve as proxies in connection with the annual shareholders' meeting; (iii)
for election to all committees of the Board of Directors ; and (iv) for
election or approval as Corporate Officers and Chairmen and Chief Executive
Officers and at least five others of the most senior officers of each of
the Company's Business Groups. The Nominating Committee is required to
annually assess the performance of the Board and review the management
organization of the Company and succession plans for the Chairmen and Chief
Executive Officers of the Company and its Business Groups, including
consultation with the Chairman of the Board of Directors regarding the
persons he or she considers qualified to fill any vacancy that may occur in
such positions. In the event of any such vacancy, the Nominating Committee
shall recommend to the Board of Directors a nominee to fill such vacancy.
The Audit Committee reviews with management, the Company's independent
public accountants and its internal auditors, upon completion of each
audit, the annual financial statements of the Company, the independent
public accountants' report thereon and the other relevant financial
information to be included in the Company's Annual Report on Form 10-K and
its annual report to shareholders, and reports to the Board of Directors on
its review. The Committee also reviews recommendations made by the
independent accountants and internal auditors with respect to the Company's
accounting methods and system of internal control and reports to the Board
on such review. The Audit Committee recommends the appointment of
independent accountants and examines and makes recommendations to the Board
of Directors with respect to the scope of audits conducted by the Company's
independent public accountants and internal auditors. The Committee reviews
reports from the independent accountants and internal auditors concerning
compliance by management with legal provisions and with the Company's
business conduct and ethics policies and conducts such other inquiries as
are consistent with its responsibilities.
As authorized by the Board of Directors, the Compensation Committee makes
recommendations to the Board of Directors with respect to the compensation
of directors and the administration of the salaries, bonuses, and other
compensation to be paid to the officers of the Company, including the terms
and conditions of their employment, and reviews the compensation of the
Chief Executive Officer and administers all stock option and other benefit
plans (unless otherwise specified in plan documents) affecting officers'
direct and indirect remuneration.
The foregoing is only a summary of the detailed provisions of certain of
the By-Laws and is qualified by reference to the text thereof. Shareholders
wishing to submit a nomination or proposal should review the By-Law
requirements regarding nominations and proposals by shareholders and should
communicate with the Secretary, Sears, Roebuck and Co., Sears Tower, 68th
Floor, Chicago, Illinois 60684 for further information.
Directors' Compensation
and Benefits
The following table lists the compensation and benefits provided to
directors who are not employees of the Company or its subsidiaries
(``non-employee directors''). No fees are paid for serving as Chairman or
as a member of the Executive Committee.
NON-EMPLOYEE DIRECTORS' COMPENSATION AND BENEFITS
Cash Compensation(a)
Fee for
Attending Annual
Each Board, Grant Retire- Life
Annual Committee or of Sears ment Insurance
Retainer Related Common Plan Coverage
Fee Meeting Shares(b) (c) (d)
Board Membership $30,000 $1,100 100 Shares $30,000 $150,000
(Continuation
of annual
Board
retainer)
Committee Chairmen:
Audit, Compensation,
Finance and
Nominating
Committees $5,000 $1,100
Public Issues
Committee $3,000 $1,100
Intercompany
Transactions
Committee -0- $1,100
Committee Members:
Audit, Compensation,
Finance and
Nominating
Committees $2,000 $1,100
Public Issues
Committee $1,200 $1,100
Intercompany
Transactions
Committee -0- $1,100
(a) Under the Company's Deferred Compensation Plan for Directors,
non-employee directors may elect to defer directors' fees into, and
are credited with amounts based on, one or more of the following
accounts:
1. The market value of and dividends on the Company's common shares
(``common share equivalents'').
2. The average interest rate payable on commercial paper issued by
Sears Roebuck Acceptance Corp.
3. Standard & Poor's 500 Composite Stock Price Index (with dividends
reinvested).
4. A money market fund managed by Dean Witter Reynolds Inc.
No director has voting or investment powers in common share
equivalents. Subject to certain restrictions, amounts deferred under
the plan (together with earnings thereon) may be transferred between
accounts and are distributed in a lump sum or over a period not to
exceed ten years.
(b) Granted for each full year of service as a non-employee director
ending on the date of each annual meeting of shareholders. Grants are
accompanied by a cash payment to offset the increase in the director's
federal, state and local tax liabilities (assuming the maximum
prevailing individual tax rates) resulting from the grant of shares.
(c) A monthly payment while living, equal to one-twelfth of the annual
retainer received at time of retirement.
(d) Coverage received until the end of the calendar year of retirement as
a director, with the amount of coverage being reduced by $30,000 at
the beginning of each year thereafter.
Executive Compensation
The following Summary Compensation Table shows compensation information for
Mr. Brennan and the four other Executive Officers most highly compensated
in 1994 (the ``Named Officers''). Executive Officers are those officers
considered Corporate Officers of the Company, plus the Chairman and Chief
Executive Officer of the Sears Merchandise Group and the Allstate Insurance
Group.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
Other
Annual Restricted Securities All
Name and Compensa- Stock Underlying LTIP Other
Principal Salary Bonus tion Awards Options/ Payouts Comp.
Position Year ($) ($)(a) ($)(b) ($)(c) SARs(#)(d) ($) ($)(e)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edward A.
Brennan 1994 $1,150,000(f) $483,805 $24,000 $ - - $ - $6,468
Chairman,
President
and CEO 1993 1,025,000 2,050,000 20,252 500,250 212,897 0 6,296
Sears, Roebuck
and Co. 1992 1,025,000 0 13,671 - - 391,206 2,095
Jerry D. Choate 1994(g) 523,478 4,943 13,764 - 112,228 - 1,890
Chairman and
CEO
Allstate Insur-
ance Group
James M. Denny 1994 700,000 273,455 - - - - 6,468
Vice Chairman 1993 650,000 739,375 - 345,000 128,876 0 6,296
Sears, Roebuck
and Co. 1992 562,500 0 - 85,776 7,953 102,443 2,095
Wayne E. Hedien 1994 750,000 0 16,624 - 27,528 - 1,164,390(j)
Former Chairman
and CEO 1993 670,000 644,875 198,963 - 83,057(i) 65,728 6,296
Allstate Insur-
ance Group 1992 647,500 0 4,773 - - 175,354 2,095
Arthur C.
Martinez 1994 931,250 1,119,496 29,376 - - - 6,468
Chairman
and CEO 1993 900,000 1,102,500 83,038 - 98,582 - 345,984
Sears Merchan-
dise Group 1992(h) 300,000 210,000 7,180 3,499,034 211,658 - 1,306,488
</TABLE>
(a) 1994 bonuses for Allstate and Messrs. Brennan and Denny reflect the
negative effect of the California earthquake that occurred in January
of that year on the performance of Allstate and the Company.
(b) Represents certain tax gross-up payments or tax benefit rights
payments.
(c) Restricted stock awards are valued at the closing Sears stock price on
date of grant. Dividends are paid on restricted shares at the same
rate paid to all shareholders. All grants include tax withholding
rights which permit the officer to elect to have shares withheld to
satisfy federal, state and local tax withholding requirements when the
shares become unrestricted. On December 31, 1994 the above executives
held the following shares of restricted stock valued at a year-end
fair market value for Sears common shares of $46.00 per share:
# of Shares Market Value on 12/31/94
Mr. Brennan 30,269 $1,392,374
Mr. Choate 3,508 $ 161,368
Mr. Denny 11,394 $ 524,124
Mr. Hedien 0 $ -
Mr. Martinez 64,528 $2,968,288
(d) Options granted to Messrs. Choate and Hedien in 1994 represent options
on Allstate Common Stock. Also, as a result of the spin-off of Dean
Witter, Discover & Co. by the Company in 1993 (the ``Dean Witter
spin-off''), Sears options and restricted shares outstanding at the
time of the spin-off were adjusted to account for the dilutive effect
of the spin-off.
(e) These amounts represent the employers' matching contributions under
the Profit Sharing Fund and, for 1994 for Messrs. Brennan, Denny and
Martinez, the Company's supplemental profit sharing plan. For Mr.
Martinez, in 1993 this amount also includes $69,688 in reimbursements
for relocation expenses and a partial incentive payment under his
employment contract of $270,000 and in 1992 the amount represents a
signing bonus valued at $1,126,488 plus an incentive payment under his
employment contract of $180,000 for a combined value of $1,306,488.
(f) Under new Internal Revenue Service regulations the Company may not
claim a tax deduction for salary paid to the Chief Executive Officer
and the next four most highly compensated officers in office at the
end of the year, in excess of $1,000,000. Mr. Brennan volunteered to
defer a portion of his 1994 salary until after his retirement to allow
the Company to deduct the excess of his 1994 salary over $1,000,000.
(g) Mr. Choate became CEO of Allstate and an Executive Officer of Sears
effective August 10, 1994 and Chairman and CEO of Allstate effective
January 1, 1995 following Mr. Hedien's retirement at the end of 1994.
(h) Mr. Martinez was hired on September 1, 1992. See page 10.
(i) 79,344 shares for Mr. Hedien represent options on Allstate common
stock.
(j) In addition to the Company's matching contribution under the Profit
Sharing Fund, this amount includes lump sum special award of
$1,162,500. See page 10.
Stock Options
The following table is a summary of all stock options granted during 1994.
Individual grants are listed separately for each Named Officer. In
addition, this table shows the potential gain that could be realized if the
fair market value of Sears common shares were to appreciate at either a 5%
or 10% annual rate over the period of the option term.
<TABLE>
OPTION/SAR GRANTS IN 1994
<CAPTION>
Individual Grants(a)
% of Total
Number of Options/SARs Potential Realizable
Securities Granted Value at
Underlying to Exercise Assumed Annual Rates of Stock
Options/SARs Employees or Base Expiration Price Appreciation for Option Term
Name Granted(#) in 1994(b) Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Edward A. Brennan - - - - - -
Jerry D. Choate
Allstate Common
Stock 12,228 2.65% $24.75 3/8/04 $190,331 $482,335
100,000 21.69% 25.88 8/10/04 1,627,579 4,124,605
James M. Denny - - - - - -
Wayne E. Hedien
Allstate Common
Stock 27,528 5.97% 24.75 3/8/04 428,477 1,085,845
Arthur C. Martinez - - - - - -
</TABLE>
(a) All options become exercisable in three equal annual installments with
the exception of Mr. Hedien whose options all became 100% exercisable
upon his retirement. All options were granted with an exercise price
equal to the average fair market value of a common share on the date
of grant and expire twelve years from the date of grant (or ten years
in the case of options on Allstate common stock). All grants to
officers include a ``reload'' feature and tax withholding rights. The
``reload'' feature permits payment of the exercise price by tendering
Sears common shares or Allstate common shares where applicable, which
in turn gives the optionee the right to purchase the same number of
shares tendered, at a price equal to the fair market value on the
exercise date. Tax withholding rights permit the optionee to elect to
have shares withheld to satisfy federal, state and local tax
withholding requirements. All of the above grants include limited
stock appreciation rights which become exercisable in certain cases
upon a change in control as defined on page 10.
(b) Represents percentage of options granted to all Allstate employees in
1994.
The following table shows options that were exercised during 1994 and the
number of shares and the value of grants outstanding as of December 31,
1994 for each Named Officer.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN 1994 AND 12/31/94 OPTION/SAR VALUES
<CAPTION>
Number of Securities Value of Unexercised,
Underlying Unexercised In-The-Money Options/SARs
Shares Options/SARs at 12/31/94 at 12/31/94(a)
Acquired on Value Exercisable Unexercisable Exercisable Unexercisable
Name Exercise(#) Realized($) (# of Shares) (# of Shares) ($ value) ($ value)
<S> <C> <C> <C> <C> <C> <C>
Edward A. Brennan 0 - 514,621 141,932 9,810,571 1,176,148
Jerry D. Choate
Sears Common
Shares 0 - 37,703 0 851,510 0
Allstate Common
Stock 0 - 12,450 137,128 0 0
James M. Denny 0 - 146,003 88,569 2,179,686 790,239
Wayne E. Hedien
Sears Common
Shares 50,000 1,367,500 31,728 0 678,240 0
Allstate Common
Stock 0 - 106,872 0 0 0
Arthur C. Martinez 0 - 41,072 269,168 351,436 3,446,502
</TABLE>
(a) Value of Sears unexercised, in-the-money options based on a fair
market value of a Sears common share of $46.00, as of December 31,
1994. Allstate had no in-the-money options based on a fair market
value of an Allstate common share of $23.75, as of December 31, 1994.
Pension Plan Table
Years of Service
Remuneration 5 15 25 35 40
$ 750,000 55,500 173,700 298,800 424,000 455,800
$1,200,000 89,200 279,700 481,300 683,000 733,900
$1,650,000 123,000 385,600 663,800 942,000 1,012,000
$2,100,000 155,900 491,600 846,200 1,199,800 1,290,100
$2,550,000 190,500 597,600 1,028,700 1,459,900 1,568,200
The Company and Allstate Insurance Group maintain basic and supplemental
retirement plans which, subject to the conditions for vesting, provide
retirement benefits for all full-time and certain part-time United States
employees (excluding agents of Allstate covered under a separate plan),
with coordinating provisions for employees who have credited years of
service with the Company or its subsidiaries.
Annual retirement benefits under these retirement plans are based upon
credited years of service (to a maximum of 28 years for Allstate plans,
with minor adjustments for additional years of service before 1978) and
average annual cash compensation computed on the basis of the individual's
highest 5 successive calendar years of earnings out of the 10 years
immediately preceding termination of employment (``final average annual
compensation''). Only annual salary and bonus amounts such as reflected in
the Summary Compensation Table on page 7 are considered in determining
pension benefits. Annual retirement benefits from the basic plans may not
exceed the ERISA limit (currently $120,000, except that, for individuals
who had earned a pension in excess of that amount as of December 31, 1982,
the ERISA limit is the amount earned as of that date up to $136,425). The
unfunded supplemental retirement income plans provide for payment of the
amount of the retirement benefit which exceeds the ERISA maximum and of any
reduction in benefits resulting from deferrals under the Company's Deferred
Compensation Plan or from changes in the manner in which benefits are
calculated for certain participants. Annual retirement benefits are
generally payable monthly for life and benefits accrued through December
31, 1988 are reduced by a portion of the participant's estimated social
security benefits.
The table above shows aggregate annual benefits that would be payable under
the Company's retirement plans based upon various assumptions as to final
average annual compensation and credited years of service. It assumes
retirement on December 31, 1995 at age 65 and that benefits will be payable
over the participant's lifetime with no survivor benefits. The following
Named Officers had the indicated number of credited years of service at
December 31, 1994: Brennan (37), Denny (13), Martinez (2). In 1994, the
Company added five years to Mr. Denny's continued and credited service and
three years to his actual attained age for pension benefit purposes in
recognition of the leadership he has given the Company. The resulting
additional benefits will be paid from the Company's supplemental retirement
plan. The additional five years of continuous service will also be
recognized in determining Mr. Denny's eligibility for retiree medical
benefits upon his retirement date. Pursuant to his employment agreement
with the Company, Mr. Martinez is entitled to specified retirement benefits
(see ``Employment Contracts, Termination of Employment and Change in
Control Arrangements'' on page 10).
Under current Allstate retirement plan rules, participants retiring on
December 31, 1995 at age 65 with 30 or more credited years of service and
final average annual compensation of $1,600,000 and $750,000 would receive
annual retirement benefits of $981,000 and $457,000, respectively. Messrs.
Choate and Hedien had 33 and 28 credited years of service at December 31,
1994. Pursuant to Mr. Hedien's severance arrangements with Allstate, he is
entitled to salary and target bonus for the year 1995 which are included as
eligible compensation and service in calculating his pension benefits (See
``Employment Contracts, Termination of Employment and Change in Control
Arrangements'' on page 10).
Certain executives designated by the Chairman of the Board of the Company
who have been transferred at Company request from the payroll of one
Business Group to that of another Business Group do not incur a reduction
of retirement benefits due to the transfer. Upon retirement, such
participants receive a monthly retirement amount equal to the excess, if
any, of (i) the amount which would have been payable from the previous
employer's pension plan had the transfer not occurred, over (ii) the amount
of any pension benefits payable from any employer within one of the
Company's Business Groups.
Employment Contracts, Termination of Employment
and Change in Control Arrangements
On August 10, 1992, the Company and Arthur C. Martinez entered into an
agreement under which Mr. Martinez was employed as Chairman and Chief
Executive Officer of the Company's Merchandise Group. The agreement
commenced on September 1, 1992 and terminates on August 31, 1995.
Mr. Martinez received a signing bonus of $450,000, 16,250 common shares and
15,000 restricted shares (adjusted to 19,932 shares due to the Dean Witter
spin-off) which vest in three annual installments beginning on August 31,
1993 or upon termination of employment. He also received a grant of 62,500
(adjusted to 83,055 due to the Dean Witter spin-off) restricted shares
which vest in five annual installments. If Mr. Martinez resigns or his
employment is terminated for cause, these shares are forfeited, but they
vest automatically should his employment terminate for any other reason. In
addition, Mr. Martinez was granted 150,000 (adjusted to 199,339 due to the
Dean Witter spin-off) option shares which vest in one installment on August
31, 1997 at an exercise price of $41.63 (adjusted to $31.33 due to the Dean
Witter spin-off) and which are forfeited only if he resigns or is
terminated for cause prior to vesting. A prorated portion of the options
remain exercisable if Mr. Martinez dies or becomes disabled.
Mr. Martinez receives a minimum annual base salary of $900,000 and is
entitled to minimum annual bonuses of $210,000 for 1992, $630,000 for 1993
and 1994 and $420,000 for 1995, provided he is employed by the Company on
December 31 of each such year (or August 31, 1995, in the case of that
year) or has been terminated other than for cause. Upon death or
disability, such amounts will be prorated. He is also eligible for other
benefits generally available to executives and employees of the Company
including options and restricted stock.
Mr. Martinez was entitled to long-term incentive compensation of $180,000
for 1992 and $540,000 for 1993 (one-half paid in 1994 and one half payable
in 1996), provided he was employed on December 31 of such year or had been
terminated by the Company other than for cause.
Mr. Martinez will receive retirement benefits equal to those he would be
entitled to under the Company's basic and supplemental retirement plans if
he had been a participant in such plans as of September 1, 1992 and were
fully vested. He is also entitled to a single life annuity (which may be
taken in a lump sum) of $195,000 per year for life commencing at age 65
reduced by certain amounts primarily to reflect social security benefits
and retirement benefits from his previous employment. The annuity benefit
vests on August 31, 1995, subject to forfeiture upon resignation or
termination for cause. Assuming Mr. Martinez were to continue in the
Company's employ until normal retirement at age 65, and continued to
receive the same salary and bonus presently specified in his employment
agreement, his estimated annual retirement benefits under the Company's
basic and supplemental plans would be $223,417.
Finally, pursuant to the agreement, the Company purchased from Mr. Martinez
shares of Saks Holdings, Inc. Class C stock for $972,900, Mr. Martinez's
purchase price for the shares, which the Company has re-sold at the same
price.
In August 1994, upon Mr. Hedien's resignation as Chief Executive Officer of
Allstate and his agreement, at the request of the Allstate Board of
Directors, to continue as Chairman of the Board until his retirement on
December 31, 1994, the Allstate Compensation and Nominating Committee and
Board of Directors approved payment of a special award to Mr. Hedien upon
his retirement. This award consisted of a cash payment in an amount equal
to one year's salary ($750,000) plus Mr. Hedien's target bonus under the
Company's Annual Executive Incentive Compensation Plan ($412,500). This
award was paid to Mr. Hedien in January 1995. Mr. Hedien will also be
eligible for a bonus, if any, under the terms of the Company's Long-Term
Executive Incentive Compensation Plan for cycle years 1993-1995, any such
bonus to be pro-rated based on Mr. Hedien's participation during the years
1993 and 1994. Any such bonus would be payable to Mr. Hedien in the first
quarter of 1996. In addition, the Committee agreed to fully vest on
December 31, 1994 unvested stock options for 80,424 shares of Allstate
stock granted to Mr. Hedien under Allstate's Equity Incentive Plan.
In general, (i) the Company may terminate options granted under the
Company's 1990 and 1994 Employees Stock Plans (the ``1990 and 1994
Plans''), as well as those granted under the Company's 1978 Employes Stock
Plan, 1982 Employees Stock Plan and 1986 Employees Stock Plan (the
``Plans'') in the event of a merger, consolidation, reorganization, sale or
exchange of substantially all assets, or dissolution of the Company (an
``extraordinary corporate transaction'') and, in the case of the 1978, 1982
and 1986 Plans, may, and, in the case of the 1990 and 1994 Plans, shall,
make appropriate and equitable provision with respect to participants'
rights, by one of the following means in the case of options under the 1990
and 1994 Plans which have been outstanding for at least six months: (a)
acceleration of all outstanding rights prior to the extraordinary corporate
transaction, (b) appropriate and equitable provision for the continuation
and adjustment of all outstanding rights, or (c) payment in cash of the
value of all outstanding rights, and (ii) in the event of a ``change in
control'' of the Company, all rights under options under the 1990 and 1994
Plans which have been outstanding for at least six months will immediately
become exercisable. A change in control means, in general (and subject to
certain exceptions such as acquisitions by or from the Company or by
employee benefit plans of the Company, and transactions in which existing
shareholders maintain effective control), an acquisition of 20% or more of
the Company's outstanding common shares, a change in the majority of the
directors of the Company which is not approved by a majority of the
incumbent directors, or approval by the shareholders of an extraordinary
corporate transaction. Under the 1990 and 1994 Plans, in general, options
include limited stock appreciation rights exercisable during the period of
sixty days following a change in control of the Company (but not less than
six months after the date of grant).
Restricted shares have been granted to certain officers and key employees
under the Company's 1979 Incentive Compensation Plan (the ``1979 Plan'')
and the 1990 Plan. Restricted shares generally are exchangeable for
unrestricted shares in seven years (in the case of the 1979 Plan) or five
years (in the case of the 1990 Plan). Restricted shares become unrestricted
upon normal retirement at age 65 and upon early retirement after age 60
with Company approval. Under current Compensation Committee guidelines and
subject to individual circumstances, upon early retirement prior to age 60,
restricted shares are unrestricted pro rata based on the number of full
months since the date of grant divided by the original restriction period.
In addition, restricted shares granted under the 1990 Plan become
unrestricted upon a change in control. Generally, unrestriction is subject
to a minimum vesting period of one year in the case of the 1979 Plan and
six months in the case of the 1990 Plan.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings, including this proxy
statement, in whole or in part, the following report and the performance
graphs on pages 14 and 15 shall not be incorporated by reference into any
such filings.
Report of the Compensation Committee
The Compensation Committee (the ``Committee''), composed of independent,
non-employee directors, makes recommendations to the Board of Directors
(the ``Board'') regarding the administration of compensation for Executive
Officers (``Officers'') and the terms and conditions of their employment.
The Committee also administers employee stock plans and certain other
benefit plans. The compensation of Mr. Hedien and Mr. Choate is determined
by The Allstate Corporation (see: Mr. Hedien and Mr. Choate's
Compensation'' on page 13).
Compensation Philosophy
The Committee and the Board believe that the compensation of the Chief
Executive and other Officers should be aligned with the performance of the
Company and the value that is created for its shareholders. The Committee
and the Board also believe that compensation must be competitive. Officer
compensation programs have been designed to provide competitive financial
rewards for successfully meeting the Company's goal of maximizing return to
shareholders.
To align pay with performance, a majority of compensation for Officers is
contingent upon the financial performance of the Company and the long-term
appreciation in the market value of Sears common shares. Officers' ``Total
Compensation Opportunity'' includes base salary, an annual incentive and
long-term incentives. Long-term incentives include a cash performance plan
tied to return on equity and earnings goals of the Company and its Business
Groups, measured over three-year performance cycles. In addition, stock
options are used to provide a link to the market value of Sears common
shares. Management's ability to meet or exceed the Company's goal to create
greater value for shareholders determines the extent to which the
compensation opportunity for each Officer will be realized.
The concept of Total Compensation Opportunity emphasizes all components of
pay, as the combined total compensation provided to an executive, and is a
key concept in how the Committee monitors compensation policy.
Periodically, the Committee reviews the Total Compensation Opportunity for
each Officer to help ensure that the target for pay is competitive. This
evaluation focuses upon an analysis of competitive market data for a select
group of companies. The objective of the analysis is to set compensation at
the median level of pay for similar employers including all components of
pay. Median level of pay assumes target level performance. If performance
is above established targets, total compensation may be above median, and
if performance is below, it may be less. The review is based on data
collected and analyzed by a national, independent compensation consulting
firm.
Companies chosen for the competitive analysis are selected based on one or
more of the following criteria: similarities in their primary line of
business, scope of operation, annual revenue, and market capitalization.
This includes firms that compete in the Company's primary lines of
business, in addition to companies with which the Committee believes the
Company competes for executive talent. The Committee believes that the
Company's most direct competitors for executive talent are not necessarily
the same companies that would be included in a peer group established to
compare shareholder returns. Therefore, although some companies are
included in both groups, the compensation peer group is not identical to
the companies included in the peer group indices used for the Performance
Graphs on pages 14 and 15.
Base Salary
Officers' base salaries are reviewed annually by the Committee. The
Committee evaluates management's recommendations based on the results
achieved by each Officer relative to that Officer's assigned
responsibilities, as well as competitive salary practices of other similar
employers.
Mr. Brennan's last increase in base salary prior to 1994 was in January,
1992. During 1993, Mr. Brennan oversaw the complex and highly successful
repositioning of the Company. In recognition of these achievements, and to
bring his salary up to the median competitive level, Mr. Brennan received
an increase effective January, 1994. His salary was increased to
$1,150,000, which represents a 6.1% increase on an annualized basis. Even
after this increase, Mr. Brennan's salary remains slightly below the
median.
In addition to the required 5-year graph on page 14, a 3-year graph has
also been provided on page 15 to indicate the more recent positive impact
the restructuring has had on return to shareholders.
Annual Incentive
Annual incentives are designed to provide Officers with a potential cash
reward based on the achievement of annual financial objectives. These
objectives are approved by the Committee and the Board at the beginning of
each year and are based upon financial plans approved by the Board.
Relative to the approved financial objectives, a performance threshold
benchmark is established, which must be attained before any award can be
paid. In addition, a performance maximum benchmark is established, which
identifies the performance level, if met or exceeded, at which the maximum
award will be earned. Under the Annual Incentive Compensation Plan the
Committee may use its discretion only to decrease awards to participants
who are covered employees under Section 162(m) of the Internal Revenue Code
of 1986, as amended.
Each Officer has a target incentive which is set at the median competitive
level.
For Corporate Officers annual incentives for 1994 were based on a weighted
average of the Sears Merchandise Group net income results and the Allstate
Insurance Group operating earnings per share results. Weightings, which
were determined using the average equity of each business group, were 35.1%
for the Merchandise Group and 64.9% for the Allstate Insurance Group. The
combined weighted average actual results were above threshold performance
but below target performance. Based solely on these financial results,
awards for Messrs. Brennan and Denny were less than target opportunity with
no discretionary adjustment while awards to all other Corporate Officers
included a discretionary adjustment. The California earthquake had a
significant impact on the performance payout for Allstate officers which
also affected the awards paid to Messrs. Brennan and Denny and all other
Corporate Officers.
For Mr. Martinez, his annual incentive for 1994 was based on the net income
results for the Merchandise Group. The financial performance for the
Merchandise Group exceeded target and was only slightly below the maximum
performance benchmark for 1994. Mr. Martinez was paid a bonus based solely
on the Merchandise Group financial performance and included no
discretionary adjustment.
Long-Term Incentives
The long-term incentive program consists of a Cash Performance Plan and
Stock Options. The program is designed to emphasize the Company's
commitment to reach and maintain a competitive rate of return on equity and
achieve long-term growth in earnings - critical factors for assuring
creation of value for shareholders. In addition, the long-term program
encourages equity ownership through stock options to align the interests of
management with those of shareholders. The long-term incentive program is
designed to exclude any discretionary adjustments; however, the Committee
retains the right to amend, modify or terminate the program at any time.
Cash Performance Plan
The cash incentive portion of the program is tied directly, and solely, to
the Company's financial performance. The performance periods, or cycles,
cover three years with a new cycle beginning every other year. A new
performance cycle was originally scheduled to begin in 1995, but due to the
development of modifications to the cash performance plan for the next
cycle, a new performance cycle has been postponed and will now begin in
1996. There were no cash incentives awarded or granted in 1994.
Stock Options
To establish a link between compensation and management's performance in
creating value for shareholders, evidenced by increases in the Company's
stock price, Officers receive grants of stock options at the beginning of
each long-term performance cycle. The size of each award is determined
based on a target stock option incentive opportunity which is set at the
median competitive level.
Options are not fully exercisable until three years following the date of
grant to reinforce a long-term perspective and to help retain valued
executives. Options are granted at the market value of Sears common shares
on the date of grant, thus providing a reward only for future stock
appreciation. There were no stock options granted to Executive Officers in
1994 with the exception of Allstate officers under the Allstate long-term
incentive plan.
$1,000,000 Limit On Tax Deductible Compensation
As part of the Omnibus Budget Reconciliation Act passed by Congress in
1993, a limit was created for the deductibility of compensation paid to
certain Officers. These Officers are the Chief Executive and the next four
most highly compensated Officers in office at the end of the year.
Compensation paid to these Officers in excess of $1,000,000, that is not
performance-based, cannot be claimed by the Company as a tax deduction.
It is the Committee's intention to continue to utilize performance-based
compensation, which should minimize the effect of these new regulations.
However, the Committee strongly believes that its primary responsibility is
to provide a compensation program that will attract, retain and reward the
executive talent necessary to maximize the return to shareholders, and that
the loss of a tax deduction may be necessary in some circumstances.
Base salary does not qualify as performance-based compensation under the
IRS regulations. Since Mr. Brennan's salary is in excess of $1,000,000, he
volunteered to defer the receipt of a portion of his 1994 and 1995 base
salary until after his retirement, which will allow the Company to deduct
the excess of Mr. Brennan's salary over $1,000,000 upon payment of his
deferred salary after his retirement.
Mr. Hedien and Mr. Choate's Compensation
Messrs. Wayne E. Hedien, former Chairman and Chief Executive Officer and
Jerry D. Choate, current Chairman and CEO of the Allstate Insurance Group
of the Company and of The Allstate Corporation (``Allcorp''), the principal
subsidiary of the Group which is listed on the New York Stock Exchange,
have been or are Executive Officers of the Company. Allcorp was a
wholly-owned subsidiary of Sears prior to June 9, 1993, when 19.9% of
Allcorp's outstanding shares was sold in an initial public offering with
the Company retaining ownership of the remaining shares.
During the period prior to the initial public offering, Mr. Hedien and Mr.
Choate's compensation was subject to the same requirements that relate to
the other Named Officers of the Company and, accordingly, was reviewed by
the Company's Compensation Committee and Board of Directors. The
compensation of Messrs. Hedien and Choate has been determined by the
Compensation and Nominating Committee and Board of Directors of Allcorp.
Six of the nine directors of Allcorp are either directors or Corporate
Officers of the Company. Of the four members of Allcorp's Compensation and
Nominating Committee, three are also directors of the Company.
The Committee and the Company's Board of Directors review the compensation
of Mr. Hedien and Mr. Choate and certain senior officers of Allstate
Insurance Group (who are not officers of the Company) to determine whether
the compensation objectives of Allcorp and the implementation thereof are
compatible with those of the Company. No changes to compensation for 1994
resulted from such review. Other than as described above, neither the
Compensation Committee nor the Board of Directors of the Company is
responsible for setting the compensation of Messrs. Hedien or Choate.
Conclusion
The Committee believes that these policies and programs are competitive and
effectively align executive compensation with the Company's goal of
maximizing the return to shareholders.
COMPENSATION COMMITTEE:
Clarence B. Rogers, Jr. (Chairman) Michael A. Miles
James W. Cozad Donald H. Rumsfeld
William E. LaMothe
Performance Graphs
The following five-year graph compares the performance of Sears common
shares with that of the S&P 500, S&P Retail Store Composite and a Composite
of the S&P Property-Casualty Insurance Index and the S&P Multi-Line
Insurance Index.
Since the Company has undertaken a number of initiatives during the past
three years to reposition the organization, an additional performance graph
has been included (see chart on following page). The three-year graph
emphasizes the positive impact of the Company's recent repositioning on the
total return to shareholders.
The three-year graph contains the same elements as the five-year graph. The
graphs plot the growth in value of an initial $100 investment over the
indicated time periods, with dividends reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
December 1989 through December 1994
Sears vs. Published and Composite Indices
[5 Year Total Graph]
1989 1990 1991 1992 1993 1994
Sears** $100 $ 71 $112 $140 $219 $197
S&P 500 $100 $ 97 $126 $136 $150 $152
S&P Retail $100 $100 $159 $186 $179 $163
Insurance Composite $100 $ 88 $114 $132 $140 $147
Note: Insurance Composite is a market value weighted composite of the S&P
Multi-Line and S&P Property-Casualty indices.
* Assumes $100 invested on the last day of December 1989. Dividends are
reinvested at the frequency with which they are paid. The Company's
interest in Dean Witter, Discover & Co. was distributed to shareholders
as a special dividend payable on June 30, 1993. The above graph
accounts for this distribution as though it were paid in cash and
reinvested in common shares of the Company.
** Sears cumulative total return ranks in the top 24% of all companies in
the S&P 500 Index for the 5 year period.
The components of the Insurance Composite line have been weighted in
accordance with the respective aggregate market capitalizations of the
companies in each index as of the beginning of each annual period shown on
the graph, as indicated below:
INSURANCE COMPOSITE WEIGHTING
1990 1991 1992 1993 1994
S&P Multi-Line 65.9% 63.1% 61.7% 62.0% 60.3%
S&P Property-Casualty 34.1% 36.9% 38.3% 38.0% 39.7%
Total 100.0% 100.0% 100.0% 100.0% 100.0%
COMPARISON OF THREE-YEAR CUMULATIVE TOTAL RETURN
December 1991 through December 1994
Sears vs. Published and Composite Indices
[3 Year Total Graph]
1991 1992 1993 1994
Sears* $100 $126 $196 $176
S&P 500 $100 $108 $118 $120
S&P Retail $100 $118 $113 $103
Insurance Composite $100 $115 $123 $128
Note: Insurance Composite is a market value weighted composite of the S&P
Multi-Line and S&P Property-Casualty indices.
The above three-year graph has been constructed in a manner similar to the
five-year graph above, except that
the measurement point is December 31, 1991.
* Sears cumulative total return ranks in the top 15% of all companies in
the S&P 500 Index for the 3 year period.
Item 2: Approval of Auditors
Item 2 is the recommendation of the Audit Committee that Deloitte & Touche
LLP be appointed auditors for 1995, which is being presented to
shareholders for approval. Representatives of Deloitte & Touche LLP will be
present at the meeting, will be available to respond to appropriate
questions and may make a statement if they so desire.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPOINTMENT OF DELOITTE
& TOUCHE LLP AS AUDITORS FOR 1995, AS PROPOSED IN ITEM 2.
Compensation Committee Interlocks and Insider Participation
At various times during 1994, the following individuals (none of whom was
or had been an officer or employee of the Company or any of its
subsidiaries) served on the Company's Compensation Committee: James W.
Cozad, William E. LaMothe, Michael A. Miles, Clarence B. Rogers, Jr.,
Donald H. Rumsfeld and Edgar B. Stern, Jr. There were no interlocks with
other companies within the meaning of the SEC's proxy rules during 1994.
Item 3: Shareholder Proposals
High-performance Workplace
The following proposal (3(a)) was submitted by the Amalgamated Clothing and
Textile Workers Union, 1808 Swann Street, N.W., Washington, D.C. 20009.
Shareholder Proposal
BE IT RESOLVED: That the Board of Directors commit our company to the goal
of creating a high-performance workplace based on the policies of workplace
democracy and meaningful worker participation, and prepare a report at
reasonable expense identifying the extent to which the Company is
implementing and/or plans to implement a high-performance workplace based
on those policies, using the criteria set out in the U.S. Department of
Labor's (the ``Labor Department'') 1994 report, Road to High-Performance
Workplaces (the ``1994 Report'').
Shareholder's Supporting Statement
National attention has focused recently on the future competitiveness of
U.S. corporations. The reorganization of the American workplace is
increasingly seen as central to preparing companies to meet the challenges
of the global marketplace in the 21st century. We believe our company
should follow the example of U.S. companies that have already instituted
high-performance workplace policies.
In a 1993 report entitled High-Performance Workplace Practices and Firm
Performance, the Labor Department found that high-performance work
practices are positively related to both productivity and long-term
financial performance, and that innovative workplace practices may be
crucial to the future competitiveness of American industry. In its 1994
Report, the Labor Department published a detailed checklist of work
practices it identified as ``high-performance workplace practices.'' The
practices included direct employee involvement in corporate
decision-making, employee training, compensation linked to performance,
employment security, and a supportive work environment.
The Labor Department's promotion of the high-performance workplace reflects
wide recognition of the significance of new workplace organization and the
economic value of high-performance work practices. It also underscores the
fact that the U.S. government believes that the future acceptance of such
practices will have far-reaching implications for all Americans in the
years to come.
Over the last eighteen months, the Department of Commerce and the Labor
Department have sponsored a blue-ribbon commission on the Future of
Labor-Management Relations which is now preparing legislative proposals
designed to facilitate the high-performance workplace.
A number of studies have concluded high-performance workplace organizations
are more often successful at unionized facilities in terms of
implementation, survivability and increased profitability. The Commission
on the Future of Labor-Management Relations praised the economic benefits
of high-performance workplace practices, and stated in its fact-finding
report with regard to employee participation programs: ``Those in unionized
settings in which the union is involved as a joint partner with management
are particularly likely to survive.'' One study pointed out that
high-performance practices appear to be more prevalent at union facilities
because unions provide an agent for productivity bargaining and job
protections as well as a voice for employees.
The Labor Department has urged investors to examine companies' workplace
practices in their investments. One of the largest U.S. public pension
funds announced it would evaluate companies for high-performance workplace
practices.
The workplace is where corporate America is reinvigorating itself with
positive results, and our company should not be left behind. Vote ``YES''
to encourage our company to take on this important issue.
The Company's Statement in Opposition
The Board of Directors recommends that shareholders vote Against this
proposal.
The Board of Directors supports the general concept of a high-performance
workplace, and the Company has already implemented many programs designed
to achieve that goal. It is inadvisable, however, to commit the Company to
the particular program advocated by this proposal, for several reasons.
The criteria to achieve a high-performance workplace should be carefully
developed by the Company in the context of its particular businesses and
the needs and performance expectations of its employees and other
constituents. The execution of a high-performance concept needs to be
tailored to competitive practices in the different segments in which we
compete. Universal solutions rarely work well in a large complex
organization such as Sears.
In addition, the Company's public commitment to a general program affecting
all its employees could lead to confusion and unnecessary anxiety about
unspecified changes that will affect their jobs. Changes in workplace
policies should be carefully crafted and thoroughly communicated to our
employees, rather than have them read a general, prospective review of
future changes without fully understanding the impact it will have on them
as individuals.
Finally, management considers our high-performance management practices to
be proprietary information. A company's people management practices can
create a unique competitive advantage. We believe that sharing such
information publicly, particularly if our competitors are not doing
likewise, is not in the best interest of our shareholders.
As indicated, the Company is studying the goal of high-performance
workplace, and has already put in place many initiatives to serve that
goal. But the Board of Directors believes that a shareholder vote seeking
to commit the Company to a sweeping program would not be in the interests
of the Company or its shareholders or employees.
ACCORDINGLY, THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE
AGAINST THIS PROPOSAL.
Classified Board
The following proposal (3(b)) was submitted by John J. Gilbert and Margaret
R. Gilbert, 29 East 64th Street, New York, N.Y. 10021-7043 and Martin
Glotzer, 7061 N. Kedzie Avenue, Apt. 301, Chicago, IL 60645.
Shareholder Proposal
RESOLVED: That the stockholders of Sears, Roebuck and Company, assembled in
annual meeting in person and by proxy, hereby request that the Board of
Directors take the needed steps to provide that at future elections of
directors new directors be elected annually and not by classes, as is now
provided, and that on expiration of present terms of directors their
subsequent election shall also be on an annual basis.
Shareholders' Supporting Statement
Continued very strong support along the lines we suggest were shown at the
last annual meeting when 45%*, a large increase over the previous year,
13,888* registered owners of 112,787,968* shares, were cast in favor of
this proposal. The vote against included 36,522,276* unmarked proxies.
(*Management is requested to insert the correct figures.)
Last year ARCO, to its credit voluntarily ended theirs, stating that when a
very high percentage, 34.6%, desired it to be changed to an annual election
it was reason enough for them to change it. Several other companies have
also followed suit such as: Pacific Enterprises, Katy Industry, Hanover
Direct, Campbell Soup and others.
Because of normal need to find new directors and because of environmental
problems and the recent avalanche of derivative losses and many groups
desiring to have directors who are qualified on the subjects, we think that
ending the stagger system of electing directors is the answer. In addition,
some recommendations have been made to carry out the Valdez 10 points. The
11th, in our opinion, should be to end the stagger system of electing
directors and to have cumulative voting.
Recently Equitable Life Insurance Company, which is now called Equitable
Companies, converted from a policy owned company to a public stockholder
meeting. Thanks to AXA, the comptrolling French insurance company not
wanting it they now do not have a staggered board.
The Orange and Rockland Utility Company had a terrible time with the
stagger system and its 80% clause to recall a director. The chairman was
involved in a scandal effecting the company. Not having enough votes the
meeting to get rid of the chairman had to be adjourned. Finally, at the
adjourned meeting enough votes were counted to recall him.
If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain.
*Figures inserted by the Company.
The Company's Statement in Opposition
The Board of Directors recommends that shareholders vote Against this
proposal.
At the 1988 annual meeting, the shareholders voted to amend Article 5 of
the Company's certificate of incorporation (``Certificate'') to provide,
among other things, for a Board of Directors divided into three classes,
serving staggered three year terms. The Board stated in the proxy statement
relating to that meeting its belief that the success of the Company in
producing long-term shareholder value, as reflected in dividend growth and
capital appreciation, requires long-term and strategic planning, extensive
capital commitments and careful and consistent application of financial and
other resources. The Board further stated its belief that a classified
board would help to ensure that a majority of the Board at any given time
would have prior experience as directors of the Company. In the opinion of
the Board, the above reasons continue to be valid and the classified board
remains in the best interests of the shareholders.
Under New York law, the amendment to Article 5 contemplated by the proposal
must first be approved by the Board of Directors and then submitted to
shareholders for a vote. The Company's Board of Directors, however, has not
approved the requested action and is opposed to such an amendment. A vote
in favor of the proposal is only an advisory recommendation to the Board of
Directors that it recommend to the shareholders the amendment of Article 5
to eliminate the classified board. Further, since Article 5 of the
Certificate provides that the Article may not be altered or repealed except
by an affirmative vote of 75% of the shares entitled to vote, such a vote
would be required to amend the Article to eliminate the classified board.
The proposal itself, however, requires for adoption only an affirmative
vote of a majority of the votes cast at the annual meeting by the holders
of shares represented in person or by proxy.
ACCORDINGLY, THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE
AGAINST THIS PROPOSAL.
Submit Incentive Compensation Performance
Measures for Annual Shareholder Vote
The following proposal (3(c)) was submitted by Arthur J. Benjamin, 3657
French Avenue, St. Louis, MO 63116.
Shareholder Proposal
RESOLVED: That the shareholders urge that the Board of Directors submit the
compensation performance goals for the top five executives for shareholder
ratification, on an annual basis.
Shareholder's Supporting Statement
Companies can deduct employee wages as an expense for tax purposes with one
notable exception: wages of more than $1 million paid to the top five
executives can't be deducted unless shareholders approve performance
standards by which these higher salaries are paid.
This tax rule became law in 1994. Congress' intent in passing this law was
to bring under some control the excesses in executive compensation in
recent years.
Whether or not a shareholder believes Sears executives are fairly paid, the
company will lose an important tax deduction should it fail to call for a
vote on the performance criteria.
The tax law requires a vote every five years to qualify for the tax
deduction. We think an annual vote is important. This gives management a
chance to refine the goals as needed to respond to quickly changing market
forces. This proposal preserves the necessary flexibility in compensation
policies. The top executives of the company can still be paid over $1
million, but only with stockholder approval. This resolution simply
prevents management from burdening shareholders with the greater expense of
having to pay taxes on these executive salaries as well as paying the
salaries themselves.
Responsible decisions about salary are an essential element in responsible
management of the company.
For these reasons, I urge shareholders to vote FOR this resolution.
The Company's Statement in Opposition
The Board of Directors recommends that shareholders vote Against this
proposal for the following reasons:
(bullet) Federal tax law requires that, every five years, shareholders
must approve material terms of performance goals related to
executive compensation, in order to deduct certain compensation
to an executive officer over $1 million per year. The proposal
would require shareholder approval every year. This is an
unnecessary administrative burden that goes far beyond legal
requirements.
(bullet) The proponent argues that annual shareholder approval would give
``management a chance to refine the goals as needed to respond to
quickly changing market forces''. Last year our shareholders
approved broad-based elements of performance goals, which allow
ample flexibility in responding to market changes. Accordingly,
annual shareholder approval is not necessary to permit a flexible
response. If the Company decides that a change is needed in the
material terms of performance goals, then it will seek
shareholder approval.
(bullet) The proponent also says that the proposal ``prevents management
from burdening shareholders with the greater expense of having to
pay taxes on these executive salaries as well as paying the
salaries themselves''. This is incorrect. The Company intends and
expects to make executive compensation deductible whenever
feasible. That is why the Company requested and received
shareholder approval for performance goals last year, in
compliance with tax law regarding deductibility.
In summary, the Board believes that the basic objectives of the proposal
are already being accomplished, and an annual vote would simply add an
unnecessary administrative process.
ACCORDINGLY, THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE
AGAINST THIS PROPOSAL.
The number of voting shares held by any of the above proponents will be
furnished promptly upon written request.
Proposals which shareholders intend to present at the 1996 annual meeting
of shareholders (other than those submitted for inclusion in the proxy
material pursuant to Rule 14a-8 of the Proxy Rules of the Securities and
Exchange Commission) must be received by the Company no earlier than
February 11, 1996 and no later than March 11, 1996 to be presented at the
meeting. Proposals must be received by November 23, 1995, to be eligible
for inclusion in the proxy material for that meeting.
Certain Transactions
The Northern Trust Company (``Northern Trust''), parent company of The
Northern Trust Company of New York, Trustee of the Profit Sharing Fund,
maintains ongoing banking relationships, including credit lines, with the
Company and various of its subsidiaries, in addition to performing services
for the Profit Sharing Trust and the ESOP Trust. In 1994, revenues received
by Northern Trust for loan transactions, cash management activities,
custodian, securities lending and other services for all such entities were
approximately $2.7 million.
Other Matters
Officers and other employees of the Company and its subsidiaries may
solicit proxies by personal interview, telephone and telegram, in addition
to the use of the mails. None of these individuals will receive special
compensation for these services which will be performed in addition to
their regular duties, and some of them may not necessarily solicit proxies.
The Company has also made arrangements with brokerage firms, banks,
nominees and other fiduciaries to forward proxy solicitation materials for
shares held of record by them to the beneficial owners of such shares. The
Company will reimburse them for reasonable out-of-pocket expenses. D. F.
King & Co., Inc. will assist in the distribution of proxy solicitation
materials, collection of proxies and the solicitation of proxies by
personal interview, telephone and telegram for a fee estimated at $25,000,
plus out-of-pocket expenses. The Company has also agreed to indemnify D.F.
King & Co., Inc. against certain liabilities. The Company will pay the cost
of all proxy solicitation.
Appendix A
EXCERPTS FROM BY-LAWS OF
SEARS, ROEBUCK AND CO.
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 2. Annual Meetings. The annual meeting of the shareholders for
the election of directors and for the transaction of such other business as
may properly be brought before the meeting shall be held at such time as is
specified in the notice of the meeting on either the second Wednesday in
May of each year or on such other date as may be fixed by the Board of
Directors prior to the giving of the notice of such meeting. The Board of
Directors acting by resolution may postpone and reschedule any previously
scheduled annual meeting of shareholders.
Nominations of persons for election to the Board of Directors of the
Company and the proposal of business to be considered by the shareholders
may be made at an annual meeting of shareholders (a) pursuant to the
Company's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any shareholder of the Company who was a shareholder of
record at the time of giving of notice provided for in this By-Law, who is
entitled to vote at the meeting and who complied with the notice procedures
set forth in this By-Law.
For nominations or other business to be properly brought before an annual
meeting by a shareholder pursuant to clause (c) of the foregoing paragraph
of this By-Law, the shareholder must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal executive
offices of the Company not less than 60 days nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced
by more than 30 days or delayed by more than 60 days from such anniversary
date, notice by the shareholder to be timely must be so delivered not
earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made. Such shareholder's notice shall set
forth (a) as to each person whom the shareholder proposes to nominate for
election or reelection as a director all information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
``Exchange Act'') (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the shareholder proposes to
bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and
the beneficial owner, if any, on whose behalf the proposal is made; (c) as
to the shareholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address of
such shareholder, as they appear on the Company's books, and of such
beneficial owner and (ii) the class and number of shares of the Company
which are owned beneficially and of record by such shareholder and such
beneficial owner.
Notwithstanding anything in the second sentence of the preceding paragraph
to the contrary, in the event that the number of directors to be elected to
the Board of Directors of the Company is increased and there is no public
announcement naming all of the nominees for Director or specifying the size
of the increased Board of Directors made by the Company at least 70 days
prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this By-Law shall also be considered
timely, but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at the principal
executive offices of the Company not later than the close of business on
the 10th day following the day on which such public announcement is first
made by the Company.
Only such persons who are nominated in accordance with the procedures set
forth in these By-Laws shall be eligible to serve as directors and only
such business shall be conducted at an annual meeting of shareholders as
shall have been brought before the meeting in accordance with the
procedures set forth in this By-Law. The chairman of the meeting shall have
the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with the
procedures set forth in this By-Law and, if any proposed nomination or
business is not in compliance with this By-Law, to declare that such
defective proposal shall be disregarded.
For purposes of this By-Law, ``public announcement'' shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press
or comparable national news service or in a document publicly filed by the
Company with the Securities and Exchange Commission pursuant to Sections
13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this By-Law, a shareholder
shall also comply with all applicable requirements of the Exchange Act and
the rules and regulations thereunder with respect to the matters set forth
in this By-Law. Nothing in this By-Law shall be deemed to affect any rights
of shareholders to request inclusion of proposals in the Company's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes shall be called to be held at any time upon the request
of the Chairman of the Board of Directors, the President or a majority of
the members of the Board of Directors or of the Executive Committee then in
office. Business transacted at all special meetings shall be confined to
the specific purpose or purposes of the persons authorized to request such
special meeting as set forth in this Section 3 and only such purpose or
purposes shall be set forth in the notice of such meeting. The Board of
Directors acting by resolution may postpone and reschedule any previously
scheduled special meeting of shareholders.
Nominations of persons for election to the Board of Directors may be made
at a special meeting of shareholders at which directors are to be elected
(a) pursuant to the Company's notice of meeting (b) by or at the direction
of the Board of Directors or (c) by any shareholder of the Company who is a
shareholder of record at the time of giving of notice provided for in this
By-Law, who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth in this By-Law. Nominations by shareholders
of persons for election to the Board of Directors may be made at such a
special meeting of shareholders if the shareholder's notice required by the
third paragraph of Section 2 of Article I of these By-Laws shall be
delivered to the Secretary at the principal executive offices of the
Company not earlier than the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day prior to such
special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
Only such persons who are nominated in accordance with the procedures set
forth in these By-Laws shall be eligible to serve as directors and only
such business shall be conducted at a special meeting of shareholders as
shall have been brought before the meeting in accordance with the
procedures set forth in this By-Law. The chairman of the meting shall have
the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with the
procedures set forth in this By-Law and, if any proposed nomination or
business is not in compliance with this By-Law, to declare that such
defective proposal shall be disregarded.
Notwithstanding the foregoing provisions of this By-Law, a shareholder
shall also comply with all applicable requirements of the Exchange Act and
the rules and regulations thereunder with respect to the matters set forth
in this By-Law. Nothing in this By-Law shall be deemed to affect any rights
of shareholders to request inclusion of proposals in the Company's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III
COMMITTEES
Section 1. Creation and Organization. The Board of Directors, at its
annual meeting, or any adjournment thereof, shall, or at any other meeting
may, elect from among its members, by the vote of a majority of its
members, an Audit Committee, a Compensation Committee, an Executive
Committee, a Finance Committee, a Nominating Committee and a Public Issues
Committee, which shall be the standing committees of the Board of
Directors, and such other committees as shall be determined by the Board of
Directors. The Board of Directors also shall designate the chairman of each
such committee.
The Secretary of the Company shall act as secretary of each committee
meeting, or in the Secretary's absence, an Assistant Secretary shall act as
secretary thereof, or in the absence of an Assistant Secretary, any person
as may be designated by the chairman of the committee shall act as
secretary of the meeting and keep the minutes of such meeting.
The Board of Directors, by the vote of a majority of its members, may
remove the chairman or any member of any committee, and may fill from among
the directors vacancies in any committee caused by the death, resignation,
or removal of any person elected thereto.
Each committee may determine its own rules of procedure, consistent with
these By-Laws. Meetings of any committee may be called upon direction of
the Chairman of the Board of Directors, the President, or the chairman of
the committee. Notice of each meeting shall be given to each member of the
committee, by personal delivery, telephone, telegram, facsimile
transmission, or regular or express mail addressed to the member at his or
her usual business address, or to the address where the member is known to
be, at least three days (excluding Saturdays, Sundays, and holidays) prior
to the meeting in case of notice by regular mail, and at least three hours
prior to the meeting in case of notice by personal delivery, express mail,
telephone, telegram, or facsimile transmission. All notices which are given
by regular mail shall be deemed to have been given when deposited in the
United States mail, postage prepaid. Notice of meetings of any committee
may be waived by any member of the committee. At meetings of each
committee, the presence of a majority of such committee shall be necessary
to constitute a quorum for the transaction of business, and, if a quorum is
present at any meeting, the action taken by a majority of the members
present shall be the act of the committee. Each committee shall keep a
record of its acts and proceedings, and all action shall be reported to the
Board of Directors at the next meeting of the Board of Directors following
such action. Each committee shall annually consider whether amendments to
the section of Article III of these By-Laws relating to the composition and
function of such committee appear to be in the best interests of the
Company. Each committee shall report on such recommendations to the Board
of Directors at its first regular meeting each year and each committee
except the Nominating Committee shall report on such recommendations to the
Nominating Committee annually no later than October.
Section 2. Executive Committee. The Executive Committee shall consist of
the Chairman of the Board of Directors and of such number of other
directors, a majority of whom shall not be officers or employees of the
Company or its affiliates, not less than four, as shall from time to time
be prescribed by the Board of Directors.
The Executive Committee, unless otherwise provided by resolution of the
Board of Directors, shall between meetings of the Board of Directors have
all the powers of the Board of Directors and may perform all of the duties
thereof, except that the Executive Committee shall have no authority as to
the following matters: (i) submission to shareholders of any action that
requires shareholders' authorization under the New York Business
Corporation Law; (ii) compensation of directors; (iii) amendment or repeal
of these By-Laws or the adoption of new By-Laws; (iv) amendment or repeal
of any resolution of the Board of Directors that by its terms may not be so
amended or repealed; (v) action in respect of dividends to shareholders;
(vi) election of officers, directors or members of committees of the Board
of Directors. Any action taken by the Executive Committee shall be subject
to revision or alteration by the Board of Directors, provided that rights
or acts of third parties vested or taken in reliance on such action prior
to their receipt of written notice of any such revision or alteration shall
not be adversely affected by such revision or alteration.
Section 3. Audit Committee. The Audit Committee shall consist of such
number of directors, who shall not be officers or employees of the Company
or any of its affiliates, not less than three, as shall from time to time
be prescribed by the Board of Directors.
The Audit Committee shall review, with management, the Company's
independent public accountants and its internal auditors, upon completion
of the audit, the annual financial statements of the Company, the
independent public accountants' report thereon, the other relevant
financial information to be included in the Company's Annual Report on Form
10-K and its annual report to shareholders. After such review, the
Committee shall report thereon to the Board of Directors.
The Audit Committee shall: (1) review recommendations made by the Company's
independent public accountants and internal auditors to the Audit Committee
or the Board of Directors with respect to the accounting methods and the
system of internal control used by the Company, and shall advise the Board
of Directors with respect thereto; (2) examine and make recommendations to
the Board of Directors with respect to the scope of audits conducted by the
Company's independent public accountants and internal auditors; (3) review
reports from the Company's independent public accountants and internal
auditors concerning compliance by management with governmental laws and
regulations and with the Company's policies relating to ethics, conflicts
of interest, perquisites and use of corporate assets.
The Audit Committee shall meet with the Company's independent public
accountants and/or internal auditors without management present whenever
the Audit Committee shall deem it appropriate. The Committee shall review
with the General Counsel of the Company the status of legal matters that
may have a material impact on the Company's financial statements.
The Audit Committee shall each year make a recommendation, based on a
review of qualifications, to the Board of Directors for the appointment of
independent public accountants to audit the financial statements of the
Company and to perform such other duties as the Board of Directors may from
time to time prescribe. As part of such review of qualifications, the Audit
Committee shall consider management's plans for engaging the independent
public accountants for management advisory services to determine whether
such services could impair the public accountants' independence.
The Audit Committee shall have the power to conduct or authorize special
projects or investigations which the Committee considers necessary to
discharge its duties and responsibilities. It shall have the power to
retain independent outside counsel, accountants or others to assist it in
the conduct of any investigations and may utilize the Company's General
Counsel and internal auditors for such purpose.
Section 4. Compensation Committee. The Compensation Committee shall
consist of such number of directors, who shall not be officers or employees
of the Company or any of its affiliates, not less than three, as shall from
time to time be prescribed by the Board of Directors. As authorized by the
Board of Directors, the Compensation Committee shall make recommendations
to the Board of Directors with respect to the compensation of directors and
the administration of the salaries, bonuses, and other compensation to be
paid to the officers of the Company, including the terms and conditions of
their employment, shall review the compensation of the Chief Executive
Officer, and shall administer all stock option and other benefit plans
(unless otherwise specified in plan documents) affecting officers' direct
and indirect remuneration.
Section 5. Finance Committee. The Finance Committee shall consist of such
number of directors, a majority of whom shall not be employees of the
Company or any of its affiliates, not less than three, as shall from time
to time be prescribed by the Board of Directors.
The Finance Committee shall review the financial affairs, policies,
practices and condition of the Company, its subsidiaries, and related
employee benefit plans, as appropriate. The Committee shall, on its own
initiative or upon referral from the Board of Directors, investigate,
analyze and consider the current and future financial practices of the
Company, its subsidiaries, and related employee benefit plans, except to
the extent within the authority of another committee of the Board of
Directors, and report and make such recommendations to the Board of
Directors as deemed appropriate.
From time to time, the Committee shall review areas including but not
limited to the following: Dividend policy and total shareholder return;
financing plans; capital allocation, structure, and markets access;
asset/liability management; and the design, funding and investment policies
of employee benefit plans.
Section 6. Nominating Committee. The Nominating Committee shall consist
of such number of directors, who shall not be officers or employees of the
Company or any of its affiliates, not less than three, as shall from time
to time be prescribed by the Board of Directors.
The Nominating Committee shall review and recommend to the Board of
Directors prior to the annual shareholders' meeting each year: (a) the
appropriate size and composition of the Board of Directors; (b) a proxy
statement and form of proxy; (c) policies and practices on shareholder
voting; (d) plans for the annual shareholders' meeting; and (e) nominees:
(i) for election to the Board of Directors for whom the Company should
solicit proxies; (ii) to serve as proxies in connection with the annual
shareholders' meeting; (iii) for election to all committees of the Board of
Directors; and (iv) for election or approval as Corporate Officers and
Chairmen and Chief Executive Officers and at least five others of the most
senior officers of each of the Company's Business Groups.
The Nominating Committee shall annually assess the performance of the Board
and review the management organization of the Company and succession plans
for the Chairmen and Chief Executive Officers of the Company and its
Business Groups, including consultation with the Chairman of the Board of
Directors regarding the persons he or she considers qualified to fill any
vacancy that may occur in such positions. In the event of any such vacancy,
the Nominating Committee shall recommend to the Board of Directors a
nominee to fill such vacancy.
Section 7. Public Issues Committee. The Public Issues Committee shall
consist of such number of directors, not less than three, as shall from
time to time be prescribed by the Board of Directors. A majority of the
members shall not be officers or employees of the Company or any of its
affiliates.
The Public Issues Committee shall concern itself with current problems and
future trends in respect to public issues that may affect the Company and
shall review and discuss such issues with the appropriate representatives
of management of the Company and provide guidance as to the Company's
policies and positions with respect thereto.
